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DEALERS claim in details contained in filings in a court action against Mercedes-Benz Australia (MBA) that in spite of making assurances the company was going to develop the new agency sales model in consultation with dealers, the company was instead simply obeying orders from Germany and that the assurances to its retailers were effectively window dressing.

Daimler AG, wants the new agency sales model to be rolled out around the world and the Australian dealers allege that it was always the intention in Stuttgart to force the model on to the market in Australia.

Most Australian Mercedes-Benz dealers are taking action in the Federal Court of Australia alleging the combined loss of $650 million dollars from what they say is the effective transfer of the value of their businesses to Mercedes-Benz Australia without compensation.

According to the CEO of the Australian Automotive Dealer Association, James Voortman: “Over a number of years Mercedes-Benz repeatedly told the Australian dealers they were committed to them in the long-term but the entire time Stuttgart had a secret plan to crash or crash through with the introduction of the agency model.

James Voortman

“When dealers questioned the local Mercedes-Benz CEO on the rationale for the switch to the new business model they were simply told they were doing it ‘because we can’.

“On more than eight occasions, Australian dealers were assured that no changes to the business model would proceed unless they agreed.  The strong opposition of dealers to the model was clear from the outset with more than 90 per cent voting to oppose the change.”

Indeed, GoAutoNews Premium was drawn into the assurances Mercedes-Benz Australia was giving to its dealers.

In an interview in December 2019 with GoAutoNews Premium, Horst von Sanden, then managing director and CEO at Mercedes-Benz Australia/Pacific and the Mercedes-Benz director of customer management and network development, Jason Nomikos, made it clear that it was necessary to have to support of the dealer network if the agency sales arrangement was going to succeed. 

Mr Nomikos said: “I think we are quite realistic in that any change, especially a change that is perceived to be a fundamental change, initially has a lot of fear around it.

“We have been working closely with our retailers; meeting with them, getting their input, getting their feedback to make sure we reduce that natural fear of change. We have had different groups of dealers of different sizes who put up their hands and who were interested in learning more about it.

“Obviously we wanted to work with them and we took that (what they said) on board. It has always been our intention to work with our retailers because if we get them on board the chances of success are far greater,” Mr Nomikos said in the interview.

Mr Voortman said in a statement that the court action was a major test case for Australia’s Franchising Code.  

Horst von Sanden

“One of the key requirements written into the Franchise Code is that franchisors should behave in good faith. Good faith requires a contracting party to act in good faith, not only in relation to the performance of the franchise contract, but also in the power conferred by the contract. 

“Mercedes-Benz head office confected public arguments to justify the introduction of the agency model, issuing press releases and giving interviews touting consumer benefits and trends.

“However, the naked truth has finally emerged demonstrating that the real agenda has been about appropriating the goodwill of the dealers for the benefit of Mercedes-Benz without paying them any compensation.” 

Mr Voortman said that the mechanism by which this would be achieved would be the substantial reduction in payments to dealers as a result of the switch to the agency model, thereby significantly reducing the costs to Mercedes-Benz while at the same time requiring the dealers to bear the financial risk.

The court papers say that on 22 July 2021, Harald Wilhelm, Daimler AG CFO and a DAG board member, stated in public comments in a DAG Mercedes Benz Strategy Update Call that the “switch to the direct sales model is the most important change in how we manage sales” because, inter alia, “it takes cost out”. 

“Despite the existence of a plan to introduce agency sales and strip the dealers of their livelihood, Dealers were repeatedly encouraged to continue to make significant investments in their businesses.  In some cases, this amounted to multiple millions of dollars.

“Despite having to resort to legal action to halt the imposition of a business model resoundingly rejected by Australian dealers, Mercedes-Benz head office has proceeded to ram through the introduction of the agency model in January this year.

“The implementation has been shambolic, and the very early indications demonstrate real reasons for concern about the impacts of the agency model.  Some dealers have reported a more than fifty per cent decline in sales for the month with repeated failures of key operating systems, lack of technical support and a complete lack of communication to the customer base regarding the new model.

“We accept that Mercedes-Benz is perfectly entitled to change its business model, however we do not accept the appropriation of hundreds of millions of dollars in value built up by the local industry over many years without the payment of compensation.”

Updated February 8, 2022: a Mercedes-Benz Cars Australia spokesperson: “As this matter is before the courts, we have no further statement at this time other than to say that the allegations made by the dealers in their Statement of Claim have not yet been responded to as part of the litigation process, and Mercedes-Benz Cars Australia should be afforded the right to do so, in the context of the court process.”

Meanwhile, according to the court papers:

MBA made assurances that the Agency model would not be implemented without the support of dealers:

On 14 August 2017, at a meeting convened by MBAuP with all Dealers at Melbourne Airport at which the Agency Model was first mentioned, Mr von Sanden stated, We won’t go to war with the network on this. We are not going to force this.”

In an email of 20 April 2018, sent to certain Dealer owners, Mr von Sanden stated in respect of a new model, “it needs the full buy-in of our business partners. An inclusive approach of creating ‘Willing Participants’ in our retail network is the only way that can work”, and that MBAuP would Only go ahead with a change it it…has the full support our retail network.

In a meeting on 18 July 2018, Mr von Sanden stated to Mr Jennett that “I want to keep discussions going in relation to the future model…and I stand by my willingness to shelve agency if dealers don’t want it.”.

On 4 December 2018, in a Business Briefing with all Dealers, Mr von Sanden stated Change can only happen with Dealer input. Mercedes-Benz can’t afford to force dealers to move to Agency.”

On 11 December 2018, Mr von Sanden sent an email to the NDC and ADAC stating “and as said many times before we are absolutely open to considering appropriate alternatives to the so called Model D.”

On 26-27 December 2019, in a Business Briefing with all Dealers, Mr Nomikos stated We want to do this with you not against you.”

On 14 December 2019, Mr Luhrs advised the representatives of the Dealers that “Daimler want to roll out the Agency Model and they want it to work. It needs support from approximately 75% of the dealer network.”

On 11 February 2020, Messrs von Sanden and Nomikos sent an email to the NDC and ADAC stating “We also acknowledge that early implementation of the agency model will not be possible without the support and satisfaction of the Dealer network.”

MBA knew the agency model was a bad outcome for dealers:

On 17 November 2020, at a meeting between MBAuP and representatives of the NDC, Mr von Sanden advised that it had been a battle with Stuttgart to get a better model to present to the Dealer network”.

In March 2019, Deloitte provided individual models of the impact of the Agency Model for the representative MB Dealers at and following Deloitte workshop 4 on 18 March 2019, using eProfitFocus data that was collected by MBAuP from Dealers. 

The model for the Geelong Dealership of Mr Jennett, demonstrated that under the Agency Model, the dealership’s profitability would decline by over 50% compared to the Dealership Model. 

Mercedes assurances they were committed to dealers for the long term:

In July 2002, Matthias Luhrs, then CEO of MBAuP and now a senior executive at DAG responsible for Australia, wrote to Baker Motors in Albury, prior to it investing in an Autohaus showroom, stating that it is in the Dealer’s hands to ensure their long term association [with MBAuP] by achieving targets and mutually agreed improvement.

In March 2010, the Managing Director of MBAuP, Mr von Sanden, publicly stated that Dealers were protected if they invested heavily in facilities and that MBAuP wanted to nurture a culture of partnership with its Dealers.

In July 2015, Deloitte on behalf of MBAuP circulated an Information Memorandum in relation to the proposed sale of the Toorak MB Dealership in which it was stated that MBAuP’s objective in selling the Dealership was to “build as strong and mutually beneficial partnership with the potential bidder in order to maximise the long-term success and sustainability of the [Toorak] business as well as Mercedes-Benz in Australia.

In July 2018, Mr von Sanden informed the members of the representative Australian Dealer Advisory Committee (ADAC) that MBAuP’s intention is for a long term and loyal relationship with dealer network”.

In October 2018, Mr von Sanden advised Dealer representatives present at the MBAuP workshop, held in conjunction with Deloitte, to consider possible changes to the operating model in Australia, that “Dealer investments need to be protected”.

In November 2019, at a Business Briefing for all Dealers, Mr von Sanden referred to alleged challenges that MBAuP contended were leading to changes in the market and stated, inter alia, “We need to keep up the spirit of partnership as we face [the alleged challenges]

In December 2019, Mr Luhrs, at a dinner meeting between DAG, MBAuP and Dealer representatives, stated, inter alia, in relation to consideration by the Dealers of the Agency Model, We are your partners”.

Dealers rejection of the Agency model:

On 20 June 2018, the NDC convened a meeting of Dealers to consider and discuss what was then known about the Agency Model. At that meeting, in a vote that was taken, 26 out of 35 Dealers present disagreed with any further review of the Agency Model. The lack of Dealer support for the Agency Model was communicated to MBAuP at a subsequent meeting between MBAuP and dealer representatives on 27 June 2018.

On 4 December 2018, at the Dealer Business Briefing with MBAuP, MBAuP noted that the Dealers had expressed concern about a loss of goodwill in their dealerships, a loss of control of the customer and the removal of the role of the Dealer. MBAuP stated that change to an Agency model “can only happen with dealer input”.

On 2 April 2019, representatives of the ADAC met with Ms Seeger and Mr Luhrs of DAG in Berlin at which they provided Ms Seeger with a detailed review and response to the Agency Model, setting out the detailed reasons why the Agency Model was unacceptable to the Dealers.

On 27 November 2019, the NDC convened a meeting of Dealers following a detailed Dealer Briefing about the Agency Model from MBAuP. In a secret ballot conducted of the Dealers, 51 out of the 55 Dealers voted “no” to the Agency Model, 2 voted “yes” and there were 2 informal votes. These results, together with the voting papers, were immediately conveyed to MBAuP by the NDC.

The annual Dealer Briefing planned by MBAuP for 9-10 December 2020, at which MBAuP had indicated it would present its latest version of the Agency Model for consideration by the Dealers, did not proceed.

On 8 June 2021, the NDC collated extensive responses and objections from the Dealers to the Indicative Draft Agency Agreements circulated on 3 May 2021, which were sent to MBAuP, which was further updated on 11 June 2021, and in respect of which a further response document was prepared on 28 June 2021. 

On 18 June 2021, HWL Ebsworths (HWLE) on behalf of the Dealers sent a letter to MBAuP with a schedule of clauses in the Agency Agreement to which the Dealers objected.

By John Mellor

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