Power boost for dealers

Amid the controversial deconstruction of both the Holden and Honda dealer networks, the federal government has handed more power to dealers in their relationship with manufacturers.

And while various players in the local auto industry seem to be in general accord with the new automotive franchising code of conduct announced on June 1, significant issues have been raised about its implementation.

At one extreme, the Federal Chamber of Automotive Industries (FCAI) – which represents the vast bulk of brands sold in Australia – says the changes have been introduced up to six months too early.

At the other extreme, the Australian Automotive Dealer Association (AADA) says the reforms don’t go far enough.

There are three key measures that have been introduced:

Further work is being done on the issue of minimum dealer agreement lengths and a principles-based compensation guide.

Developed from a 2017 Australian Competition and Consumer Commission (ACCC) investigation, the new regulations come ahead of June 10-11 mediation talks between General Motors and the 185 Holden franchisees in the wake of the brand’s February axing and the end of five-year dealer agreements almost three years early.

GM’s offer of $1500 compensation for each new car sold during a set period plus reimbursement for showroom upgrades was rejected. Dealers are demanding $6100 per car plus other costs.

GM had stipulated that dealers accept its offer by the end of May, but that has now been pushed out to the end of June.

GM has been lambasted by prime minister Scott Morrison, a parliamentary inquiry has been initiated and there have been threats of legal action and intervention by the (ACCC)  to compel GM to follow the proper dispute resolution process.

At the same time Honda is negotiating with its dealers to transition from a franchise to agency system by July 1, 2021.

While this process hasn’t received the same publicity as the Holden fracas, dealer legal action is said to be under consideration and industry minister Karen Andrews is paying attention. The ACCC s also said to be watching keenly, but would not comment on the matter.

“It has been a tough time for our car dealers. Many have been grappling with GM Holden’s decision to leave Australia, many have been dealing with drought and now all of them are seeing significantly reduced sales caused by the COVID-19 pandemic,” minister Andrews said when announcing the new regulations.

“These reforms are the result of extensive consultation with industry. They balance the need to better protect Australian car dealers with ensuring an environment that is attractive to manufacturers to invest in our nation.”

Andrews said the regulations had been brought forward one month “to improve the transparency and fairness of new car franchise agreements”.

But FCAI chief executive Tony Weber condemned their early introduction.

“There was a clear understanding between the minister’s office and the industry that the implementation date was 1 July or later, and this is demonstrated throughout all the documents including the exposure draft legislation.

“The fact that the government has randomly brought forward the commencement date and prematurely implemented the changes is simply inexplicable,” Weber said.

“The ramifications of this early implementation include significant commercial and potentially legal implications for network management for automotive brands and their dealers.”

AADA CEO James Voortman said the new regulations were “a good first step”.

“The real announcement today is the government’s commitment to work towards developing an industry standard for compensation and also address the issue of tenure in dealer agreements,” he said.

There are an estimated 3600 new-vehicle dealerships across Australia, employing 60,000 people and generating more than $55 billion in sales.