In a submission under parliamentary privilege to the recent Senate hearing into the relationship between car manufacturers and dealers, two director/shareholders of Astoria Honda Brighton in Melbourne’s inner south, Mark Avis and Ron Klein, say they have not been included in the plans by Honda Australia to move to an agency sales model.
The inquiry was told that Honda Australia was taking its most successful dealer in Australia, terminating its business and then handing its customer base and sales momentum to another business without paying compensation.
The inquiry was told that “the goodwill and customer-base built up over 50 years of selling and servicing Hondas will be ‘gifted’ to another business”.
The dealership has 34,000 customers in its database. In 2019 it was Honda’s top-selling dealer in Australia and it has been the biggest-selling parts dealer for Honda in Australia for the past 10 years.
The rights to their intellectual property they hold in the customer database has to be signed over to Honda Australia as part of the exit deed.
Astoria Honda Brighton is one of about 30-40 Honda dealerships to be terminated under the new model, mostly in metropolitan areas. In Melbourne, 11 dealers have been terminated and three have been offered agencies.
The hearing was told that by not paying terminated dealers compensation for the value of the goodwill they have built up over time, Honda Australia was avoiding payments totalling several hundred million dollars.
Mr Avis and Mr Klein said, in a written statement to the Senate Committee (full transcript below) and in verbal evidence, that attempts to negotiate fair terms of compensation with Honda Australia have proved futile and have left them with no choice but to take legal action to recover proper restitution.
They said that Honda Australia was offering them half the compensation level that Holden dealers were offered (and that Holden number was said to be inadequate).
A calculation by the accountancy firm, Fordhams, showed that the compensation offered should be four times greater than the Japanese giant was offering.
“The compensation methodology used grossly under-values the actual loss we will suffer, let alone the value of the goodwill we have established in our business,” the company said.
The statement said that the dealership was also being excluded from ongoing authorised service of Hondas as this was being handed over to the agency operator which would be taking over Astoria’s market area.
“We understand that Honda Australia intends to “gift” our database to the new agency dealer who is allocated our geographical area. The financial compensation offered does not even cover our loss of profit had the dealer agreement been performed for the balance of its term,” their statement said.
In spite of a signed dealer agreement running from June 2018 to June 2023, on 23 March 2020 “we were informed by Honda Australia, without any prior notice, that our dealer agreement would be terminated with effect from 30 June 2021”.
“As a consequence we are forced to go to court against a multi-national organisation to receive just and fair compensation.
“At all times, Astoria Honda Brighton is and has been an innocent party and it was Honda Australia who breached the dealer agreement. However, we have been made to feel that we are the wrongdoer.”
They said in the statement that Astoria Honda Brighton, and its predecessor, Astoria Honda, a family owned authorised Honda dealership, has been operating continuously for more than 50 years. The late Henry Klein started selling Honda cars in 1967.
“In 2019, Astoria Honda Brighton was the largest selling Honda dealer in Australia. More than 120 new and demonstrator vehicles were delivered each month and we were a finalist in the Honda National Dream Awards.”
The company has sold and delivered around 18,000 Honda cars over the past 10 years and has a current database of more than 34,000 customers. Astoria Honda Brighton is also the largest Honda spare parts dealer in Australia, they said.
Mr Avis said to the hearing: “Why would you sack your biggest dealer with your highest sales levels and the highest KPIs? I mean, we’ve been doing a job for them for 50 years. And we got sacked.”
Senator Deborah O’Neill said the move “seemed inexplicable”.
Mr Avis said the agency dealers “are supposed to be setting up camp in our PMA … so the number of dealer points are going to increase from three to five or six, whatever it’s gonna be and then, of course, we’ve sold thousands and thousands of Hondas into this area and they’ll get it for nothing.”
“ In our area we punch well above our weight. The Honda percentage in our area is very high. But that’s been built up over 50 years. So for someone else just to come in and take over that area, I mean, it’s an absolute goldmine for someone, absolute goldmine.
Senator Louise Pratt (Committee chair): “So you would argue that Honda is essentially taking that value away from you, and either capturing it for themselves or for whichever agents are allowed into the area … was there any value on that placed in your compensation package?”
Mr Avis: “None whatsoever.”
The position in which Astoria Honda Brighton finds itself shocked Senators who are already in a fighting mood following the way that Holden shut down attempts by the federal government to negotiate fairer settlements for Holden dealers and the way that General Motors studiously ignored and insulted parliamentarians and ministers of the crown.
At the recent AADA Convention and Expo, seven ministers and senior politicians from both sides of the aisle sent video messages of support for car retailers. Two federal parliamentarians – Labor Senator Deborah O’Neill and Liberal Senator David Van – were interviewed in plenary sessions.
Senator O’Neill, in her plenary session interview with the Australian Automobile Dealer Association CEO James Voortman, was strident in her determination to get a better deal for franchisees against the uneven power wielded by international franchisors.
Senator O’Neill has introduced a private senator’s bill to parliament that calls for a $10 million penalty per offense for wrong-doing under new franchise regulations.
SEE STORY: Senator’s GM Spray
Senator calls Honda’s behaviour “disgraceful”
During the hearing, Senators heard that Honda Australia was holding Astoria Honda Brighton to the non-disclosure clauses of its dealer agreement and directed that it not tell its Honda customers that the businesses would be closing in mid 2021.
Mark Avis told Senators: “They have forced us into a situation where we can’t tell the truth. If I am asked a direct question: Would you be a Honda dealer in the future? The answer I think came through from their PR department was: ‘You will be looked after in the future by a Honda dealer’ or something along those lines.
“We weren’t allowed to tell the customers that we had been terminated.”
He went on: “And now we had a situation where one of those agency dealers was telling customers that other dealers wouldn’t be a dealer in the future.”
Senator O’Neill: “So not everybody got the memo to get in on the deception. So the three dealers that have been advantaged can immediately bank that advantage because they can say: ‘We will be a dealer’ and they are in fact telling people that you’re lying to them. Other Honda dealers have been set up against you.”
Mr Avis: “In effect, yes.”
Senator O’Neill: “That’s disgraceful. I don’t know of a single Australian who would think that that’s okay. And I thank you for putting that on the record because that’s the kind of thing that really matters.
“People expect the truth to be told in business and I certainly would be unaware of the sorts of pressure that you’re coming under from these large overseas companies to treat Australians in that way.”
Astoria owners found Deloitte “intimidating”
Mr Klein told the hearing that, during the course of the negotiations regarding compensation, Honda were represented by the Deloitte accountancy firm, and Deloitte did all the negotiations with Honda in the background.
“It was completely one-sided as far as we were concerned,” Mr Klein said.
Asked by Senator O’Neill to outline to the committee his experience with Deloitte acting for Honda, Mr Klein said: “Well, we found Deloitte very, very intimidating. We found it was a very one-sided negotiation regarding adequate compensation.
“They used intimidatory tactics, which are outlined in our submissions and it was very one-sided.”
Senator O’Neill: “So in terms of the intimidatory tactics that were employed, on your evidence, by Deloitte, you argue in your submission that they said to you, any litigation from you would be very protracted; would take a very long time and that would be their intention. What would the benefit of making a long period in court be for Deloitte and why do you think they said that to you?”
Mr Klein: “Simply because they were indicating that it’s going to be long, expensive, and that the result you would get would be no more favourable than what they’re offering. To me that’s intimidatory. It’s outrageous, to say the least. And it was designed to intimidate dealers from not pursuing any further action and, of course, quite a number did not pursue any further action.”
Senator O’Neill: “So in addition to your own experience of that intimidatory behaviour, as you describe it, Mr. Klein, you’ve just put on the record that this was the standard operating model of Deloitte in its interactions with other dealers that you know of, but who are, perhaps, too frightened to speak out. Is that the case?”
Mr Klein: “That is correct.”
Senator O’Neill: “Finally, you have been very clear in your submission that Deloitte indicated to you if you’re unsuccessful, that costs would be pursued from you on an indemnity basis. Are you the only company that you know to have received that sort of communication from Deloitte and what do you think the purpose of those comments were from the representative of Honda through Deloitte?
Mr Klein: “I believe that was conveyed to other dealers and others have shared that with me confidentially that those tactics were used on other dealers and I believe there’s actually some evidence of that in writing.”
Full statement from Astoria Honda Brighton to the Education and Employment References Committee inquiry into the relationship between car manufacturers and dealers. This statement was made prior to the company’s appearance at the hearing.
Our names are Mark Avis and Ron Klein. We are the directors and shareholders of Brighton Automotive Holdings Pty Ltd trading as Astoria Honda Brighton in Melbourne (Astoria Honda Brighton).
Astoria Honda Brighton and its predecessor, Astoria Honda, is a family-owned authorised Honda dealership which has been in continuous operation for over 50 years. The late Henry Klein started selling Honda cars in 1967. It was a few years later, on 4 February 1969, that Honda Australia Pty Ltd (AUH) was established to sell Honda cars in Australia.
In 2019, Astoria Honda Brighton was the largest-selling Honda dealer in Australia. More than 120 new and demonstrator vehicles were delivered each month and we were a finalist in the ‘Honda National Dream Awards’.
Over the last 10 years, Astoria Honda Brighton has sold and delivered approximately 18,000 Honda cars and has a current database of over 34,000 customers. Astoria Honda Brighton is also the largest Honda spare parts dealer in Australia.
In June 2018 Brighton Automotive Holdings Pty Ltd entered into a dealer agreement with AUH for a term of five years commencing on 1 July 2018 and expiring on 30 June 2023. On 23 March 2020 we were informed by AUH, without any prior notice, that our dealer agreement would be terminated with effect from 30 June 2021.
We understand that AUH has decided to move to an agency model and will be reducing the number of national dealers. AUH had no right under our dealer agreement or the Franchising Code of Conduct to give us notice to prematurely terminate our dealer agreement.
Along with our dealership, approximately 30 other metropolitan Honda dealers Australia-wide received similar notices of termination.
The termination of the dealer agreement came as a great shock and disappointment to us. We employ over 100 staff who have been loyal to our company and the Honda brand. Some employees have been with us for over 30 years.
After having received the notice of termination, AUH handed all further communication to Deloitte Financial Advisory Pty Ltd. The compensation methodology used (as calculated by Deloitte ) grossly undervalues the actual loss we will suffer let alone the value of the goodwill we have established in our business.
The National Honda Dealer Council engaged Mr Evan Stents from HWL Ebsworth to represent the terminated dealers and negotiate a fair and reasonable settlement. Fordham Accountancy Group (a dealership accountancy specialist) was retained to evaluate the terminated dealers’ damages claim.
At that time, there was over three years to run on our dealer agreement. The Fordham compensation payment calculation was four times more than the offer made to us by AUH.
Regulation of the relationship between car manufacturers and car dealers in Australia (formerly General Motors Holden Operations in Australia) Submission 51. If we were to apply the General Motors compensation formula to our FY19 sales volume, the offer made by AUH is less than 50% of the GM cash component.
Furthermore, the GM dealers were offered a five-year parts and service contract. Parts and service is an important source of revenue for dealers and was not offered to the terminated Honda dealers.
We have had conversations with other Honda dealers. Many have reluctantly decided to accept their offer because they don’t wish to be involved in litigation and have otherwise been muzzled by an Exit Deed.
They have advised us that they have also been subjected to intimidatory tactics but have folded as they do not have the appetite to continue.
The inadequacy of the compensation offered by AUH combined with the tactics employed to achieve a swift outcome, has made us more resolute to seek a fair and reasonable resolution.
During our discussions with Deloitte, the validity of our profitability, upon which our taxation returns are based, was put into question and amounted to an attack on our personal integrity.
There was no apology for the slight upon our reputation.
On 7 May 2020 at about 5:10 pm, we returned a telephone call from Deloitte. (Redacted name) told us in no uncertain terms that AUH’s offer was better than we would obtain in Court and if we were unsuccessful, costs would be pursued on an indemnity basis. We were also told that any litigation would be protracted and would take a long time to obtain an outcome or any compensation from the termination of the dealer agreement.
On other occasions, (redacted name) told us that a court case would take years to finalise and cost hundreds of thousands of dollars. These actions by Deloitte had the sole intent of further intimidating us.
At all times, Astoria Honda Brighton is and has been an innocent party and it was AUH who breached the dealer agreement. However, we have been made to feel that we are the wrongdoer.
In June and July 2020 Astoria Honda Brighton attended a mediation with AUH that was unsuccessful. Having enjoyed a very cordial relationship with AUH for over 50 years, it is extremely disappointing that the termination of the dealer agreement has occurred in the circumstances described above.
Through no fault on our part, we are not being offered any compensation for the value of the goodwill in the dealership which has been built up for over half a century. The goodwill component is a major consideration for a prospective purchaser in the event of the business being sold.
We understand that AUH intends to “gift” our database to the new agency dealer who is allocated our geographical area. The financial compensation offered does not even cover our loss of profit had the dealer agreement been performed for the balance of its term.
As a consequence we are forced to go to court against a multi-national organisation to receive just and fair compensation.
By John Mellor