The months that followed the AADA Convention in September 2018, leading up to the May 2019 Federal Election, saw many significant developments in policy-making for the Australian retail new motor vehicle industry.
As a result of the Coalition Government’s recent re-election, the automotive industry can expect to see further developments arising out of polices concerning a proposed Dealer Code, the outcome of the Federal Parliamentary Joint Committee’s inquiry into franchising and the Royal Commission on the Banking, Superannuation and Financial Services Industry (Royal Commission).
On 4 September 2018, at the AADA Convention held at the Gold Coast Convention Centre, the Shadow Treasurer, Dr Andrew Leigh, announced that the Australian Labor Party would, if elected, enact a Dealer-specific automotive industry code (a Dealer Code).
The announcement came after AADA had advocated strongly for a Dealer Code to help address the power imbalance between Dealers and manufacturers – and to address behaviours within the franchised new car retail industry which were (and are) not effectively being prevented by the existing Franchising Code of Conduct.
In the months following the ALP’s announcement the Coalition also announced its support for the introduction of a Dealer Code, and there were several other significant policy announcements.
AADA’s advocacy for the Dealer Code had come in the context of a period of fairly longstanding scrutiny by the ACCC and ASIC into the conduct of motor vehicle Dealers and manufacturers, culminating in several reports in 2018 that were critical of the industry. It also came through the opportunity presented by the Parliamentary Joint Committee’s inquiry into the franchising sector.
Although some of the detail in the major parties’ policy announcements on the automotive industry differed, the AADA’s pre-election scorecard ranked both parties equally across four broad policy categories – including ruling out used car imports. So now what?
In terms of the development and implementation of the Dealer Code, the Coalition announced in December 2018, in its Budget update – the Mid-Year Fiscal and Economic Outlook (MYEFO) papers – that the Dealer Code would be developed as part of a broader range of reforms being considered by the Department of Industry, Innovation and Science designed to promote growth in small business. $1.4million in funding has been allocated over two years for the development of that package.
In its response to the AADA pre-election questionnaire, the Coalition stated (presumably referring to the Code) that it would implement reform to support ‘appropriate commercial dealing and competition in the new car retail supply chain’ and that it was investigating ‘reforms to level the playing field in relationships between Dealers and manufacturers’. No further detail was offered, but the specific aspects of the ‘un-level playing field’ that AADA has cited in its submissions to the Parliamentary Joint Committee included:
- establishing tenure and renewal rights commensurate with levels of investment made by Dealers;
- making renewal options exercisable by dealers (not manufacturers) provided the Dealer is not in breach of their Dealer agreement
- alternatively, prohibiting manufacturers from issuing non-renewal notices without first issuing a written statement setting out why the manufacturer has decided not to renew that Dealer, what steps the Dealer could take to address those reasons and what rights the Dealer has to challenge those reasons if the Dealer disagrees;
- require manufacturers to buy back dealers’ inventory of new and demonstrator vehicles, parts and tools required to have been purchased by Dealers, at the Dealers’ cost price, upon the expiry or termination of their Dealer agreements;
- prohibit manufacturers from requiring, encouraging or facilitating Dealers to engage in ‘pre-retail’ or ‘cyber car’ sales reporting;
- prohibit manufacturers from terminating Dealers for failing to meet performance targets that are unrealistic given manufacturers’ market shares;
- prohibit manufacturers from prescribing how Dealers must respond to consumer requests, complaints, claims or legal proceedings in circumstances where Dealers owe independent statutory obligations to consumers; and
- limiting manufacturers’ ability to unilaterally vary Dealer agreements – including by the implementation (or termination) of policies which are made to operate as terms of the Dealer agreements themselves.
The extent to which the draft Dealer Code addresses some or all of these issues is yet to be seen. However, it will be the first piece of regulation focused solely on the interactions between motor vehicle manufacturers and Dealers – as opposed to attempting a ‘one size fits all approach’ to regulating the entire franchising sector.
In terms of vehicle emissions, the Coalition announced before the election that it would develop emissions policies for the reduction of vehicle emissions through the established Ministerial Forum on Vehicle Emissions. The Ministerial Forum was established in 2015 and has released a number of Regulatory Impact Statements in respect of vehicle emissions, fuel efficiency and fuel standards.
The Government’s response to the Royal Commission was released in February 2019. Among other things, it makes clear the Government’s intention to:
- establish a deferred sales model for the sale of add-on insurance requiring consumers to separately engage with the insurance provider rather than purchasing the insurance product at the same time as a motor vehicle;
- provide ASIC with the ability to cap commissions that may be paid to motor vehicle Dealers in relation to the sale of add-on insurance products; and
- abolish the point-of-sale exemption of retail Dealers from the National Consumer Credit Protection Act (in practical terms, while some Dealers may obtain their own Australian Credit Licence, the abolition of the point of sale exemption will likely result in most Dealers being appointed as credit representatives and thereby assuming additional obligations to consumers).
Finally, other than the development of the Dealer Code or emissions policies, the Coalition also announced in late March 2019 that a Coalition Government would consider amending the existing unfair contract terms regime so that it applied without the existing restrictive threshold on a relatively small number of employees. If this proposal is enacted, subject to the detail of the proposal, the unfair contracts regime will apply all small businesses, including motor vehicle Dealers. This will have its own consequences on manufacturers independent to the introduction of the Dealer Code (in particular, for example, in relation to unilateral variations to Dealer agreements).
This article was written by Evan Stents – Lead Partner, and Christian Teese – Senior Associate, Automotive Industry Group | HWL Ebsworth Lawyers
Lead Partner, Automotive Industry Group, HWL Ebsworth Lawyers