Dealerships, Fleet Management, Free Access Articles ,

THE Morrison government became the subject of a sustained attack over its handling of the Holden dealer crisis earlier this year during a high-profile interview in a plenary session of the recent AADA Convention & Expo with Labor accusing the Liberals and Nationals of abandoning the Holden retailers.

In an interview with the Australian Automobile Dealer Association CEO James Voortman, Senator Deborah O’Neill paid out on the government for “choosing General Motors over Holden dealers”.

She said of the Morrison government, “when push came to shove, they didn’t stand up for small businesses. They just absented the field and they let General Motors do whatever it wanted”.

Senator O’Neill, who has made it her business to get a better deal for franchisees in general, and vehicle dealers in particular, was a member of the joint parliamentary committee which looked into franchising, but more recently was a member of the Senate team that looked into General Motors and its operations in Australia.

She said that the Coalition government was ‘taking businesses for granted”.

“They assume businesses are going to support them, no matter what.

“Well, I think it’s time for businesses in Australia to say: ‘You’re not listening to us properly, you’re not hearing what we need, you’re not providing us with critical protections in an instance of market failure. If you don’t understand that, then you’re not a government for business’,” she said.

The following is an edited version of of the discussion:

Why franchising is an important issue

Franchising has grown up at a pace as lots of Australians have found themselves in very insecure work and employment situations and they have decided that they will take their own chances themselves in small business. They have been told that they’ll be safer in a franchise.

We know that the failure rate of small businesses, whether it’s franchise or your own start-up business, is roughly the same. So what do people get out of a franchise?

There are lots of things that are sold at the beginning of a franchise in the sense that it’s all going to be wonderful. Lots of promises made. And what we’ve been finding out over the last few years is how disappointing the experience is for so many Australians. Not in every franchise situation, but in far too many.

And we had that long inquiry which resulted in the 2018 franchising report, a unanimous report (in which) we were able to deliver a consensus report about very significant change that needs to happen.

Deborah O’Neill

There are many, many issues but the real crunch point is when it gets to the end. It’s like when you fall in love; you are full of hope and promise, you get married and you sign up for that just like an agreement for a franchise.

But what about when things don’t turn out so well and you’re at the divorce stage? And that’s what Australians are finding out. At that critical point of separation, basically, our system has been failing for a very long time and it continues to fail.

And your members (auto dealers) have seen the fruits of the government not doing anything.

When you sit on your hands and you say, just let the market do its thing, that can be great in terms of enabling business and innovation, but where there is a market failure, a government that fails to act leaves an entire industry at the whim of a more significant player.

And we’ve seen power operating in the most corrupting way. And the most devastating way in too many franchises, including the car sector.

How can franchisees be heard without fear of retribution 

James Voortman: You would have seen during all those inquiries you were involved in that there was a strong reluctance from franchisees to speak up. How do we go about solving that and empowering them to speak up without fear of retribution?

Senator O’Neill: We have to change the system. And there have to be points at which people can engage and say: I’ve got a problem. And we need to get a resolution of these problems.

But what’s happened is, over time, the contracts that have been drawn up have hit a point where unconscionable contract terms are embedded (within them). We had evidence early on in our inquiries to say that some of these contracts were written in such a way that it would be impossible to actually even take an unconscionable contract action.

So it has established a fortress of protection from people coming forward. So it is not going to be an easy thing and that’s why people can’t just do it themselves. It would require government (action).

The closest that people got to actually being heard was actually having that initial inquiry into franchising. I had a massive folder, full of bright yellow papers, which was the confidential material that we received.

I have never received material in confidentiality at the scale that we received with regard to franchising because people’s whole house is tied up, their livelihood is tied up, their reputation, their sense of identity, their profound sense of shame – even though it’s not their fault that a business model has profoundly changed – and they had nothing to say about it or do about it.

And there they are holding this disaster in their lap, more and more frightened every day of the power of the franchisor, and we had for a long time, a disingenuous claim by Franchising Australia that they were representing the franchisees and the franchisor.

So structurally, there’s been a big gap where franchisees really didn’t have a voice. Their voice has been heard. It’s been heard by Senators and members of both major political parties. And we came up with a solution.

James Voortman

The government however, they know what’s going on, they have been advised, they’ve been given a roadmap of key areas that need a response.

And your sector, more than any others, has seen this government step away from taking action when there is clearly market failure. And that’s why I won’t let this rest.

I think about the stories that people have shared with me. I know what it means when businesses fail. I know what it means for your members who invested over decades and in family businesses over generations in the area that they live in. They have created jobs. They have backed the local football club and have done great things in the community.

(They have) made a profit for themselves – good on them – and had the great life that that gives; but also to all the people that they’ve employed. All of that matters.

The government basically seems to assign no currency to that and they made their choices.

They played the game all the way to the 30th of June for 185 Holden dealers. They kept making all the right noises, they got all the headlines and the media that they wanted, and when it came to action and outcomes for the good Australian business people, they failed. And we haven’t heard boo from them since because the media is gone. The issue is over.

They chose their side, it’s not small businesses in Australia or even large businesses. They chose General Motors, over Holden dealers.

James Voortman: I want to talk a little bit more on that specific dispute. As you know, in February, General Motors announced that they’re being withdrawn from Australia and terminating about 185 dealers. Eight months later, we’ve seen one of the nastiest commercial disputes in franchising history in Australia. You were there, you spoke to many of the Holden dealers, you spoke to many of the people at GM, you sort of got your hands dirty in the Senate inquiry.  Can we have a view from you on what lessons should we learn from this dispute? ,

Senator O’Neill: I come from a small business family background and I believe small business and great jobs are a dynamic and wonderful relationship.

The problem we’ve seen with this government is they haven’t really understood that small businesses may need their protection and when push came to shove, they were missing. They just absented themselves from the field.

Now, it’s not only terribly damaging for each of those particular 185 Holden car franchisees, it was a signal, it was like a smoke signal to the rest of the world and all the other manufacturers that if you want to do business in this way, in Australia, the Liberal National Party government will allow you to do that. When push came to shove, they didn’t stand up for small businesses. They just absented the field and they let General Motors do whatever it wanted.

Your particular industry is feeling right now, the letdown of a government that will do a lot of talking and will announce things, but when you really need them to be in your corner, they just don’t do the work. They don’t seem to care enough to do the work. And even when the work is being done for them in the franchising inquiry, with advocacy from the sector, when push came to shove, they were all talk and the consequences are there for the entire sector to see.

And this is not a healthy mix. It’s bad for the business owners. It’s bad for the people who wanted to purchase cars across this country. I think it’s going to be devastating for regional economies in particular, where these are big businesses that are right at the heart of many regional economies.

They provide profound impact in terms of training, apprenticeships, etc. Those businesses become compromised. And you just take another critical element out of regional economies. The government doesn’t seem to see it that way. And I think that that’s a profound failure.

Why strong are penalties needed?

James Voortman: Turning to some of the sort of solutions that you’ve proposed, specifically in the private Senators Bill which you have put forward, one of the elements revolves around penalties and the proposal from the government of penalties. You have been very vocal that the penalties as proposed are not sufficient. Can you talk about why we need stronger penalties?

Senator O’Neill:  We all respond to signals. The green light and the red light. We know things tell us to advance and things tell us to stop. Well, at the moment, I think the government has been completely disingenuous in terms of the scale of penalties that they’ve indicated. This is why I’ve advanced my Private Senator’s Bill.

There are two important things. One, we’ll probably get to talk a little bit about what happens with arbitration. That’s one element, but the other element is a deterrent, a deterrent that is of scale, up to $10 million per event, to stop big companies overplaying their hand at abusing the power that they have in the current structure of how franchising works in Australia.

There needs to be a powerful disincentive because, at the moment, the price of doing business as usual incentivises the abuse of power. That is on the record time and time and time again.

And not only is there the devastation of a particular business. We are all citizens of a great country. But what happens when a business fails and mental illness happens as a consequence. People have been successful for 30 years, all of a sudden, everything’s gone.

Their identity is tied up in that. Sadly we have self harming. At its very worst, we have people who become so overwhelmed that they can’t actually even face getting up the next day and they make terrible choices that impact their family and community.

The cost of that is then transferred into the local community. So business doesn’t sit separately from what’s happening in our community and ethical business decisions that lead to sustainable businesses that employ people, pay fair and decent wages; and good businesses pay above the award.

They look after employees because they understand how critical that is as an asset for their business. We know those good things are going on. The government is just not supporting those things.

And I worry about the transfer of the cost of failure of business not only on the individuals, but on the broader community and on the public purse for the fallout of loss of job, loss of good health, loss of amenity, loss of potential growth for other businesses and a flow on then into the local economy.

Compulsory binding arbitration in place for dealers and all franchisees?

James Voortman: The deterrent is an important point and I think the proposal at the moment is for a maximum fine of $140,000. Well, General Motors is a $200 billion a year company so I think you’ll find a lot of support from dealers for those increased penalties.

(Regarding) binding arbitration, many of the Holden dealers (have) said if we had compulsory binding arbitration as a method of dispute resolution in place during this dispute, we could have avoided the costly and time-consuming lawsuit that would have ensued if they had gone all the way with it. How can we get such a system in place for dealers, but potentially all franchisees?

Senator O’Neill: Business people naturally oppose regulation. But regulation usually only happens when there’s a failure. What we’ve seen here (with Holden) is a catastrophic failure, a market failure. So if the government could actually see that it is within their power to make changes to provide sufficient deterrent that would be making arbitration a reality.

We saw with Senator Cash basically General Motors thumbing their nose at a minister of the crown of this country. If that isn’t enough to shame the government into actually making some legislative change in this area and providing adequate protection, what’s it going to take?

What is it going to take for this government to actually do what needs to be done? This is a question of political will and of whether this government is capable of delivering more than announcements because, when you are given the trust of the Australian people to become a government, then that demands of you to take seriously the challenges that arise on your watch.

Seven years of government failure to act on franchising I think came to a head in the most vivid way around the issues with Holden and now it’s continuing with other companies saying that they’re going to copy the model.

When your government deserts you it is time to desert your government. We need a change of government because these guys are not doing the job. They’ve been taking businesses for granted. They assume businesses are going to support them, no matter what.

Well, I think it’s time for businesses in Australia to say, ‘You’re not listening to us properly, you’re not hearing what we need, you’re not providing us with critical protections in an instance of market failure. If you don’t understand that, then you’re not a government for business.’

GM setting the blueprint for other cars marks to follow

James Voortman: You mentioned General Motors, basically setting the blueprint. Since their dispute, we’ve now seen another major manufacturer announce that they would be changing their distribution model and they were very open saying that they wouldn’t be compensating their dealers because the law doesn’t require them to.

We’ve seen a number of manufacturers start inserting clauses into dealer agreements, which basically say, you are not entitled to any compensation in the event of termination. There’s obviously a great deal of anxiety and a lot of these manufacturers I feel are emboldened by GM’s behaviour. What do you say to all of those anxious dealers out there, Senator, in response to the current climate of anxiety?

Senator O’Neill: There is no other option than the government intervening at this point of time.

But, at the moment, it’s like: ‘Hello, we are Australia and if you are a car manufacturer come down and do whatever you like. Our government is going to let you do whatever you want to do’.

That is giving up on a critical industry for this country. We need to recover industry. We need to recover national sovereignty. We need to have our businesses growing and supported.

This sector well and truly knows that this government is going to talk a lot, but delivered nothing when it really mattered. And the consequences of that did not stop at the end of June 30 with the deal with General Motors. The consequences of the government’s failure of action continue.

So I have offered through my Private Senators Bill the opportunity for us to push for a discussion about this and to hope for some support and legislative change to do the job of government from opposition. Let me tell you, there’s a lot more I’d like to do, but we cannot govern from opposition.

But my intent, and I am so moved by the stories of people in all forms of franchising, and most recently in the car sector, is to undertake action that would provide relief and protection at a time when it’s more needed than any other time in our recent history.

It is 30 years since we’ve had a recession, we are in one now, we’ve got a trillion dollars of debt coming down the line, I think it’d be a pretty good idea to actually give some of the key linchpin businesses across this country the protection that they deserve and they need.

And if the government can’t give them succor then I, as a Labor Senator, will advance the cause of good small business.

By John Mellor