Australians may still be in shock over the sudden axing of the Holden brand – and the closure of more than 200 Holden dealerships – but overhauls to franchise laws announced today will make it harder for multinational car companies to close local showrooms and service centres.
The changes – which come into force from 1 July 2021 – mean new-car buyers can shop with certainty knowing their local car showroom and service centre can only be shut down in special circumstances.
Further, car giants face financial penalties that can amount to millions of dollars if they break dealer contracts earlier.
The sudden departure of Holden in 2020 – despite decades of state and federal government financial assistance – put a spotlight on the imbalance between local car dealers and multinational car companies.
In a little more than 12 months after the Holden announcement, the Federal Government has moved to better protect new-car dealers and new-car buyers from having their local showrooms and service centres shut down.
The changes mandate that dealers must be “fairly compensated” if their franchise agreement and showroom are shut down prematurely, or if the number of dealers is cut back – even if a brand “withdraws from the Australian market”, the latter a reference to the recent Holden departure.
The peak body representing more than 50,000 employees at more than 3000 dealerships nationally, the Australian Automotive Dealer Association (AADA), had been lobbying for the overhaul to franchise laws in the wake of the Holden closure.
“These changes come after a difficult 18 months for Australian dealers which saw Detroit-based General Motors terminate every Holden dealer without adequate compensation. It is clear that other manufacturers are considering making changes to dealer networks which is why these reforms are so important,” AADA CEO James Voortman said in a media statement.
The AADA said the changes to the law “provide dealers with more certainty in terms of the investment they undertake” to grow their business and employ staff.
“These reforms are all about fairness and Australian dealers will now be in a better position when a car manufacturer leaves the country, reduces its network, or changes its business model,” said Mr Voortman.
The AADA chief added: “Dealers in regional towns and cities all across the country will be welcoming these reforms. Automotive dealerships are important local businesses which employ Australians, invest in Australia, and pay their tax in Australia.”
The changes to franchising laws in Australia come as Mercedes-Benz and Honda are poised to switch to a fixed-price new-car sales model. Honda switches to fixed pricing from the beginning of July 2021, Mercedes switches to fixed pricing from January 2022.
Under the changes, Mercedes-Benz and Honda customers in Australia will soon not be able to negotiate on price – and the stock will be held by manufacturers who will control how many cars are distributed.
However, the new franchising code makes a provision for the fixed-price new-car sales model – which the industry refers to as an “agency model” because dealers are merely agents not negotiators.
The AADA says the changes to franchising laws “will also ensure that new agency models are subject to these rules”.
Meanwhile, further amendments to better protect car dealers and car buyers could follow, with the federal government considering a standalone franchising code for the automotive industry.
At the moment, the changes are an amendment to Australia’s existing franchising code across all industries.
“We also look forward to working with the government on the upcoming consultations on dispute resolution and the merits of a separate automotive (franchising) code,” said the AADA.
In a statement, Stuart Robert, the federal minister for employment, workforce, skills, small and family business, said the amended Franchising Code “improves fairness and transparency”, “keeps pace with changes to business practices”, and “improves access to justice”.
"The Government is also committed to increase penalties for breaches of the Franchising Code,” said Minister Robert, whose department will soon release a discussion paper on “the merits of a standalone automotive franchising code”.