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THE Australian Automotive Dealer Association (AADA) warned senators in evidence at the recent inquiry into GM Holden’s departure from Australia that more car makers were planning to close dealerships without paying any compensation to the dealers affected for the loss of their businesses.

James Voortman, CEO of the AADA, told the hearing that GM Holden had set “an incredibly dangerous precedent” in the way it has been allowed to treat Holden dealers and that, in the process, “it has emboldened other vehicle manufacturers to exploit the imbalance of power that exists between them and their (Australian) dealers”.

He called for the government to give the recently announced auto retail schedule to the franchise code far more teeth.

“I cannot overemphasise the level of urgency with which such regulations need to be put in place. In particular, we need a better system to resolve disputes, with a system of binding arbitration when mediation fails.

“This should be the central recommendation of this inquiry.”

“We need to learn from this painful lesson and take the necessary actions to stop this from ever happening again. This inquiry needs to examine the way in which dealers were misled and to look at GM’s behaviour since that announcement and the way it has compelled dealers to accept inadequate compensation.

“It needs to look at the wider power imbalance that exists between dealers and manufacturers and make recommendations to remedy this imbalance.”

He told the hearing: “GM seems to be a law unto itself and the epitome of a large, powerful, offshore multinational using its position of power to exploit the smaller businesses it deals with.

“It is clear that all Holden dealers are entitled to fair and reasonable compensation. But, unfortunately, GM, a company which earns revenues of $200 billion a year, has embarked on a process which has denied dealers fair compensation.

“It has simply refused negotiation and pushed back against entering mediation, only agreeing when the ACCC applied pressure.

“It thumbed its nose at Minister Michaelia Cash’s call for it to extend its compensation offer and participate in arbitration and it has pressured dealers by dangling future servicing work in front of them and explicitly threatening the prospect of a lengthy and costly court battle.”

Mr Voortman named both Honda and Mercedes-Benz as planning to cut dealers without paying compensation to those losing their businesses.

“As we speak, I am hearing of a number of Honda dealers that have been terminated, and I’m told the Japanese car company is engaging in aggressive tactics in its compensation process.

“Mercedes-Benz has already said it will be changing its distribution model in 2022 and will not be compensating its dealers.

“Recently, one of its global executives told the media that it would be moving to this model in Australia because the law allowed it, whereas in other markets, such as in the US, the law does not allow it.

“We have seen other manufacturers start inserting clauses into their dealer agreements which state that a dealer can be terminated for any reason and, in the event of that termination, they will not be compensated.

“For some time, the industry has been calling for stronger regulatory protections to govern the relations between dealers and offshore manufacturers.

“The Holden example is further proof that the existing franchising code remains impotent and grossly inadequate in protecting dealer interests.

“You need look no further than the US, for example, where dealers are afforded appropriate protections.”

“I cannot overemphasise the level of urgency with which such regulations need to be put in place. In particular, we need a better system to resolve disputes, with a system of binding arbitration when mediation fails.

“This should be the central recommendation of this inquiry.”

Asked to explain Mercedes-Benz’s plans to change its relationship with its dealers, Mr Voortman said: “Mercedes-Benz is considering changing to what’s called an agency model, which is very different to how dealers operate these days.

James Voortman

“In the new agency model there will be a different ownership of the vehicles and the dealer will act as an agent. There are various such models which are being trialled around the world.

“It’s a new thing manufacturers are starting to do, and that is their right. They have the right to try new models. They have the right to sell vehicles online. They even have the right in Australia to sell directly, as they do in a number of cases.

“That’s not in question. Their right to change their business model is not in question; but, when they have engaged partners and asked those partners to expend significant capital in distributing their product and then they want to change that model, we believe that it has to be done in a fair and transparent manner.

“That’s all we ask.”

However Mr Voortman told the hearing that Mercedes-Benz “has said that it will not be compensating its dealers as they embark on a new (sales) model.

“But you can’t move away from the fact that there are Mercedes-Benz dealers who have taken a brand in a particular area from essentially nothing and grown it to the extent that it has a massive database of loyal customers. Many of these dealers would also have bought dealerships themselves and paid goodwill. I think any compensation process really does need to have goodwill as a central element to it.”

Mr Voortman told the hearing that the AADA had been on the public record for a number of years stating that there was a need for a separate automotive set of protections to remedy the power balance between dealers and manufacturers.

“We have been raising it and we’ve been raising the element within those regulations of better mediation process for a number of years.

“Minister (Karen) Andrews (Minister for Industry, Science and Technology), on 1 June, through her responsibility has developed a schedule to the franchising code which gives certain protections to dealers.

“But we have again been very clear we don’t think it goes far enough. We believe those protections have to be expanded significantly and we believe they have to include the element of stronger dispute resolution mechanisms,” Mr Voortman said.

“The only way we could have prevented this specific situation would be to have a system of binding arbitration in the event that mediation fails.

“The biggest failing in GM’s withdrawal of Holden from Australia was that dealers could not access justice. It demonstrated the frailties of the franchising code and it showed how important it is that we take the action that is needed and entrench a system of justice for dealers.

“There is a major power imbalance. We see that there is a system of arbitration for other industries where there is a major power imbalance—whether it’s the dairy industry or the food and grocery industry. Currently there is a code being developed by the ACCC on media bargaining, and that has a proposal for binding arbitration.

“I would suggest that we have one of the biggest power imbalances of any industry. Every car manufacturer is basically a Fortune 500 company. Yes, some dealer groups are powerful, but they pale into insignificance when compared to the car manufacturers.

“So, faced with an army of lawyers who can drag out a court process and make it very expensive, I think we need to develop a system that has a number of steps, the final one being binding arbitration for settling disputes between dealers and car manufacturers.”

By John Mellor

Dealer Auction