THE federal government’s ‘Automotive Principles’ announcement of voluntary guidelines for new car dealership agreements has sparked a contradictory war of words among industry groups representing both dealers and manufacturers.

While the Australian Automotive Dealer Association (AADA) slates the document for siding with car manufacturers, the Federal Chamber of Automotive Industries (FCAI) accuses it of pandering to dealers.

Responding to Friday’s announcement by federal industry, science and technology minister Karen Andrews, AADA chief executive James Voortman described the voluntary approach as “doomed to fail” and questioned why the government had not waited until the Senate inquiry into car retailing had concluded.

Meanwhile FCAI chief executive Tony Weber labelled the principles as “unhelpful” and “a classic example of overreaction which has the potential to create confusion”.

Announcing the voluntary guidelines as part of a package of reforms, including an automotive-specific schedule for the Franchising Code of Conduct, increased penalties for code breaches and the outlawing of unfair contract terms, minister Andrews said the government would “review the relationship between car dealers and manufacturers in two years”.

Referring to the review timeline, Mr Voortman warned that “the potential damage that can be done before these principles are reviewed in two-years’ time is immense”.

Taking a contrary view, Mr Weber criticised the introduction of new guidelines into a recently reformed regulatory environment as creating uncertainty and a deterrent to change and innovation.

“The real impact of these reforms in the marketplace has yet to work its way through the system,” he said.

“Continually adjusting the framework just leads to greater uncertainty.”

The AADA has lobbied long and hard for tighter automotive franchise laws that address what it sees as a power imbalance toward multinational manufacturers and mandatory protections against OEM overreach that has variously been described as “predatory” and “abusive” when companies such as GM Holden exited the market or during the switch by Honda and Mercedes-Benz to an agency sales model.

“Make no mistake, this is a victory for multinational car manufacturers,” said Mr Voortman.

“Companies like GM who terminated dealers with inadequate compensation only to start a new business in Australia under a different name. Companies like Mercedes-Benz who have announced they will change their model in 12 months’ time and pay no compensation to businesses that have represented them for decades. Companies like Honda which according to testimony in a Senate Inquiry has bullied and threatened terminated dealers.”

But Mr Weber said government intervention was required “where this is a clear market failure, not to halt progress”.

“Steps by the government and dealers to deter change and innovation will come at the expense of consumers. Like every other part of the retail economy, the way customers wish to buy vehicles is changing. This change should be encouraged by government, not hindered to maintain a cosy relationship with car dealers.”

Citing the example of General Motors’ dismissal of a request by employment, skills, small and family business minister Michaelia Cash to engage in voluntary arbitration, Mr Voortman suggested overseas OEMs would continue to ride roughshod over the new voluntary principles.

“What we have today is a do-nothing policy cynically released on a Friday afternoon,” he said.

“Just when dealers thought this year could not possibly get worse, minister Karen Andrews has sided with multinational car manufacturers, some of which have treated Australian dealers and their customers with absolute disdain in 2020.

“It is dealers who employ 60,000 people. It is dealers who take on thousands of apprentices. It is dealers who pay their taxes here in Australia,” he said.

Here are the best practice principles for new car dealership agreements from the Department of Industry website

Principle 1

Franchisors should include provisions in new dealership agreements that provide for fair and reasonable compensation for franchisees in the event of early termination resulting from:

• Withdrawal from the Australian market
• Rationalisation of their networks
• Changes to their distribution models

Principle 2

Franchisors should not include provisions that exclude compensation in new dealership agreements.

Principle 3

The ‘fair and reasonable compensation’ as referred to in Principle 1 should include appropriate allowances for the loss a franchisee may incur, which can include:

• Lost profit from direct and indirect revenue
• Unrecovered expenditure and unamortised capital expenditure where requested by the franchisor
• Loss of opportunity in selling established goodwill
• Wind up costs

Principle 4

When an agreement is entered into it should provide franchisees a fair and reasonable time to secure a return on investments that have been required by franchisors as part of the agreement.

Principle 5

Agreements should include reasonable provisions for franchisors to compensate or buy back new vehicle inventory, parts and special tools, in the event of:

• Non-renewal
• Withdrawal from the Australian market
• Rationalisation of their networks
• Or changes to their distribution models

Principle 6

Agreements should include provision for timely commercial settlement and dispute resolution.ends

By Haitham Razagui