A Shorten Labor Government would grant AADA’s wish and implement an industry-specific Automotive Franchise Code of Conduct, Shadow Assistant Treasurer Dr Andrew Leigh announced on Tuesday.
Speaking at the AADA Macquarie General Session at the 2018 AADA National Dealer Convention, Dr Leigh said the current franchising code – which covers franchises of all descriptions, from fast-food restaurants to car Dealers – had been unsuccessful in protecting Dealers.
He said he understood the host of pressures Dealers faced, including around tenure, where agreements with manufacturers could be effectively as short as a year, despite Dealers often being required to upfront massive amounts of capital expenditure, and with non-renewal notices issued at short notice – even in cases where the dealer had exceeded expectations.
“Such pressures have an effect on how Dealers respond to remedies for consumers under the Australian Consumer Law, in particular if the manufacturer is at fault,” he said.
“Dealers are frequently under pressure, struggle to balance consumer obligations with safeguarding their own very reasonable commercial interests, and maintain a long-term relationship with the manufacturers.
“Manufacturers generally write the terms of the Dealer agreements that cover consumer responsibilities, for which Dealers are under pressure to agree, for the threat their agreement might not be renewed.”
Dr Leigh said politicians and policy-makers were making a mistake if they hadn’t spent time studying the Australian Competition and Consumer Commission’s New Car Retailing Market Study report, and commended AADA for the detail of its response.
“The commission’s report was a forensic deep-dive into the interactions between multinational car manufacturers, authorised car Dealers, the independent businesses that repair and service cars, or use aftermarket parts,” he said.
“Labor’s taken a keen interest in the report. In May this year Opposition Leader Bill Shorten and I announced that a Labor Government would require car manufacturers to share technical information with independent mechanics on commercially fair and reasonable terms.
“That was just one of the recommendations that came out of the market study. Importantly for people in this room, the market study generated evidence of pressures faced by dealerships which weren’t anticipated in the initial focus of the study. This is material the ACCC stumbled upon in their investigations – thanks in no small part I’m sure to the AADA – and decided to devote a considerable portion of the report to analysing it.”
Dr Leigh drew parallels between Dealers and farmers, who each operate in highly competitive markets squeezed on either side by uncompetitive markets – from suppliers and those who buy their goods.
He said car Dealers operate in “one of the very few markets in Australia that doesn’t exhibit strong market concentration”.
“The biggest four car dealing franchises control less than a fifth of the market, and you can only say that about a very small number of other Australian industries: hairdressers, pubs, and caravan parks,” he said.
“In a way that isn’t dissimilar to how large agricultural suppliers can pressure farmers, the commission’s market study found that car manufacturers exert significant pressure on dealerships. In the commission’s words, ‘commercial arrangements between manufacturers and Dealers constrain and influence the behaviour of Dealers in responding to complaints’.
“In the study itself, the commission made a series of recommendations, particularly directed at car manufacturers, on how to handle consumer issues, and suggested the 2020 review of the franchising code was an opportunity to address the matters raised by the Dealers. I’m sympathetic to these recommendations, and grateful for the experts’ analysis of that body of evidence. But I do find myself strongly drawn to the conclusions of the Dealer’s association, which put the situation in much blunter terms.
“Your association wrote: ‘There’s a power imbalance in automotive motor industry. There’s a structural power imbalance between car manufacturers – franchisor – and franchised new car Dealers – franchisees – that disadvantages both dealership businesses and consumers that purchase new vehicles from Dealers.
“’Many Dealers enjoy good relationships with their respective manufacturers, and work in a mutually beneficial partnership. But there remain many instances where Dealers are subjected to a treatment resembling a master-servant relationship.
“’And that power imbalance manifests itself in a number of ways, and if it continues to go unaddressed, we may see an increase in the market concentration of dealerships or market power that manufacturers can exert. Either way, we’d see an adverse outcome for consumers, and a bad outcome for the family businesses and small businesses that serve them.’”
At the same session, ACCC General Manager, Consumer & Small Business Strategies, David Salisbury, released a one-page ‘fact sheet’ for consumers, which is based on the report’s findings, and explains consumers’rights under Australian Consumer Law when purchasing a new car. A copy of the fact sheet will be provided to consumers at the point of sale.