The Australian Automotive Dealers Association (AADA) said the changes to the automotive franchising regulations announced this week were a stronger step to a fairer deal between franchised dealers and OEMs, but the stain on the page is the current conflict between Holden dealers and General Motors.
While the government news is seen as a step up for franchised dealers, the representative body for the OEMs said it is confusing and premature and said manufacturers were “furious”.
The Federal Chamber of Automotive Industries (FCAI) issued a statement today saying OEMs were awaiting confirmation of the government’s decision to implement changes from July 1, 2020 “at the earliest”.
“The industry was aware of, and had been working towards, incorporating those changes across the network in a fair and equitable manner to benefit the entire industry,” said FCAI chief executive Tony Weber.
“By providing the industry with no effective notice of the change to the commencement date, new vehicle distributors are understandably furious with the so-called improvement in transparency that has not only confused the industry, but also, it appears, the government,” he said.
“The government has been unable to articulate how this change to the implementation date does anything other than create confusion. How can policies be announced on Friday that start on Monday? Who benefits from these timetables?”
The announcement was made by Industry Minister Karen Andrews who said new regulations for new-car franchised motor dealers would come into operation from June 1, 2020.
It includes a long-awaited separate schedule for new-car retailers within the Franchising Code of Conduct that is designed to assist in addressing a power imbalance between OEMs and dealers and provide better protections for these critical automotive businesses and consumers.
The AADA has acknowledged the changes but its CEO, James Voortman, is now urging the government to urgently address unresolved issues “which allow offshore car manufacturers to squeeze local dealers”.
“These regulations which begin today are a good first step, but given recent developments with General Motors’ termination of 185 Holden dealers, it is clear we have to go further,” Mr Voortman said.
“The real announcement is the government’s commitment to work towards developing an industry standard for compensation and also address the issue of tenure in dealer agreements.
“These are very important issues and they need to go beyond yet another roundtable and result in action.”
The FCAI’s Tony Weber said: “The fact that the government has randomly brought forward the commencement date and prematurely implemented the changes is simply inexplicable.
“The ramifications of this early implementation include significant commercial and potentially legal implications for network management for automotive brands and their dealers.
“The minister needs to correct this error and ensure that the distributors and dealers can make decisions that are in the best interests of the whole network.”
The FCAI said the code of conduct change for car dealers comes at a time when automotive brands and their networks are facing the toughest conditions in recent history, with the industry facing its 26th consecutive month of decreasing sales.
“In addition, the effects of the COVID-19 pandemic on the industry has been crippling, with May 2020 sales down 48.5 per cent on the previous year,” it said.
While the AADA is looking for more definition to issues including dealer compensation and tenure, the Motor Traders’ Association of Australia has welcomed the changes.
In a statement, the MTAA said the regulations “will contribute to addressing significant problems being experienced by new car retailing franchisees in the areas of capital expenditure requirements, adequate time to secure returns on substantial investments, better clarity and protections for end of franchise obligations and improved resolution mechanisms for disputes.”
The MTAA added that it intended to monitor the effectiveness of the new regulations and proposed making “further improvements”.
Reflecting on the Holden dealers plight, the AADA’s James Voortman said that an industry standard for compensation must establish a fair and reasonable framework for OEMs “who are looking to exit the country, rationalise their dealer networks or change their distribution model”.
“Dealers commit significant investments in capital, and many have formed decades-long partnerships with manufacturers,” Mr Voortman said.
“They deserve fair and reasonable compensation when these agreements are ended prematurely and unexpectedly.
“It’s also important that we address security of tenure and consideration of a reasonable minimum term for dealer agreements, something the ACCC addressed in its 2017 market study.”
Mr Voortman said starting a new-car franchise was “an incredibly costly exercise and profit margins are very slim”.
“Dealers deserve to be given agreements which are long enough to enable them to recover investments,” he said.
“Currently there are dealers on one-year agreements which are manifestly inadequate.”
The AADA is now calling on the government to put stronger protections in place as soon as possible.
“The industry is in a state of change and manufacturers are actively considering changes to how they distribute products,” Mr Voortman said.
“They naturally have the right to do so, but it’s important that any changes are fair and transparent for affected dealers.
“We need to encourage investment and to ensure that local car dealers have the confidence to hire people and undertake the economic activity needed to support the many small and medium businesses that do work with car dealers especially in those communities recovering from drought and bushfires as well as coronavirus.”
The AADA said new-car dealers are located within every electorate in Australia, employ about 60,000 people and are responsible for more than $55 billion in sales.
By Neil Dowling