New era ahead

By John Mellor on 19th March 2021 Dealerships, Free Access Articles, News, Regulations Franchising Code, Government, OEMs

THE Senate committee inquiring into the relationship between car makers and their dealers in the wake of the departure of the Holden brand from Australia has issued a 92-page report that in essence confirms that many OEMs have ridden roughshod over their dealers for years.

This is implied in the list of seven recommendations made by the committee.

The hearing, originally set up to inquire into Holden, soon became a wide-ranging investigation into the total retail car industry and the power of OEMs over their dealers.

The hearing by the committee exposed to the parliament, and to the public, practices that the industry has known about but which lay beneath a mantle of secrecy because speaking out would only see those dealers suffer retribution.

But the committee offered those who gave evidence, and/or made submissions, the protection of the parliament and committee member, Senator Deborah O’Neill, who led the bulk of the questioning of witnesses, made it clear in warnings at every hearing that taking action or retribution against a witness would be dealt with as contempt of the parliament.

This gave dealers comfort that finally they could reveal the full story and any OEM associated with those dealers would have to think long and hard before changing the circumstances of any dealer witnesses to the inquiry now or in the future.

GoAutoNews Premium has been told that as a result of this exposure many OEMs now have their in-house legal teams reviewing their dealer agreements for unfair terms.

One franchise told its dealers in a meeting last week that it was going through the terms of their agreements “with a fine tooth comb”. One dealer said after the meeting: “They could probably start with a garden fork.”

While the government seized the initiative last week and revealed its plan to protect dealers before the Senate Committee issued its report on Thursday evening, it was the committee that turned over the rock and exposed what lay beneath.

That exposure, along with a huge amount of lobbying by the dealers, especially with their local members of parliament, as well as through the Australian Automotive Dealer Association (AADA), eventually forced the Morrison government to act.

As for the recommendations, the committee chose to focus on the two biggest elephants in the room: mandatory arbitration of disputes between dealers and OEMs and a $10 million penalty (or 10 per cent of turnover) for breaches of the new rules.

It is worth noting that these penalties tend to be per offence. So an OEM that acted incorrectly against its dealer body of, say, 100 dealers could see the penalty applying for each of those dealers.

This happened in 2019 in a case the ACCC brought against Ultra Tune where the judge applied the penalty across all of the 183 Ultra Tune outlets affected by the offence.

List of Recommendations

Recommendation 1

The committee recommends that the Australian Competition and Consumer Commission should expedite its investigations into the behaviour and actions of GM Holden and should commit to provide regular public updates on this investigation and similar investigations into the relationship between manufacturers and dealers in the future.

Recommendation 2

The committee recommends that the Australian Competition and Consumer Commission proactively ensures that General Motors Australia and New Zealand is meeting its Australian Consumer Law obligations to Holden vehicle owners in relation to warranty and recalls, technical support and access to parts.

Recommendation 3

The committee recommends that the Australian Government prioritise the new automotive reforms announced on 12 March 2021 and implement the increased fines, mandatory principles and protection of dealers operating as a manufacturer’s agent by 1 July 2021.

Recommendation 4

The committee recommends that the mandatory best practice principles include a provision for the reimbursement for all reasonable expenses incurred in relation to warranty and recall work, including expenses associated with diagnosis, administration of claims and claim audits.

Recommendation 5

The committee recommends that the Australian Government introduce mandatory binding arbitration to resolve disputes during contract negotiation in the automotive industry which are not able to be resolved by other dispute resolution mechanisms.

Recommendation 6

The committee recommends that the Australian Government appoint a senior officer in the Office of the Australian Small Business and Family Enterprise Ombudsman to investigate and coordinate dispute resolution investigations and facilitate mediation and arbitration arising from the transformation of the voluntary best practice principles into mandatory obligations.

Recommendation 7

The committee recommends that the Australian Government undertake a review into effectively enforcing alleged contraventions of the Competition and Consumer Act 2010 as it relates to the regulation of the relationship between car manufacturers and car dealers.

Meanwhile, the AADA has welcomed the bi-partisan report from the Senate Inquiry.

It said in a statement: “The Inquiry ran over 12 months and shone a light onto serious issues within the industry following General Motors’ withdrawal of Holden from Australia. The Morrison Government has already announced a number of reforms which will address the concerns outlined in the report.

AADA CEO James Voortman said: “This Inquiry has reaffirmed the existence of a power imbalance between car Manufacturers and the dealers and made a number of recommendations to provide a degree of balance to these relationships.

“The Inquiry has made a number of sensible and fair recommendations which will set an appropriate standard for manufacturers in their commercial relationships with dealers,” Mr Voortman said.

“Australian car dealers desperately want strong and respectful relationships with their Manufacturers, but they also need assurances that the massive investments they have been required to make will be protected,” he said.

“We sincerely hope that this Inquiry, its recommendations and the reforms announced by the Minister for Small and Family Business, Michaelia Cash, will foster better relations between dealers and all manufacturers,” Mr Voortman said.

“The Industry would like to commend both sides of Parliament for coming together to launch this Inquiry. It is so important that we have managed to reach a bi-partisan report and we would like to extend a special thanks to the Committee Chair Senator Louise Pratt, as well as the work done by Senator Deborah O’Neill and Senator James McGrath,” he said.

“We would also like to thank the Morrison Government for listening to dealers and their concerns and announcing landmark reforms last week,” he said.

“It is also important to thank all of the dealers who participated in this process. Speaking out is never easy due to the potential for retribution. A number of dealers appeared publicly, delivering powerful and heart felt accounts. Dozens more lodged confidential submissions,” Mr Voortman said.

“The industry will continue to work together with Minister Cash as she implements the reforms already announced. In particular, it is crucial that the mandatory principles are implemented as soon as possible, in line with the Senate Inquiry’s recommendation of 1 July 2021,” he said.

“More than anything these reforms will empower Australian dealers to continue employing Australians, investing in Australia, supporting Australian communities and paying their taxes in Australia,” he said.

By John Mellor