Car buyers could be denied valid warranty claims – and showrooms would be at a greater risk of going bust, leaving customers high and dry – under proposed changes to franchise agreements being considered by the Federal Government.
The Australian Automotive Dealer Association (AADA) – which represents 50,000 employees who work at approximately 3500 showrooms owned by 1500 dealer groups – says revised franchise agreements don’t go far enough to ensure dealerships don’t collapse under the pressure of “unfair, one-sided contracts” with car companies.
James Voortman, the CEO of the AADA, says the proposed changes tabled last Friday are “intended to address the major power imbalance between new car dealers and foreign car companies”.
However, he warned, the proposal doesn’t go far enough and continues to give multi-national car companies the upper hand, which could send some showrooms bust and disadvantage customers by denying legitimate warranty claims.
“The key issues of dealers being denied warranty payments – and manufacturers pressuring dealers to dismiss (Australian Consumer Law) claims have also not been covered in these regulations,” said Mr Voortman.
The AADA said fast-food chains have better franchise agreements than do car dealers in Australia, even though showrooms cost millions of dollars and often carry millions of dollars worth of stock.
“There are car 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,” said Mr Voortman. “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.” he said.
In a statement issued last week, the Minister for Industry, Science and Technology, Karen Andrews, said the Federal Government is committed to “ensuring car dealers are given a fair go, and that consumers have access to a wide range of vehicles that meet their needs”.
“We’ve been working closely with industry experts on developing these draft regulations and now we’re calling on all stakeholders to have their say on what we propose and how we plan to implement the changes,” said Minister Andrews, outlining a specific automotive section to the Franchising Code of Conduct.
“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,” said Minister Andrews.
The Federal Minister for Employment, Skills, Small and Family Business, Michaelia Cash, said in the same media statement the “proposed regulations, along with the work of the Franchising Taskforce, will strike the right balance between franchises and franchisors to ensure the continued development and success of the sector … while avoiding unnecessary red tape”.
The AADA says that while the Australian Competition and Consumer Commission (ACCC) has taken car manufacturers to task in recent years – including imposing record fines for misconduct – the proposed franchise agreements for Australia fall behind best practice in the US and Europe.
“Foreign car companies are using Australia’s lax regulatory regime to squeeze our dealers,” said Mr Voortman, “which also risks leaving customers worse off if dealers go bust or are denied warranty payments.”
One-sided contracts and the practice of “forcing cars onto dealers” are “simply not possible in a country like the United States, which does have strong automotive franchise laws,” said Mr Voortman.
“It is so important that these regulations are bolstered before they are finalised, particularly as sales of new cars have been going backwards for 22 months and a number of regional dealerships have had to close their doors,” said Mr Voortman.