Holden exit forces all car-makers to face $10m fines

Car-makers who pull up stumps in Australia without adequately meeting their obligations to consumers and compensating dealers will face fines of up to $10 million under new franchising law reform announced by the federal government today.

Addressing the power imbalance between multinational car manufacturers and their independently-run Australian dealers, which was clearly demonstrated with General Motors’ dismantling of Holden last year, the federal government has wielded a big stick with tough new penalties that are designed to prevent family-run local businesses from financial ruin.

Under a revised franchising code of conduct, car-makers will have mandatory obligations that carry fines of up to $10 million for “wilful, egregious and systemic breaches” – up from the current maximum of about $66,000 per breach.

These breaches include reneging on warranties, unilaterally changing contracts with dealers or poorly compensating them when forcing a closure.   

The government also said it would ensure that the code keeps pace with changes to business practice “by explicitly recognising that dealers operating as a manufacturer’s agent in relation to new vehicle sales are still protected”.

What started out as an inquiry last year into the axing of Holden by General Motors soon became a wider examination of the relationship between car manufacturers and their independent dealers.

These were prompted not only by the bitter dispute between GM and its dealers over compensation, but also the decision by Honda and Mercedes-Benz to swap from traditional franchising to ‘agency’ retailing in Australia where the dealers simply act as agents for the car-maker.

Honda’s new agency-style business model gets underway on July 1, 2021, with a smaller dealer network restricted to fixed pricing on all models. This means customers will no longer have the ability to negotiate a deal with the retailer, and vice-versa.

Some Holden and Honda dealers are still involved in legal action over the termination of their franchise agreements.

Prime minister Scott Morrison said in a statement today that the government was determined to stand up to multinational car companies “riding roughshod” over Aussie dealers.

“We stand up for Australian jobs and Australian businesses,” he said.

“We stood up to Big Tech companies and we will stand up to multinational car companies who are riding roughshod over many family-owned Australia car dealers.

“By protecting these businesses, we will be protecting the thousands of jobs that rely on the sector, including many apprentices.

“Car sales are surging and it’s further proof that the Australian economy is on the comeback. We need to ensure Australian family-owned automotive businesses continue to reap the rewards of this growth and the support from our supercharged instant asset write-off.”

The Australian Automotive Dealer Association (AADA), which is the peak body representing franchised new car dealers, said the changes announced by the government “will protect dealers against the worst abuses by some car companies”.

“Today’s announcement will be welcomed by automotive dealers and their 60,000 employees all across Australia,” said AADA CEO James Voortman.

“It will give these local businesses the confidence to employ more Australians, take on more apprentices, invest in their communities and continue to support local sporting teams and charities.

“These changes will bring a degree of balance to the relationships between new car dealers and the manufacturers to which they are franchised. The reforms are sensible and fair and will bring all manufacturers up to the standard already being employed by ethically-minded car brands operating in Australia.

“Mandating the principles for new dealer agreements, ensuring agency agreements are captured by these regulations and setting appropriate fines for breaches of the franchising code are all very welcome measures.

“Only manufacturers who ride roughshod over Australian dealers have anything to fear from what has been announced today.”

Voortman also said the AADA welcomed the chance to participate in further changes flagged by the government, such as a standalone automotive code, binding arbitration and unfair contract terms.

“It has been a difficult 12 months for automotive dealers with General Motors’ termination of 185 Holden dealers and significant changes flagged by a number of other manufacturers,” he said.

“The industry is in a state of rapid change and all dealers ask is that major changes see manufacturers engage in a fair process and provide adequate compensation.”

In response, the Federal Chamber of Automotive Industries (FCAI), which represents all the big car-makers in Australia, has raised concerns that the government’s reform could “damage existing relationships between car companies and their dealer networks across Australia and ultimately impact on Australian customers”.

“Over-regulation of any industry is not a solution to solving issues and forging strong, sustainable and profitable business relationships,” said FCAI chief executive Tony Weber said.

“In Australia, we already have extensive competition and franchising regulations. They should be allowed to work without introducing new regulations that can stifle innovation which impacts consumers and the thousands of people working in the national dealer networks.

“The customers must come first. Car companies and their dealers must be allowed to work together in an environment where innovation and change are allowed to flourish.

“Ultimately, these are the industries that survive and prosper in a dynamic economy,” he said.