THE legal framework designed to protect Australian dealers from unfair trading practices must be expanded by the federal government as the automotive industry adapts to unprecedented changes, according to a submission made to the treasury, as part of the Unfair Trading Practices consultation.

In the submission, the AADA said that it supports moves to protect dealers from commercially-harmful conduct.

“The policy objective should remain clear: businesses should not be left without meaningful protection simply because harmful conduct falls outside the scope of existing legal frameworks,” the submission stated.

The AADA said that “commercially harmful conduct can continue to occur despite existing legal protections, particularly in commercial relationships characterised by significant bargaining power imbalances and structural dependency.”

“The AADA considers that the experience of automotive franchising provides a compelling example of this broader regulatory gap.”

In the submission, the AADA said that unfair trading practices most commonly arose “in long-term dealer-manufacturer relationships characterised by significant bargaining power imbalance, structural dependency and limited practical ability for dealers to negotiate terms”.

It said that examples included changes to remuneration frameworks, mandatory capital expenditure shortly before agreement expiry, restructuring of distribution models after dealer investment has been committed, reduced dealer autonomy through manufacturer-controlled systems, and commercial pressure linked to non-renewal uncertainty or product allocation.  

“These practices can cause significant harm by reducing profitability, undermining enterprise value,  increasing sunk-cost exposure and limiting a dealer’s ability to compete or plan commercially,” the AADA said.

“Existing protections – including the franchising code, unfair contract terms regime and unconscionable conduct  provisions, do not adequately address this conduct because much of it may be procedurally compliant or commercially harsh without meeting the high legal threshold for unconscionability.” 

The AADA said car-makers were exercising greater control over pricing, customer data, digital platforms and other aspects of dealership operations “creating new forms of commercial dependency that were not contemplated when many of Australia’s existing legislative protections were developed.”

“These developments reinforce the need for a regulatory framework that remains capable of responding to evolving commercial practices.”

The AADA points to Part 6 of the ‘NSW Motor Dealers and Repairers Act’ and said that motor vehicle transactions “frequently involve information asymmetry, unequal bargaining power and circumstances in which one party may exercise disproportionate influence over another”.

“This legislative approach closely mirrors the rationale underpinning the proposed UnfairTrading Practices reforms,” the AADA said.

“Importantly, Part 6 demonstrates that Parliament has already accepted a broader regulatory proposition. Namely, that automotive market participants should not be left entirely to ordinary contractual bargaining where structural inequality exists. 

“The AADA submits that dealer-manufacturer relationships reflect an even stronger case for legislative intervention. 

“Unlike ordinary consumer transactions contemplated under state legislation, automotive franchisees frequently commit tens of millions of dollars toward manufacturer-directed infrastructure investment while remaining contractually dependent upon a far more powerful multinational corporation.

“The AADA supports the introduction of effective protections against unfair trading practices that address this regulatory gap and ensure franchisees are afforded appropriate protection from commercially harmful conduct arising from structural dependency.”

It said that existing protections “under the franchising code of conduct, the unfair contract terms regime and the unconscionable conduct provisions of the Competition and  Consumer Act 2010 (Cth) perform important functions but do not adequately address conduct that may  be commercially harmful while remaining technically lawful”.

“The persistence of these issues demonstrates that the current framework does not always provide an effective remedy where one party possesses overwhelming commercial leverage.”

AADA CEO James Voortman, in the association’s submission to the federal government’s consultation on unfair trading practices, said it was vital that dealers be protected by manufacturers at a time when the industry is experiencing huge changes.

“Dealers understand that manufacturers are under pressure to get a result, but some of the practices we are seeing could put dealers at risk and can also result in long term damage for the brand,” he said.  

“We are very concerned with some of the practices we are seeing and are exploring the legality while also keeping regulators abreast of any questionable behaviour. ” 

James Voortman

The AADA submission said that items to be addressed include:

• Conduct that exploits structural dependency or a significant imbalance in bargaining power to the commercial detriment of another business, even where that conduct  does not breach existing legal protections
• New unfair trading rules should complement, rather than replace, existing regulatory frameworks such as the franchising code of conduct, the unfair contract terms regime and the unconscionable conduct provisions of the Competition and Consumer Act
• Unfair trading protections should apply to franchisees that exceed the proposed small business threshold because business size is not an accurate proxy for vulnerability in franchise relationships
• Automotive dealers may have turnover above $10 million or more than 100 employees, but still operate on low margins and remain structurally dependent on multinational manufacturers for supply, renewal, systems, data, warranty processes and brand participation

 Mr Voortman said the alleged behaviour led to the AADA advocating for unfair trading practices protections for dealers. 

“That consultation has now closed and we look forward to working with the government to implement this important reform,” he said.