THE federal government has recommended that it should investigate the feasibility of introducing the licensing regime for OEMs wanting to sell cars in Australia to better regulate most aspects of the franchisee-franchisor relationship.

The government has said that they will establish a taskforce within the Treasury to conduct a comprehensive cost-benefit analysis of introducing a licensing regime for the franchising sector.

The taskforce is to consult widely and provide advice to the government.

The proposal for a licence for franchisors was contained in the government’s response to the Independent Review of the Franchising Code of Conduct by eminent small business expert Dr Michael Schaper, announced on Tuesday, which has agreed, or agreed in principle, to all of Dr Schaper’s 23 recommendations.

But the response has disappointed dealers.

The CEO of the Australian Automotive Dealer Association (AADA) James Voortman said: “Overall automotive dealers across Australia will look at this response with a degree of disappointment and we urge the government to keep an open mind on introducing stronger automotive-specific franchising regulations.”

He told GoAutoNews Premium: “I guess the problem is that the review didn’t go as far as we would have liked. We would have liked to have seen the response say something along the lines that the government will also be looking at further changes we can make to the automotive provisions of the code. But we didn’t see that.

“We will be urging the government to keep an open mind on introducing stronger automotive protections further down the track.

Referring to the recommendation that all franchisors should be licensed he said: “We support that in practical terms.

James Voortman

Mr Voortman said: “A licence means you need to be licensed to be a franchisor. That gives the ACCC the ability to take away your licence if you behave poorly. So there’s a bit of a stick that they can use for bad behaviour.

“So once they introduced that, OEMs, by the virtue of them being included in the franchising code, would need to get this licence and abide by whatever the conditions of that licence are.

“It also opens the door for potentially improving the access to justice for franchisees (dealers).

“We have always said we should have arbitration in this industry because when we go to court with OEMs, it is expensive, takes a long time and it’s a massive disincentive for dealers to take a dispute further.

“The reason the government said they can’t introduce arbitration is because of constitutional limitations. But when you license an entity, it might enable you to have some kind of extra judicial process related to that licence.

“So a licensing regime is welcome, but obviously, the way it is developed, and the way it’s enforced is going to be important to look at too.”

Mr Voortman said in a statement: “We support the consideration of a licensing regime for franchisors which could allow for better dispute resolution and the assurance that service and repair work conducted by motor vehicle dealerships should be explicitly captured by the Code.”

Meanwhile the government has made some concessions to include truck, motorcycle and farm machinery and equipment dealers in the franchising code but it did not go as far as putting these dealers on equal footing with car dealers.

“They will get certain protections that we have,” Mr Voortman said.

“The review made two recommendations around the automotive provisions. One was that they should extend the right for franchisees to make a return on their investment. So that right extends to all franchisees, so not just automotive. So truck, motorcycle and farm machinery and equipment dealers will get that element of our protections.

“A second element, which talks about when a brand leaves the country, or rationalises its network or changes its distribution model, says there should be allowance for compensation in their franchise agreement. That has also been extended to all franchisees.

“So that’s where truck, farm and motorcycle dealers would also get those protections that only car dealers have at the moment.

“But they missed out on every other element of Part Five of the code including things like an increased notice period when their agreements are not going to be renewed. That includes things like a provision of a reason when an OEM doesn’t renew your agreement.

“They also missed on something that’s really powerful around the obligation to act in good faith. So the obligation to act on good faith is available to all franchisees. But for car dealer agreements, that has to take into consideration whether the terms of the dealer agreement were fair and reasonable. So that’s another one they missed out on.

“But overall, they are in a better position today than they were yesterday. But our position is that they should enjoy all of the protections under Part Five of the code.

Asked why there appears to be a blind spot about these truck and motorcycle farm machinery  dealers: Mr Voortman said: “I think there’s just a mindset within the bureaucracy that we should not have specific protections for specific industries.

“For example, they gave us Part Five of the code because they could not ignore what was happening with Holden, Honda, and Mercedes.

“For whatever reason they say that those other businesses are different from car dealerships but our point is that often the franchisors are the same. You have a number of car companies operating in the motorcycle space or operating in the truck space. So the behaviours are all the same and the agreements look the same.

“The size of the investment, especially for truck dealers, is often substantial. So we just think that those four groups of dealers in particular should get the protections.

“We’re going to ask the government to keep an open mind on further strengthening the existing protections. But we’re also very clear that we think those dealers should enjoy all the protections we enjoy,” Mr Voortman said.

He said that the AADA will urge the Government to keep an open mind on introducing stronger automotive-specific franchising regulations.

“Over the past five years we have seen numerous examples of poor behaviour by multinational manufacturers ranging from GM’s termination of 200 Holden Dealers to Mercedes-Benz strongarming their dealers into one-sided agency arrangements.

“The New Vehicle Efficiency Standard due to take effect in less than eight months will make dealers even more vulnerable to manufacturers exiting the Australian market and leaving dealers with stranded investments,” Mr Voortman said.

“With the changes occurring in the industry, there is no doubt that further disputes between manufacturers and dealers will occur. It’s not a case of if, but when. Frankly, we need protections for dealers similar to those offered in the United States.

“Automotive franchised Dealers employ tens of thousands of Australians across cities and regional areas. They make significant investments in infrastructure and contribute to their community charities and sporting clubs” he said.

“The recent case between Mercedes-Benz Dealers and Mercedes-Benz Australia/Pacific Pty Ltd highlighted the current failings of the Franchising Code with the presiding Judge stating that further consideration of the terms of the Code and possible reforms are needed, and we are disappointed that this was not picked up in the review,” Mr Voortman said.

“While we consider that the review could have gone further to protect automotive franchisees, we welcome the extension of some protections to truck dealers, although we maintain that truck dealers should enjoy all the protections under Part 5 of the Code,” he said.

“AADA will continue to engage with the Government to put forward the need for strong protections for local automotive businesses.”

Meanwhile the Motor Trades Association of Australia (MTAA) said it applauds the government for recognising that a fairer balance between franchisees and franchisors needs to be struck.

“The inclusion of other classes of automotive retailers beyond car dealers, such as motorcycle, truck, farm, and industrial machinery dealers, is also welcome given these businesses were previously not covered in the same way under the Franchising Code, CEO Matt Hobbs said in a statement.

Matt Hobbs

“The MTAA also welcomes that the Government will clarify that service and repair work performed by motor vehicle dealerships is within the scope of the Code.

“However, the MTAA acknowledges there is still further work to be done to ensure the Franchising Code is fit for purpose in a rapidly changing automotive retail environment.

“With Australia’s shift to EVs, vehicle sales channels are evolving with new business models emerging. Manufacturers and distributors are entering the EV retail business for the first time, resulting in financial impacts on dealers and creating a power imbalance between both parties.

“Automotive dealers, who make significant ongoing investments in facilities, staff and equipment while generating goodwill, need to be protected from misconduct and opportunistic behaviour.

“The Franchising Code must safeguard franchisees, who are predominantly small to medium businesses, from such conduct.

Given this unique circumstance facing automotive franchisees and franchisors along with the sizable capital and technology requirements of the industry, MTAA strongly recommends a standalone code of conduct for the automotive retail sector.

MTAA also recommends that the proposed licensing regime should examine and implement best practices to find a just transition for automotive dealers. The MTAA looks forward to working closely with the Treasury Taskforce on this initiative.

Mr Hobbs said: “MTAA has been calling on the Government to address franchisor opportunism in the automotive retail sector for many years and we are pleased their endorsement of Dr Schaper’s recommendations will go some way to address the imbalance between automotive manufacturers and dealers.

“We continue to believe that an independent code is a necessary step, particularly to drive greater competitiveness, sustainability, and productivity in the sector as it undergoes the biggest transformation in its history with the advent of EVs.”

“MTAA and its state and territory bodies will work with their 15,000 automotive retail members to understand the implications of the changes to the Franchising Code in full and continue to assist businesses in their engagement with their franchisors,” Mr Hobbs said.

The Federal Chamber of Automotive Industries (FCAI) said it was pleased to participate in the review and noted Dr Schaper’s view that “the Code is generally fit for purpose, and that Part 5 of the Code relating to new vehicle dealerships is operating as intended and not producing any unintended consequences”.

“The FCAI also welcomed Dr Schaper’s finding that the sector requires some respite from a constant process of review.  The FCAI was also pleased to note Dr Schaper’s observation that no sector recommended that Part 5 be removed from the Code and that it now appeared to be part of the regulatory framework.

“The FCAI noted Dr Schaper’s recommendation that service and repair work conducted by motor vehicle dealerships be captured in the Code.  Given the variety of service and repair models operating in the sector, the FCAI looks forward to the further consultation process flagged by the government to enable its continued contribution to the ongoing regulatory oversight of automotive franchise arrangements.

“As the automotive industry evolves, the FCAI will continue to advocate for the interests of members, Australian consumers, and promote fair and transparent business practices. The FCAI looks forward to working closely with the government on implementing these recommendations and taking part in future consultations.”