AADA ACHIEVES MOMENTOUS FRANCHISING REFORMS

AADA welcomes the Morrison Government’s landmark reforms to the automotive franchising landscape. On 12 March, the Government announced momentous reforms for the automotive industry, which will protect Dealers against the worst abuses by some car companies and bring a degree of balance to the relationships between Dealers and Manufacturers.

AADA CEO James Voortman said the announcement would be welcomed by automotive Dealers and their 60,000 employees all across Australia.

“These changes will bring a degree of balance to the relationships between new car Dealers and the Manufacturers to which they are franchised. The reforms are sensible and fair and will bring all Manufacturers up to the standard already being employed by ethically-minded car brands operating in Australia,” he said.

“Mandating the principles for new Dealer agreements, ensuring agency agreements are captured by these regulations and setting appropriate fines for breaches of the Franchising Code are all very welcome measures. Only Manufacturers who ride roughshod over Australian Dealers will have anything to fear from what has been announced.”

The AADA and Dealer members have been working for several years on regulations which compel Manufacturers to treat Dealers fairly, provide a system for mandatory and binding arbitration and appropriately penalise those Manufacturers who fail to comply.

These new regulations are a welcome response by outgoing Minister for Employment, Skills, Small and Family Business, Michaelia Cash, and the Australian Government. Dealers, their employees, and all of those other businesses who depend on dealerships for their welfare can now have confidence that they are protected from the devastating effects of those Manufacturers who seek to exploit their power and size advantage at the expense of their franchisees.

These changes include:

  • mandatory principles for new Dealer agreements. Establish best practice by transforming existing voluntary principles into mandatory obligations under the Franchising Code. This will address concerns multi-national manufacturers won’t follow voluntary principles;
  • ensure Agency agreements are captured by franchising regulations. Ensure that the Franchising Code keeps pace with changes to business practice by explicitly recognising that Dealers operating as a Manufacturer’s Agent in relation to new vehicle sales are still protected by the Franchising Code; and
  • appropriate fines. Increase available penalties under the Franchising Code to up to $10 million. This will strengthen penalties for wilful, egregious and systemic breaches of the Franchising Code by large and profitable multinational companies.

The Government will also explore the merits of a stand-alone Automotive code of conduct and mandatory binding arbitration provisions within this new code, similar to those in the Media Bargaining Code, which were developed to curtail the power of the Big Tech platforms.

In a letter to Dealers, Senator Cash said the Australian Government was committed to delivering practical reforms for Australia’s automotive sector.
“As many of you would be aware, my office has recently held a number of round-tables and discussions with Australia’s automotive Dealers. We have heard the calls for stronger government action, and are making some significant changes in response,” she wrote.

“The best practice principles that the government released on 11 December 2020 as a voluntary set of guidance measures will be transformed into mandatory obligations under the Code. These will assist in providing clarity on compensation payable in the event that a manufacturer decides to withdraw or change business model part way in the future through the term of an agreement.

“The Government will also ensure that the Franchising Code keeps pace with changes to business practice by explicitly recognising that Dealers operating as a manufacturer’s agent in relation to new vehicle sales are still protected by the Franchising Code.”

Senator Cash said she expected the changes would be implemented by the middle of this year, and would build on the automotive specific provisions of the mandatory Franchising Code that took effect on 1 June 2020.

These previous reforms included: increasing End of Term notification periods; improving transparency for capital expenditure requirements; and clarifying options for dispute resolution. These changes, which were the first time that a sector-specific part of regulations have been included in the Franchising Code, provided the foundation for the most recent announcements.

“The new commitments also build on the Government’s response to the Parliamentary Fairness in Franchising report, which included improvements to disclosure requirements, preventing retrospective contract variation, strengthening dispute resolution and increasing penalties to deter poor conduct in the sector,” Senator Cash wrote.

“In addition, the Government is committed to working further with the automotive franchising sector. The Government will consider a new mandatory stand-alone automotive code and will consult the sector further on this in coming months. The Government will also explore mandatory binding arbitration provisions within this new code, similar to those in the Media Bargaining Code, which were developed to curtail the power of the Big Tech platforms.”

The ACCC announced on 22 October 2020, a change to collective bargaining requirements to allow franchisees to collectively negotiate with their franchisors without first having to seek ACCC approval. By joining together, small Dealers may have a better opportunity to have input into negotiations than if they were to negotiate on their own. These are being presently worked through the Parliament.

On 6 November 2020, the Legislative and Governance Forum on Consumer Affairs agreed on changes to strengthen protections against Unfair Contract Terms (UCTs) in the Australian Consumer Law, including:

  • making UCTs unlawful and giving courts and tribunals the power to impose civil penalties;
  • changing the definition of a ‘small business contract’ by increasing the threshold to less than 100 employees and using either this or a business’ annual turnover of $10 million or less;
  • removing the contract value threshold, which will apply the protections to more contracts; and
  • providing more flexible remedies to a court when it declares a contract term unfair.

Mr Voortman said AADA looked forward to participating in the further work flagged by the Government on the merits of a standalone automotive code, binding arbitration and unfair contract terms.

“It has been a difficult 12 months for automotive Dealers with General Motors’ termination of 185 Holden Dealers and significant changes flagged by a number of other Manufacturers. The industry is in a state of rapid change and all Dealers ask is that major changes see Manufacturers engage in a fair process and provide adequate compensation,” he said.

“Dealers in regional towns and cities all across the country will be thanking the Morrison Government. In particular we would like to thank the outgoing Minister for Employment, Skills, Small and Family Business and new Attorney General, Michaelia Cash, for sticking up for Australia’s Dealers and working closely with the industry.”

The AADA encourages members to write to the key members of the Morrison Government, thanking them for these reforms. We will provide members with further detail as the changes occur.

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