RECOMMENDATIONS by the royal commission into the financial services sector will have no impact on car dealers, the nation’s biggest vehicle retailer, Automotive Holdings Group (AHG), has told the ASX.

The company said it sees no impact in the current financial year “and minimal, if any, impact in the following year”.

The AHG statement coincides with a survey by the Australian Automotive Dealers Association (AADA) which found that only 16 per cent of Australian dealers have a credit license and that about 2000 dealer operations would be affected by the removal of the POS exemption.

The CEO of the AADA, David Blackhall, told GoAutoNews Premium: “If we back that 16 per cent into 3500 rooftops and overlay an assumption that large public’s and family groups will cover their own operations with existing ACLs, we reckon a hardcore 2000 operations will need to seek a solution.”

Asked if this meant that the 2000 dealers without an ACL would be forced to get one, Mr Blackhall said: “No, I don’t think it will come to that.

“We will be doing further work on this, but we have received preliminary advice that suggests that under the licenses held by the captives and non-captives, there is a process that could allow them to appoint dealerships and authorise the sub-appointment of the F&I operators in the dealerships as credit representatives under the licences.

“We don’t know this for sure at this stage, but that is the way they are telling us they would like to manage it. We believe that is possible under the existing act and the existing arrangements under the exemption.

“We are pushing that line very hard. We think it would be onerous and unreasonable to (tell) the dealer in a regional city that they need an ACL.

“They would need to set aside a substantial sum of money for license and administration fees, legal fees and training, while the application could take over six months to go through the ASIC process as it exists today.”

Mr Blackhall said the AADA would work with the financiers to get a process that is more efficient and work with ASIC to get a process ‘lite’ for those who have a small dealership or limited resources but run a business that is a centre of business activity in their regional area.

“If this process becomes law, and both parties have said it will, then the 2000 dealers will have to go through some kind of process,” he said.

“The reality is that we would not expect anything to happen until after the election, and it may even take another six to nine months after that.”

Mr Blackhall said the big question mark is what ASIC proposes.

“We would be arguing strongly against the certification of individuals in dealerships because staff turnover in the car retail business runs between 25 and 50 per cent, depending on how good an operator the dealer is. If you are going to be certifying individuals, you are going to be doing a lot of it,” he said.

Financiers have told GoAutoNews Premium that there is a better than even chance the exemption will continue once ASIC understands the sheer magnitude of the task of accrediting individuals across all areas of retailing and once ASIC understand that in the area of car retailing they have already achieved discipline by putting the onus for any bad behaviour on the finance company and not the dealer.

GoAutoNews Premium understands that the financiers will be seeking a process that gets dealers and their staffs certified collectively under their existing credit licences.

Mr Blackhall said that historically there appeared to be little to be gained in roping dealers into the requirement for a credit license.

“There is only one dealer that we are aware of who has been prosecuted by ASIC for breaches of the Australian Consumer Credit Law and, in that case, the dealer accepted finance deals from a broker who turned out to be fraudulent,” he said.

“But it was not the dealer who was ordered to pay back the $75 million to the consumers, it was the finance company which was the licence holder.

“That is the absolute poster child when it comes to who is going to pay. The licence holder is the one who is going to pay.”

Meanwhile, AHG, in its statement to the Australian Securities Exchange ahead of its half-yearly report set for February 22, said it would “carefully consider” the reforms proposed to the financial services industry and its effect on the vehicle retail sector.

“The likely implementation process would involve regulating thousands of finance and insurance consultants in new-car dealerships across Australia and thousands more employed in credit-lending positions across other businesses such as furniture, appliance and electronics retailers,” the ASX statement said.

“If POS exemption is abolished, AHG is well placed to manage the change, either in cooperation with its existing finance providers or using its own existing Australian credit licence.”

In the insurance business, the company said any cap on add-on insurance commissions would only formalise a practice already underway at insurance firms.

“There is no indication – at present – that the recommendation involves reducing commission rates further,” it said.

“The concept of a deferred sales model for add-on insurance is already under consideration by ASIC.

“The AADA is urging treasury to adopt a model which defers the sale for three to four days and allows a waiver for informed consumers. We believe such an outcome will have minimal impact.”

By John Mellor and Neil Dowling