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James Voortman

THE federal government may have watered down one of its key election promises made to the automotive industry, raising concerns this week by Australia’s peak automotive franchise body and the powerful Victorian automotive chamber.

The Australian Automotive Dealer Association’s incoming CEO James Voortman told GoAutoNews Premium that the association had positive feedback from both parties before the election “and we have made progress”.

“But we believe an automotive code of conduct shouldn’t be considered part of the general franchising code – the products we are dealing with are vastly more expensive and the industry is much bigger than nearly all other franchise business models,” he said.

The AADA this week said it welcomed the establishment of the Franchising Task Force by the government but has urged it to finalise the work already underway on specific protections for automotive dealers.

The task force was established to deliver the government response to the recommendations of the Fairness in Franchising report, which was handed down earlier this year by the Parliamentary Joint Committee on Corporations and Financial Services. 

The Victorian Automobile Chamber of Commerce agrees with the AADA but took a more hard-edged view.

It told GoAutoNews Premium that dealerships are enmeshed in a “one-in-a-100-year” permanent structural shift in terms of a business model.

“Dealers need a dedicated code to survive that shift,” said VACC chief executive Geoff Gwilym.

“We are seeing agency models being talked about – similar to Toyota NZ’s Drive Happy – which could wash away generations of family businesses without protection for dealers or investors.

Geoff Gwilym

“The impact of non-renewal without cause has massive consequences for community, especially in regional Australia where dealerships are quite often the major employer.

“If the government cannot see how examples such as the horrible and unjust way groups like D’Alberto (Holden dealer in Echuca that lost its franchise in late 2017) were treated as reason for a defined code – or a bolt-on to the franchising code – then it is not fair dinkum. What hope does small business have?”

Mr Voortman said the VACC has collaborated with the AADA on the issue.

“We have said the principle we are looking for is a set of protection guidelines for franchisees or new-car dealers and we have been making the case for a long time in Canberra,” he said.

“We would have preferred action by government specifically focused on automotive, but the nature of government is that it’s slow and considers all factors.

“While we want government to be far stronger, we will continue making the message to all representatives, government departments and other stakeholders in the industry because we believe our arguments have merit and hope to get this across the line at the end of the day.”

The VACC said it would support a “bolt-on” to the current code “as long as it covered off vital issues such as capital expense outlay being connected to tenure. The ideal tenure is five- year renewals”.

“We are always interested in franchise code reform as we have been lobbying for this since 2011,” Mr Gwilym said.

The AADA’s calls for changes to the code included a plea to the Australian Competition and Consumer Commission (ACCC) in October 2017, before the ACCC released its final report on the Retail Car Industry in December of that year.

It said then that the ACCC study had highlighted “the structural imbalance between manufacturers and dealers which leaves both consumers and dealers vulnerable”.

AADA chief executive David Blackhall said the imbalance was caused by “one-sided dealer agreements, policies and procedures including restricting what dealers are allowed to say to consumers”.

“Under these agreements, dealers are required to adhere strictly to manufacturers’ policies regarding warranties and potential product defect claims, they are not to admit liability and can be required to allow manufacturers to assume control of how dealers handle complaints,” he said.

“Consumer complaints handling is only one feature of a relationship skewed very much in favour of manufacturers.

“Under the current system, dealers have no security of tenure, are increasingly being served with non-renewal notices, have ineffective capital expenditure protections, and are subject to unfair end-of-term arrangements.

“This has the effect of giving manufacturers significant commercial leverage to force dealers to obey instructions given to them – even if that is to the detriment of consumers.

“Non-renewal notices are issued despite dealers fulfilling their end of the bargain by exceeding performance targets and injecting significant capital investment into their facilities.

“The situation has hit rock bottom and dozens of dealers have been issued with non-renewal notices in recent months. The Franchising Code of Conduct does not take account of dealers’ specific and unique circumstances and has not served dealers and consumers well.”

Mr Blackhall said in 2017 that new-car franchise dealers have invested over $17 billion in buildings, facilities, employ around 70,000 people, contributing just over two per cent to the national economy.

By Neil Dowling

Dealer Solutions