The penalties for some offenses are $10 million per offense.

The new penalties revolve around issues such as:

• Providing compensation for early termination of dealer agreements
• Failing to provide return on investment on premises upgrades within the terms of the contract
• Preventing dealers from forming dealer associations

James Voortman

The previous maximum penalty under the Code was about $64,000 which the CEO of the Australian Automotive Dealer Association James Voortman said “was just nothing for an OEM to find”. 

The new increased fines apply to all breaches of the Franchising Code of Conduct. The penalties for most breaches to the Code have been doubled to 600 penalty units ($133,200).

The toughest fines apply only to a select number provisions of the Code, including those specific to the automotive sector.

For example, OEMs are now required to provide compensation for early termination in their dealer agreements. 

The AADA said: “OEMs are also not allowed to enter into a franchise agreement unless the agreement provides the dealer with a reasonable opportunity to make a return on the investment, during the term of the agreement.

The maximum penalty available for breaches of these provisions will increase to the greater of $10 million; three times the benefit gained; or 10 per cent of annual turnover.

“Some people would argue that the Holden Dealers and the Honda Dealers in dispute with their OEMs would have been in a stronger position had these provisions and associated penalties been in place,” the AADA said. 

The largest fines will also apply to the section of the Code which states that a franchisor may not restrict the ability of franchisees to form an association, which should be a signal for any OEMs looking to obstruct the formation of a dealer council or membership to a dealer-focussed industry association. 

The AADA said in a statement that it welcomed the Morrison government’s announcement of increased penalties for breaches of the Franchising Code of Conduct.

“Stronger penalties in conjunction with recently introduced reforms to the Franchising Code of Conduct are good for small businesses and they are good for franchised new car dealers,” Mr Voortman.  

“The penalties come after a series of franchising disputes between automotive dealers and vehicle manufacturers and they provide a greater deterrent for those franchisors which breach the Franchising Code of Conduct,” he said.  

“These changes will bring a degree of balance to the relationships between new car dealers and the manufacturers to which they are franchised. The reforms are sensible and fair and will encourage all manufacturers to rise to the standard already employed by ethically-minded car brands operating in Australia,” he said.

“Franchised new car dealers are determined to work with manufacturers in good faith in this time of great change in the automotive industry. The Government’s reforms are not aimed at stopping change, but rather ensuring it is conducted in a fair and reasonable manner,” Mr Voortman said.

“We would like to thank the Minister for Small and Family Business, Stuart Robert, for the work he and other members of the Government have undertaken in bringing about these landmark reforms in recent times,” he said.

Automotive dealerships are important local businesses which employ Australians, invest in Australia and pay their tax in Australia. Dealers look forward to healthy commercial relationships with their manufacturers, so we can continue to bring many benefits to Australian consumers and communities.

By John Mellor