With Holden only five weeks away from closing its doors in Australia – and after 31 months in a row of new-car sales decline – a Senate Inquiry in Canberra has been told current franchise laws make it too easy for multinational car companies to shut-up shop locally, wipe out jobs, and leave customers high and dry.
The Senate Inquiry into the “regulation of the relationship between car manufacturers and car dealers in Australia” was originally established to examine the departure of Holden, but has since been broadened to assess current franchise agreements between car companies and showroom owners.
James Voortman, the chief executive of the Australian Automotive Dealers Association (AADA), told the Senate Inquiry there is a “profound power imbalance” between car companies and individual dealers, who are “no match” for automotive giants such as General Motors.
“The (current) Franchising Code of Conduct and its weak dispute resolution mechanisms were no match for the Detroit-based Fortune 500 company,” said Mr Voortman.
“When the dust settled, only a small number of Holden dealers were still pursuing their dispute, despite threats from (General Motors) that they will spend years in court at great expense.”
Mr Voortman said the regulation of relations between car manufacturers and car dealers in Australia “is not fit for purpose”, and repeated earlier calls to bring local laws into line with those in the US and Europe.
“The ease with which manufacturers can terminate or not renew their dealers in Australia is of great concern given the very large investments dealers are required to make,” said Mr Voortman.
“This would never be allowed in the US or the EU, where terms are most often perpetual or a minimum of five years. For many years we have been … proposing a specific set of regulations akin to those enjoyed by dealers in places like the United States and the European Union,” said Mr Voortman.
“Unfortunately we failed to enact the level of change required before February 2020, when General Motors executives based in Detroit made the decision to prematurely cancel some 185 Holden dealer agreements. In Australia, General Motors found an environment in which they could easily pull up stumps without adequately compensating the Holden dealers that had represented them for so many years.”
Speaking outside the Senate Inquiry, Mr Voortman, said Holden’s exit and the scaling back of the Honda dealer network set a “dangerous precedent” for other brands to leave Australia without warning, “potentially leaving customers high and dry”.
“Of course the car companies say they will leave a support network behind, but often the customer has to travel further for service or other support, than they planned when they bought the car,” said Mr Voortman.
“In some cases we are hearing disturbing reports about warranty claims taking longer to process now that Holden is about to shut-up shop.”
One long-standing Holden dealer, who spoke to CarAdvice on condition of anonymity, said General Motors was knocking back more claims and taking longer to process approvals since the departure of the brand was announced in February this year.
“Holden, or in fact General Motors, has nothing to gain by doing the right thing by the customer, and certainly there’s nothing to lose, they’re not selling Holdens any more,” said the veteran Holden dealer. “For GM now, it’s about keeping their warranty costs as low as possible in a market they are transitioning out of. There is zero incentive for GM to do the right thing.”
While the dealer group says weak franchise laws make it too easy for multinational car companies to exit Australia, the industry body representing car companies claims strict franchise laws could prompt some brands to leave.
During the Senate Inquiry, Senator Deborah O'Neill asked representatives of the North American Dealer Association (NADA) what they thought about the claim tighter franchise laws would cause some car brands to leave Australia.
Lauren Bailey, director, franchising and state law for NADA said: “The (US) market has thrived. I don't think companies have looked at it and said they are not going to invest (in US car sales) because of franchise laws.”
NADA colleague Andrew Koblenz, also speaking to the Senate Inquiry via video link from the US, said: “As a historical matter, state franchise laws in United States arose in response to manufacturer over-reach. After entering into contracts with dealers (some car companies) took steps to undermine those very relationships.”
Mr Koblenz said examples included “terminating dealers arbitrarily and without good cause, forcing dealers to take unwanted inventory, unfairly setting up competing factory-owned stores in the immediate proximity of franchise dealers, and imposing unreasonable terms and rules on dealers.”
Mr Koblenz said car companies “are very large and the contracts are often presented on a take it or leave it basis.”
Mr Voortman told the Senate Inquiry: “Not all (car companies) treat dealers poorly” but there is “the potential for abuse under the current system”.
Tony Weber, the chief executive of the Federal Chamber of Automotive Industries, which represents multinational car companies in Australia, told the Senate Inquiry “the automotive world is not free from risk”.
“A combination of factors – including tightening of (finance) lending following the banking royal commission; COVID-19; natural disasters; and supply constraints – have impacted sales in Australia,” said Mr Weber.
“Times are tough,” he said. “However, this is part and parcel of (a car dealer) being an entrepreneur. There is a degree of risk and there is certainly a degree of reward for a well-run business. Importantly, this cannot be assessed at the end of the term.”
Mr Weber said the ratio of dealer terminations over the past four-and-a-half years – before the Holden closure was announced at the start of 2020 – was 0.33 per cent per annum.
“If a dealer is wrongfully terminated, they are entitled to compensation under the existing extensive legal regime,” said Mr Weber.
“It should be noted that non-renewal is not termination. The historic low level of terminations is not surprising, as co-operation and harmony between the dealer and the (car company) is key to business success.”
On behalf of the AADA Mr Voortman called on the Federal Government to “enact the protections which exist in other industrialised countries that will level the playing field between dealers and manufacturers”.
The AADA represents more than 3000 dealerships – in almost every electorate across Australia – who have approximately 60,000 employees nationally.
When questioning Mr Voortman, Senator O’Neill said: “So we're talking about 60,000 lives literally hanging in the balance depending on the government's response to this call from the sector to have the government stand up for Australian jobs and Australian car dealers.”
The AADA estimated the financial contribution of car dealers to the community ranged from sponsoring local weekend sport teams, to collectively contributing more than $2 billion in taxes, as well as collecting a further $2 billion in taxes such as Luxury Car Tax, GST and state taxes such as registration charges and stamp duty.
Senator O’Neill then took aim at the propensity for multinational car companies to shift profits offshore and reduce taxes in Australia.
Senator O’Neill said: “Australians (are) very concerned that, because they reside overseas and they have a lot of money, (car companies) can set up tax structures that take a lot of Australian dollars from their pockets but don’t return, in some cases, any money to the Australian tax system despite their use of Australian facilities.”
Senator O’Neill asked Mr Weber: “Are you aware that Honda Australia distributed over $38 million in profits to their equity holders, located outside of Australia, in the last financial year? Are you aware that Mercedes-Benz Australia paid $100 million in dividends to shareholders in the last financial year?”
Mr Weber responded “no” to both questions. The Senate Inquiry continues this week.