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THE chief of GM Holden, acting managing director Kristian Aquilina, in taking to the airwaves on the ABC to put Holden’s side of the dispute with dealers, has inadvertently revealed the company’s failure to successfully manage the franchise on behalf of its dealers.

Mr Aquilina was attempting to explain why GM thought the offer of $1500 compensation per car to Australian Holden dealers was fair.

He told the national broadcaster that Holden dealers were losing an average of $600 for each car sold in 2019. The inference was that dealers were lucky to be offered $1500 a car in compensation.

But in disclosing the $600 loss per car, Mr Aquilina showed the extent to which Holden had failed its franchisees – the dealers.

Dealers, by their very nature, are profit focussed.  They don’t sell cars for practice. They have massive investments in facilities, and in people, resulting in eye-watering overheads.

If they are, on average, losing $600 per car sold across 185 dealerships for a year then something is seriously wrong with the way the franchisor is running the brand. That many of arguably the best car retailers in Australia simply could not be getting it that wrong.

But it is worse than $600 a car and more likely to be thousands of dollars a car per 185 dealers per year because GoAutoNews Premium understands the $600 loss takes into account any profit associated with the sale of the car including bonuses, hold-back, F&I gross and aftermarket and accessory gross.

What does this say about Holden?

The dealers can only control their own costs and, given the losses across the entire network and given that dealers by their very nature will do everything in their power to eliminate losses, then what the franchisor was serving up to them must have been basically a business model not fit for purpose.

The franchisor has the responsibility of choosing the most likely models from the brand’s portfolio, choosing the engine and driveline specification and the features most appropriate to the market, choosing the variants, choosing the price points and options and ensuring that the public have a desire to buy that brand though its history of advertising, promotions and the nurturing of owners.

The only way the dealers can have any influence on any of those factors is through consultation with Holden, usually through the dealer council, but there is nothing that says the factory had to listen.

By getting all the various elements in this matrix right, all dealers (with the occasional exception due to specific circumstances) should be able to make a profit.

The fact that arguably the best car retailers in Australia were unable to make money from the matrix provided to them by General Motors speaks volumes about GM’s inability to run a successful car business in Australia in the best interests of its franchisees.

What is curious about this story is why were Holden dealers in New Zealand profitable when Holden dealers in Australia were not?

Holden has repeatedly said that it was offering New Zealand dealers $2500 a car compensation compared with $1500 a car for Australian dealers because New Zealand dealers were profitable and Australian dealers were not.

Here is why.

It is common knowledge amongst New Zealand dealers that they had a higher margin of about $A1000 more for fleet deals (business, government and rentals) than Australian dealers. NZ dealers also know that their normal retail margin was $A600 a car better than Australian dealers.

That margin was decided by Holden, not the dealers. In effect, that loss of $600 a car Holden dealers incurred in 2019 was dictated by Holden. The dealers had no say in it and no control over it. Now that cost discrimination put in place by GM is being used against the Australian dealers in the compensation offered.

Mr Aquilina told the ABC that a $600 loss per car sold for all of 2019 across the entire network ‘isn’t great’. Indeed.

Mr Aquilina was also dismissive of the fact that, in the face of the company being completely immovable on the level of compensation, dealers sought legal redress. Which is their right.

He told the ABC that the dealers “are being led along by a legal firm that seems hell-bent on wanting to take this through the courts and make this a protracted dispute to only serve the benefit of a lawyers’ picnic.”

It is therefore not surprising to learn that after two days of settlement discussions this week facilitated by retired federal court judge, Peter Jacobson QC, the compensation offer from General Motors GM Holden remains unchanged.

Which is not unexpected because Holden said when it announced it had agreed to mediation that just because it had agreed to mediate did not mean it had to adjust its offer. So they didn’t.

The dealers labelled the GM compensation offer “unchanged, unacceptable and unfair” and have questioned GM Holden’s commitment to good faith negotiations. But, dealers said, the lack of concern by GM was such that “representatives from General Motors’ head office failed to show up”.

The dealers say the “offer fails to adequately compensate dealers for their expected losses and millions of dollars in investment to support the Holden brand which is why dealers fought hard to get GMH to engage in what they thought would be a good faith negotiation process”.

The Australian Holden Dealer Council went on to say that on the eve of the mediation, GM Holden made comments in the press suggesting that future servicing revenue would be denied to dealers which didn’t sign up to the “inadequate and uncommercial compensation packages”.

“These types of statements are consistent with the bullying tactics dealers have had to endure since GM announced plans to stop supplying new cars for dealers to sell and effectively terminate dealer agreements in order to receive GM Holden’s derisory compensation package.

“GM Holden’s actions, and the severity of their impact on dealers, highlight the substantial imbalance of power that exists between franchisee and franchisor.

“GM Holden has backed dealers into a corner and has shown a complete unwillingness to accept the magnitude of the losses that dealers are facing as a consequence of GMH mismanaging their brand.

“All roads seemingly lead to a dead end for dealerships, creating major uncertainty for more than 9,000 employees supporting Holden dealerships.”

The AHDC said it “categorically rejects GM Holden’s claim that it is ‘over-compensating dealers’ and believes GMH has a legal and moral responsibility to recognise the investment dealers have made in making the Holden brand an Australian icon and to fairly and equitably compensate dealers for their losses”.

“$1,500 per car fails to adequately compensate Holden dealers for losses including millions of dollars in showrooms, facility upgrades and corporate signage – investments that were made based on GM’s promises about their commitment to Holden and the Australian market.

“Australian Holden dealers have loyally supported the General Motors owned brands for almost 90 years. To effectively terminate dealer agreements 2.5 years early, without satisfactory compensation, and exit the country in the midst of a pandemic when livelihoods are already under immense pressure is appalling behaviour and is inconsistent with the ethical practices General Motors espouses.”

Holden is offering $1500 per car sold over two and a half years but the dealers have calculated the real damage represents $6000 per car over seven years. New Zealand deals are being offered $2500 a car.

Footnote: GM Holden has consistently maintained from the beginning that its offer to Australian dealers is fair and that it has done nothing wrong in its dealings with its Australian retailers.

By John Mellor

Dealer Auction