Industry body slams automotive franchising draft

By Nick Hall | 18 Feb 2020 View comments

Industry bodies have slammed the government’s automotive franchising draft, suggesting the proposed changes will have “very little effect” on new car dealers.

In a statement released on Monday, the Australian Automotive Dealer Association (AADA) labelled the draft as lacklustre, implying that global manufacturers were taking advantage of the lax conditions.

“Australia’s car dealers need strong regulatory protections, similar to those in force in other advanced countries. Unfortunately, the regulations as drafted will have very little effect on the status quo,” James Voortman, CEO of the AADA said.

“Global car manufacturers are using Australia’s lax regulatory regime to squeeze their dealers and they see our market as an ideal place where they can experiment with alternative distribution models, usually at the expense of dealers. Such behaviour is simply not possible in a country like the United States which does have strong automotive franchise laws.”

The AADA response came just hours after global automotive giant GM revealed plans to axe Aussie car icon Holden, closing dealerships and putting jobs at risk nationwide. While not a direct effect of the release of the automotive franchising draft, Holden’s exit from the Australian market does signal a watershed moment for the domestic industry, which has been under review for some time.

Deconstructing the automotive franchising draft

Since 2019, the federal government has sought to drastically alter regulations pertaining to the industry, with a particular focus on franchised dealerships.

The regulations aim to improve transparency by amending the Franchising Code of Conduct (the Code), and follows the finalisation of a Regulation Impact Statement which considered how best to address dealers’ concerns with their franchising relationships with car manufacturers.

Minister for Industry, Science and Technology Karen Andrews said that government was committing to restructuring the Code to better protect automotive franchisees.

“Introducing an automotive specific section to the Franchising Code of Conduct will allow the sector to have tailored requirements, while ensuring it remains consistent with the Franchising Code that is currently under review.

“The franchise sector makes a significant contribution to the Australian economy, and we know when they are supported more jobs are created for hardworking Australians.”

However, while intentions are positive, Voortman said the automotive franchising draft put forward is far from ideal.

“The biggest factor influencing the power imbalance is insecurity of tenure for dealers. It was identified by the ACCC as an issue of concern in its retail market study, but to date it has been left out of the draft regulations,” he said.

“It is so important that these regulations are bolstered before they are finalised, particularly at this time when sales of new cars have been going backwards for 22 months and a number of regional dealerships have had to close their doors.”

The AADA head went on to suggest that fast food franchisees have better operating conditions than car dealers, indicating the issue was more widespread than publicly acknowledged.

“There are dealers in Australia who over the course of many years have invested millions of dollars in facilities, stock and equipment at the behest of manufacturers, only to be given a one-year agreement,” he said.

“To put that into perspective there are fast food franchisees with substantially lower capital investment requirements which are given 20-year agreements by their franchisor.”

Proposed changes

While the government’s automotive franchising draft has come under fire, not only from Voortman and the AADA but the wider dealership industry, the release of the initial amendments is a step towards reform.

Voortman acknowledged that certain aspects of the automotive franchising draft had merit, but further consultation was needed.

“While we acknowledge improvements in end of term obligations, manufacturers are still not required to purchase back the stock which they have compelled their dealers to purchase from them,” he said.

The AADA is advocating for strengthened conditions for new car dealers and franchisees, particularly with regard to dealers being denied warranty payments and manufacturers pressuring dealers to dismiss Australian Consumer Law claims from customers.

The government is accepting submissions and feedback on the automotive franchising draft until 13 March, at which time amendments will enter the finalisation process.