Dealer takes Honda to court

One of Australia’s most successful Honda dealers is taking the company to court over its move to an agency sales model, alleging it was the subject of intimidation during an unsuccessful compensation negotiation.

The action was revealed by Astoria Honda Brighton in its submission to a Senate inquiry into the relationship between car manufacturers and retailers.

The Senate inquiry, conducted by the Education and Employment References Committee, starts taking public and in-camera evidence from witnesses tomorrow.

In the submission, the directors of the Melbourne dealer Mark Avis and Ron Klein reveal the court action has been initiated after failed mediation with Honda Australia over compensation for the termination of its franchise.

They claim the compensation offered was inferior to that of Holden dealers who lost their franchises when General Motors terminated the brand in February.

The negotiation between GM and the dealers was incredibly fractious, although almost all eventually signed up to the original terms. The Australian Competition and Consumer Commission (ACCC) is now investigating the termination process and could take GM to court.

The Senate committee started this inquiry examining the Holden closure but it has evolved into a wider examination of the Australian automotive retail industry.

Astoria signed a five-year dealer agreement with Honda Australia on July 1, 2018, that expired on June 30, 2023.

It was Honda Australia’s most successful dealer in 2019. The family-owned business has been selling Hondas for over 50 years.

On March 23, 2020, Honda Australia advised Astoria it was shifting to an agency model and the dealer agreement would be terminated June 30, 2021.

It communicated the decision to the rest of the Honda network around the same time.

The agency model means Honda retains ownership of new cars, while appointed dealers receive a commission for selling them at set price. Honda announced the change of business model publicly on March 25.

Mercedes-Benz has also announced it is moving to an agency model in Australia by 2021, a move that has caused more public angst than the Honda change until now.

In the submission, Avis and Klein confirmed unsuccessful negotiations with Deloitte Financial Advisory, which was appointed by Honda to sort out compensation for the dealers.

During the negotiations, Astoria alleges Deloitte representative/s mounted an attack on their personal integrity, questioning the profitability and tax returns of the business. It also recounted threats it says Deloitte made.

“On 7 May 2020 at about 5:10pm, we returned a telephone call from [name redacted] of Deloitte. [Name redacted] told us in no uncertain terms that AUH’s [Honda Australia’s] offer was better than we would obtain in court and if we were unsuccessful, costs would be pursued on an indemnity basis. We were also told that any litigation would be protracted and would take a long time to obtain an outcome or any compensation from the termination of the dealer agreement.

“On other occasions, [name redacted] told us that a court case would take years to finalise and cost hundreds of thousands of dollars. These actions by Deloitte had the sole intent of further intimidating us.

“At all times, Astoria Honda Brighton is and has been an innocent party and it was AUH who breached the dealer agreement. However, we have been made to feel that we are the wrongdoer.”

The submission reveals the National Honda Dealer Council engaged law firm HWL Ebsworth to develop a counter-offer on compensation.

“If we were to apply the General Motors compensation formula to our FY19 sales volume, the offer made by AUH is less than 50% of the GM cash component,” the submission states.

“Furthermore, the GM dealers were offered a five-year parts and service contract.

“Parts and service is an important source of revenue for dealers and was not offered to the terminated Honda dealers.”

Astoria confirmed subsequent mediation with Honda Australia in June and July failed to reach a solution. It says other Honda dealers have been subject to intimidation and have opted to avoid litigation because of costs. They have also allegedly been “muzzled” by an exit deed.

“Through no fault on our part, we are not being offered any compensation for the value of the goodwill in the dealership which has been built up for over half a century. The goodwill component is a major consideration for a prospective purchaser in the event of the business being sold. We understand that AUH intend to “gift” our database to the new agency dealer who is allocated our geographical area,” the submission states.

“The financial compensation offered does not even cover our loss of profit had the dealer agreement been performed for the balance of its term. As a consequence we are forced to go to court against a multi-national organisation to receive just and fair compensation.”