People close to the issue are also saying that the possibility exists of GM being without a sales network for their phoenix GM RHD conversion business.
A letter from HWL Ebsworth to GM Holden on behalf of the dealers says that an assumption by Holden “that there will be a continuation of the profitable service, repair and parts activities, whether under the current agreement or a new services agreement through to the end of 2025 is fundamentally flawed”.
The letter goes on to explain the commercial headwinds dealers would experience from taking on a new Holden service agreement including a huge drop in the number of cars available to service and strong competition from independent service operations once Holden showrooms close.
But, if Holden dealers are not able to take on the continued role of Holden service and parts, this would leave more than a million Holden owners, and especially those who bought a Holden more recently, without the authorised warranty, service and parts coverage that Holden requires to fulfill its assurances to the public that Holdens will be supported in the Australian market for the next 10 years.
People who have bought Holdens since the announcement that Holden was leaving the country would have a just claim that they were misled into believing that Holden service was going to be available from a conveniently located network of service centres provided by the 180 Holden dealers across the country.
The dealers have penned a response to GM Holden’s recent press release lampooning the core of the dealers’ claims; a copy of which has been shown to GoAutoNews Premium (see full transcript below).
GoAutoNews Premium has been told that the letter raises the distinct possibility that unless Holden can come to a settlement, its present dealers will not be in a position to sign on as service dealers (which Holden is requiring a settlement by dealers of its current offer) and therefore, in the absence of a settlement, the service operations of Holden dealers will have to close.
The letter says that, if GM wants to have “an orderly exit of the Australian market” (ie: wants to ensure Holden owners are adequately covered for service, warranty and parts support), then GM “needs to make an acceptable offer” to the dealers.
The problem for Holden is that if the dispute goes to court and is prolonged over time, then Holden will have no dealers to service its cars given the time it takes for litigation to complete.
And if Holden does lose all of its service dealers, or even the bulk of its dealers, then all the service training and specialist technical knowledge about Holden vehicles that resides within Holden service departments will be lost.
This technical intelligence is key to the successful maintenance of a brand’s car parc and essential for fulfilling vital safety recalls which will inevitably occur over time.
GoAutoNews Premium has been told by someone with close knowledge of the issue: “If Holden continues to play hard ball, it is fraught with danger for GM.
“Dealers can simply accept that GM has ended the dealer agreements. If that happened they would:
- Take Holden out of their trading name
- Take down the signs
- Continue to service Holdens with genuine parts (if anyone sells them) or non-genuine parts
- Continue to do warranty for their customers which would be billed back to Holden at the full retail price and time on the job – not at the poor margins that distributors get away with now.”
He added: “Dealers could probably also go back three years under the ACL (Australian Consumer Law) and demand full retail compensation for all warranty parts and labour on previous repairs – something that Holden could not refuse if a car has been fixed.
“In effect, the dealers could write their own rules under the ACL and Holden would have no choice in the matter,” he said.
Here is the latest letter from the dealers to GM Holden
1. Our response to your letter dated 5 May 2020 is set out below.
2. Whilst you have characterised our clients’ offer as an ‘ambit’ claim, GM Holden’s response:
(a) amounts to rejection of our clients’ offer to settle their claims;
(b) included no counter offer or attempt to seek a negotiated settlement to the claim;
(c) simply re-states GM Holden’s previous offer and in effect invites our clients to commence litigation if that offer is not accepted.
3. The reason GM Holden appears to have declined to accept our clients’ offer or made any counter offer is because:
(a) it is evident from GM Holden’s email to our clients sent yesterday that GM Holden has assumed that KPMG’s per car profit calculations are inaccurate because there will be a ‘continuation of the profitable service, repair and parts activities, whether under the current agreement or a new services agreement through to end of 2025’; and
(b) GM Holden asserts that there is no basis:
(i) for any claim that the statements made by the GM Entities constitute misleading, deceptive or unconscionable conduct; and
(ii) for the argument that GM Holden acted unconscionably by granting dealers a 5 year term.
4. Whilst we don’t want to engage in a debate with you on these points, as the true position will ultimately be determined by a Court, there is some apparent misconceptions that need to be addressed with respect to the response from GM Holden.
Assumption that there will be a ‘continuation of the profitable service, repair and parts Activities’
5. The assumption that there will be a ‘continuation of the profitable service, repair and parts activities, whether under the current agreement or a new services agreement through to end of 2025’ is fundamentally flawed. We say this because:
(a) it fails to take into account the fact that upon our clients accepting GM Holden’s repudiation, none of our clients will be operating as authorised ‘Holden’ service or parts suppliers. GM Holden appears to completely ignore this in its modeling;
(b) even assuming that any of our clients elect to continue to operate under the current agreement or accept a new services agreement, GM Holden’s calculations do not appear to account for the fact that:
(i) our clients will not receive any income for ‘service and parts’ for Holden vehicles it can no longer sell for the next 2.5 year due to the decision to ‘retire’ the brand. This amounts to losing the opportunity to service and sell parts for in excess of 100,000 vehicles. Based on Holden data, dealers earn an average service and parts gross profit of $1,606 on each ‘capped price service’ vehicle sold and $1,082 on maintenance services;
(ii) in addition to not being able receive any income for ‘service and parts’ for in excess of 100,000 vehicles, our clients lose the $200 pre-delivery charge and selling accessories (average of $1,285) for each of those vehicles;
(iii) of the existing Holden fleet in the market place, there will be a material drop off in customers who will seek to have their vehicles serviced at an authorised Holden service dealer where the vehicle no longer subject to ‘Capped Price Service’. This will be caused by a number of reasons, including:
(A) aggressive advertising by independent service providers targeting Holden customers; and
(B) the natural leakage that occurs with customers not having their vehicles serviced by the dealer from whom they purchased the vehicle;
(iv) the income stream that may be generated from the service agreement that is being offered by GM Holden Pty Ltd needs to discounted to take into account that the service agreement permits
another service provider to be appointed in the same postcode (clause 2.3(g) or for Holden to merge with another competitive service provider and require the dealer to stop using Holden signage
and trademarks (clause 15.5).
6. GM Holden has sought to represent in their email to our clients yesterday and to the media that the analysis by our firm and KPMG has been misguided and that the offer it has made is underpinned by the rigorous analysis of PwC. However, the fact is that when representatives of KPMG asked PwC how the $1,500 per car figure GM Holden has offered was calculated, they said they were not involved in calculating the figure and they understood that GM Holden came up with a much lesser number and ‘rounded’ it up to $1,500. PwC have also provided no explanation for the $343 discrepancy in the ‘below the line margin’ figure paid by GM Holden to each dealer for a vehicle sold (KPMG $2,025 v PwC $1,682), yet their figure is said to be based on information provided by dealers.
7. The KPMG calculation of the per car contribution margin was made in the absence of any analysis being provided to them behind GM Holden’s offer of $1,500 to our clients. It would be helpful if the detailed PwC analysis and assumptions, now being used to rebut the calculation can be provided. In particular, any evidence PwC has supporting their analysis of the supposed ‘errors’ and ‘invalid assumptions’ used by KPMG would be helpful.
Claim that there is no basis for any claim that these statements by the GM Entities constitutes misleading, deceptive or unconscionable conduct
8. For our clients to succeed in their claim, they do not have to prove there was a ‘secret plan’ to exit Australia as characterised by GM Holden, or indeed any plan at all. Our clients need only establish that:
(a) prior to entering into the current dealer agreements there was a risk that GM may decide not to continue with the current term of the dealer agreement or a renewal of that agreement;
(b) that risk ought to have been disclosed to our clients; or
(c) by their conduct, the GM Entities represented that there was no risk whatsoever when there was no reasonable basis for doing so.
9. Further, our clients do not contend, based on the representations made, that ‘Holden would continue in business in Australia indefinitely’ as asserted in your letter. To the contrary, the inclusion of clause 2.3 in the dealer agreement (the renewal term), amounted to an implied representation to our clients that GM Holden had an intention or capacity fulfil the term of the agreement and to renew the dealer agreements beyond December 2022. HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54. In all the circumstances, GM Holden had no
reasonable grounds for making that representation.
10. It is curious that the GM Entities would suggest that there was never a risk that it would exit the Australian market during the current term of the agreement or any renewed term given, among other things:
(a) the reference made in the opening paragraph of the Press Release announcing the ‘retirement’ of the Holden brand in Australia that the decision was consistent with the ‘strategic plan’ announced by Mary Barra, the CEO of GM, in 2015;
(b) Holden’s flagship model, the Commodore, was from 2017 imported to Holden pursuant to a supply agreement with PSA (a French company unrelated to GM) which expired in 2020;
(c) leading up to the entry of the current dealer agreements in 2018, all Holden dealers were required to enter into short term dealer agreements so that the start and finish dates of the now current dealer agreements could all align. This had never been done in the history of Holden in Australia and was clearly intended to ensure that all Holden agreements could expire at
the same time. This is very convenient if a decision is made to exit the market;
(d) the Financial Statements for GM Holden Pty Ltd for 2015 & 2016 contained the following statement:
Future Developments
Disclosure of information regarding developments in the operations of the Group in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Group. Accordingly, this information has not been disclosed in this report.
11. As to the ‘very significant investments’ the GM Entities say they have made, apart from the fact that they were underpinned by Federal and State Government grants worth hundreds of millions of dollars, our clients do not have to establish they were ‘ruse’. We otherwise refer to and repeat paragraphs 8 & 9 above.
Unconscionable conduct
12. It is fanciful for GM Holden to suggest that our clients, through the Australian Holden Dealer Council (AHDC), freely negotiated and agreed to a 5 year term of the dealer agreement. The five year term of the dealer agreement was always a ‘take it or leave it’ proposition. It is also apparent that you have not seen the numerous letters sent by dealers expressing their concern over the manner in which the current dealer agreement was negotiated.
The text of one of those letters is set out below:
‘We attach the signed 2018 Holden Dealer Agreement. Thank you.
We understand that the Australian Holden Dealer Council (AHDC) held ‘In Good Faith Discussions’ with GM Holden Ltd and/or General Motors Holden Australia NSC Ltd (Holden) in regard to commercial matters in the new Holden Dealer Agreement. We consider the new Dealer Agreement contains a number of clauses which are likely to be unfair contract terms or which unreasonably expose us to the exercise by Holden of discretions which may cause us substantial financial loss.
We understand that through those discussions the AHDC made a small number of recommendations that were included by Holden in the agreement, but there were also many that were not.
We have signed the agreement in the knowledge that Holden will not make further changes to the agreement for us. We do remain concerned in regard to a number of clauses that Holden have not agreed to change, however the commercial reality is that we do not have an alternate available as an existing Holden dealer we have already invested substantial capital in the brand.’
13. In addition to the matters of we have already informed you, the matters a Court may have regard to for the purposes of determining whether the GM Entities have engaged in unconscionable conduct include the extent to which the GM Entities unreasonably failed to disclose to our clients:
(a) any intended conduct of the GM Entities that might affect the interests of our clients; and
(b) any risks to our clients arising from the GM Entities’ intended conduct (being risks that the GM Entities should have foreseen would not be apparent to our clients),
(section 22(1)(i) of the Australian Consumer Law).
14. The GM Entities have consistently failed to disclose to our clients any intended conduct that might affect their interests or any risks to our clients arising from their intended conduct. To the contrary, they have made numerous and repeated representations to our clients that they intended to operate in Australia for at least the current term of the dealer agreement and a further term of renewal. Based on those representations, our clients have made significant investments in acquiring, operating and refurbishing their dealerships to their detriment.
15. If this claim is accepted by a Court, GM Holden may well be liable to compensate our clients for not only their foregone revenue for the current dealer agreement, being 2.5 years, but also a further 5 years based on the representation of an opportunity of a renewed term. The 7.5 years of compensation is not baseless as you have alleged in your letter.
Concluding Remarks
16. In response to a genuine offer to negotiate with our clients in good faith, the GM Entities have rejected that invitation. Instead, they have once again sought to contact our clients directly and disparage the genuine efforts our firm and KPMG have undertaken to seek a resolution to this dispute. Further, it is disappointing that COVID-19 is being used as a threat to pressure our clients into accepting GM Holden’s derisory offer.
17. Our clients have shown incredible loyalty to the Holden brand over many years. They are disappointed that their bona fide efforts to reach a commercial agreement have been seen as an ambit claim by GM. This is simply not the case.
18. If the GM Entities believe that there is no basis for the claims made by our clients, then we invite them to apply to strike them out upon legal proceedings being issued.
19. If the GM entities wish to resolve the dispute and have an orderly exit of the Australian market, then they need to make an acceptable offer to our clients.We encourage the GM Entities to reconsider their position and again offer to meet with you and your clients (via video call) to discuss their differences and reach a commercial outcome.
By John Mellor
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