Management Workshop, News, Regulations

THE Victorian Automotive Dealer Association (VACC) has issued a series of guidelines for car retailers in the face of car buyers placing orders with the specific purpose of selling the cars to a third party to earn a windfall profit.

The special report is called: The rise of the Vehicle On-Seller: A guideline to the risks for franchise dealers and the consumer.

The practice of on-selling becomes increasingly prevalent in markets where there are long waiting lists for desirable vehicles as has recently been the case in the post COVID shortage of new cars in Australia. With many makes or models, shortages persist.

Opportunist buyers have been placing orders for cars with long waiting lists and then, once the vehicles in short supply are delivered to them, have been on-selling them at premium prices through used car websites.

The practice of on-selling cars is an issue because it is banned under the terms contained in many dealer agreements. But the VACC says that these terms in dealer agreements may come under the heading of unfair contract terms and come under the new unfair contracts rules that come into effect on November 10 this year.

The VACC said the on-selling terms were unfair because it is beyond a dealer’s remit to be able to identify if buyers are purchasing a vehicle for their own personal or business use or how long they intend to keep the vehicle before putting it back on to the market.

The industry policy advisor of the VACC, Michael McKenna told GoAutoNews Premium that  “there is nothing in law that says to us as retailers that we can tell someone what to do with a product after they have purchased it from us”.

Mr McKenna said: “Over the past two years, the supply chain of new vehicles to dealers from overseas-based manufacturers was severely disrupted. In that post pandemic period and long after, VACC received many calls from new car, motorcycle, farm machinery and commercial vehicle franchise dealers who were experiencing a marked increase in the number of individuals purchasing new vehicles from franchise dealers with the sole intention of on-selling these vehicles at inflated prices.

“Some individuals even sell their allocated vehicle delivery slot in the ordering pipeline.”

Mr McKenna said the issues connected with on-sellers were causing “much frustration for franchise dealers”.

“Quite often a dealer will have a clause in their franchise, agency or dealer agreement prohibiting them from retailing a vehicle to a person they ‘suspect’ or ‘ought reasonably to know’ is an on-seller or re-seller. 

Michael McKenna

“In many instances an on-seller is never identified by a franchise dealer. Usually, the franchise dealer’s first knowledge of the purchaser being an on-seller is identified when the sold vehicle ends up on an on-line classified portal or an irate end user arrives at a dealership with an issue with the vehicle that they purchased from the on-seller. 

“More often than not it is not good news for the consumer who invariably discovers they either paid too much for their vehicle or that the vehicle had standard factory fittings such as tyres and rims removed and substituted for inferior fittings.

“The issues can be further compounded for the dealer in the instance that a new vehicle has not been delivered and the manufacturer demands that the dealer terminate a contract of sale between a franchise dealer and an on-seller. This is unfair on the franchise dealer and leaves them in a precarious position. Putting pressure on the franchise dealer network is not the appropriate approach.”

Mr McKenna said that the guidance it had prepared, which should not be considered as legal advice, was written as a reference for dealers especially in light of the looming changes to the Unfair Contract Terms. 

The guidance focuses on:

  • Facets for the dealer to consider when dealing with the on-seller, consumer, and manufacturer in the event of dispute.
  • Various strategies that can be employed by industry to push back on the menace of on-sellers.
  • A set of advice for dealers to consider including in their contracts of sale that may assist dealers in averting a potential adverse action being brought against them.
  • Advice on standard form contracts and how they will interact with the Unfair Contract Terms (UCT) that will take effect from November 10, 2023.

Mr McKenna said that some dealers were attempting to thwart the practice by inserting special provision around on-selling in their sales contracts. 

“VACC has been provided with various examples of terms placed in dealer contracts of sale by dealers that are aimed at advising the purchaser that they cannot on-sell the vehicle. 

“From what has been provided to VACC, many of these various terms inserted by dealers are ambitious at best, or so unfair that any court would hold them to be unfair (and therefore inoperable) under the new UCT regime,” he said.

Footnote: The VACC has conducted a legal review of its industry-supplied New and Used Vehicle Contracts of Sale to test them for UCTs and these new version contracts of sale are available for members to purchase from VACC.

By Neil Dowling