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Car dealers slam franchise agreement inaction, warn motorists could be left high and dry

The future of new-car dealerships in Australia – and long-term certainty on parts, warranty, and service back-up for motorists and fleets – received a major setback last week.


After a two-year investigation into the power imbalance between multi-national car companies and new-car dealers – many of which are small family businesses – the Federal Government has decided not to introduce a special franchise code for the motor vehicle industry. 

Instead, the Federal Government has proposed “a list of principals put up on the Department of Industry’s website” with “no standing in law” and “no penalties for unfair dealer terminations or sudden brand withdrawals from Australia”, says the chief executive officer of the Australian Automotive Dealers Association (AADA), James Voortman.

It means large multinational car companies can pull out of Australia with little notice and are not compelled to compensate dealers or leave behind a parts, service and warranty network for potentially hundreds of thousands of motorists across Australia.

 

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The industry is on edge after this year’s unexpected departure of Holden, and the recent spotlight on the future of Honda’s local operations with its imminent radical switch to a fixed-price business model to keep showrooms open. Mercedes will also switch to a fixed-price model from 2022. Other, smaller car brands are struggling to recover locally after the coronavirus crisis and their future remains under a cloud. 

In a bizarre turn of events, the lobby group representing car companies – the Federal Chamber of Automotive Industries – also slammed the Federal Government’s decision to not introduce a mandatory franchising code, even though many industry insiders believe the findings worked in favour of the automotive giants.

A statement from the chief executive of the FCAI, Tony Weber, said the new principals document is “a classic example of overreaction” by the Federal Government”.

“Government intervention is needed where this is a clear market failure, not to halt progress,” said Mr Weber in a media statement, which also accused the Federal Government of having “a cosy relationship with car dealers”.

 

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However, car dealers believe the lobby group representing automotive giants was feigning anger.

“The comments by the Federal Chamber of Automotive Industries are tactical and strategic,” said Mr Voortman. “They want to give the impression that dealers and car companies are somehow so far apart that the government has arrived at a sensible solution in the middle. This is absolutely not the case.”

Mr Voortman said the “guiding principals” proposed by the Federal Government are “not even as powerful as a voluntary code, they are simply a list of principals put up on the Department of Industry’s website. It’s got no standing in law. It may as well say to the car companies they can do whatever they want to local businesses.”

 

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The AADA said the “guiding principals” as published by the Federal Government “would have done nothing to stop General Motors (Holden) from doing what they did and leaving Australia suddenly.”

The AADA accused Minster Karen Andrews – who oversaw the two-year study into car franchising agreements – of “siding” with multinational car companies

“Dealers in Australia desperately need a strong set of mandatory protections which protect dealers – and by default, new-car buyers – against the abuses from car companies who can pull the rug from underneath car dealers with little to no consequences,” said Mr Voortman.

In a media statement, the AADA said: “The voluntary approach being announced by the (Federal) Government is doomed to fail and the potential damage that can be done before these principles are reviewed in two-years’ time is immense.”

 

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In December 2018, when launching the public consultation process into car dealer franchise agreements, a statement from the office of Karen Andrews said: “The Liberal National Government is committed to ensuring Australian car dealers are given a fair go, and consumers have access to a wide range of vehicles that meet their needs”. 

“We want to hear how we can best support car dealers and manufacturers to thrive in the changing business environment, ensuring long-term business growth,” the statement continued.

Last Friday, a joint media statement issued by Brendan O’Connor, the shadow minister for employment and industry, and Stephen Jones, the shadow assistant treasurer and shadow assistant minister for financial services, said: “The Morrison Government has once again shown they are all announcement, no follow through, today abandoning Australian automotive dealers (who were) promised a car dealership code.”

“Today they have announced nothing more than a voluntary and non-binding ‘set of principles to guide agreements between car dealers and manufacturers’,” the joint statement continued.

“Asking multinational car manufacturers to ‘play nice’ is hardly satisfactory after recently seeing a large multinational company take advantage of the power imbalance that exists between them and Holden car dealers. Labor supports dealers being protected by an industry code, not some voluntary principles with no accountability.”

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Joshua Dowling

Joshua Dowling has been a motoring journalist for more than 20 years, spending most of that time working for The Sydney Morning Herald (as motoring editor and one of the early members of the Drive team) and News Corp Australia. He joined CarAdvice / Drive in 2018, and has been a World Car of the Year judge for more than 10 years.

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