AADA CEO James Voortman has led a chorus of criticism of the way General Motors has handled the Holden brand’s withdrawal from the Australian market, testifying before a Senate Inquiry last month.
On Monday 3 August, the Senate Committee conducting the Inquiry into General Motors’ Holden Operations in Australia held its public hearings. Mr Voortman was the first witness to give public evidence and used the opportunity to push for stronger protections for franchised new car Dealers.
The Australian Competition and Consumer Commission (ACCC) in its appearance confirmed it was following up Dealer allegations against General Motors. Other witnesses included Inverell Holden Dealer Mark Palmer, who said he believed Holden had planned to leave Australia for some period before the announcement, as well as two Government Departments, interim CEO of Holden, Kristian Aquilina, the MTAA, ACCC, AAAA and the FCAI representing the OEMs.
Mr Voortman informed the Committee about the existing power imbalance between OEMs and Dealers, and warned about the dangerous precedent that the Holden example set for the rest of the industry. He also explained that key elements required to level the playing field include mandatory and binding arbitration as well as the need to provide adequate compensation.
“GM seems to be a law unto itself and the epitome of a large, powerful, offshore multinational using its position of power to exploit the smaller businesses it deals with. It has set an incredibly dangerous precedent and, in the process, it has emboldened other vehicle Manufacturers to exploit the imbalance of power that exists between them and their Dealers,” Mr Voortman told the Senate Committee.
“When GM announced it was retiring the Holden brand, it terminated some 185 Dealers in the process and many of these Dealers had represented Holden for generations, some for over 80 years, and played a major role in the success of the brand. In return for the right to sell their cars, Dealers were required to make significant investments in state-of-the-art facilities, modern servicing equipment and tools, staff, software and the list goes on. These investments, which often run into the millions of dollars over the course of an agreement, were made in response to commitments from GM—commitments that it would be here for the long haul, commitments that it would be bringing in new models to support this vision and commitments enshrined through Dealer agreements, all of which were subsequently breached when it announced it was leaving Australia in February.”
Mr Voortman raised the question of when General Motors knew it would be winding up its Australian operations and said it had been “reckless” in allowing Dealers to continue with expensive infrastructure investments.
“That is a very important question because, within recent months, Dealers have been investing significant sums of money in capital expenditure programs that GM asked them to do. There are also instances where dealerships have changed hands in a sales process, and all of those were approved by General Motors because it is a condition of every franchise agreement that they approve those sales,” he said.
“Months before the announcement, GM was signing off on the sale of dealerships. It was allowing Dealers to continue with very expensive capital expenditure programs which it had demanded. GM’s actions in allowing this level of investment by Dealers was incredibly reckless and there is no doubt it has harmed many businesses and their employees.
It is clear that all Holden Dealers are entitled to fair and reasonable compensation. But, unfortunately, GM, a company which earns revenues of $200 billion a year, has embarked on a process which has denied Dealers fair compensation. It has simply refused negotiation and pushed back against entering mediation, only agreeing when the ACCC applied pressure. It thumbed its nose at Minister Michaelia Cash’s call for it to extend its compensation offer and participate in arbitration and it has pressured Dealers by dangling future servicing work in front of them and explicitly threatening the prospect of a lengthy and costly court battle.”
Mr Voortman said the General Motors example would embolden other OEMs in their relationships with Dealers, highlighting the recent moves by Mercedes-Benz and Honda to investigate a shift to set-price models, and reinforcing AADA’s desire for a stronger, industry-specific franchise code.
“As we speak, I am hearing of a number of Honda Dealers that have been terminated, and I’m told the Japanese car company has engaged in aggressive tactics in its compensation process. Mercedes-Benz has already said it will be changing its distribution model in 2022 and will not be compensating its Dealers,” he said.
“Recently, one of its global executives told the media that it would be moving to this model in Australia because the law allowed it, whereas in other markets, such as in the US, the law does not allow it. We have seen other Manufacturers start inserting clauses into their Dealer agreements which state that a Dealer can be terminated for any reason and, in the event of that termination, they will not be compensated.
“For some time, the industry has been calling for stronger regulatory protections to govern the relations between Dealers and offshore Manufacturers. The Holden example is further proof that the existing franchising code remains impotent and grossly inadequate in protecting Dealer interests. You need look no further than the US, for example, where Dealers are afforded appropriate protections. I cannot overemphasise the level of urgency with which such regulations need to be put in place. In particular, we need a better system to resolve disputes, with a system of binding arbitration when mediation fails. This should be the central recommendation of this inquiry.”
Mr Voortman pointed out that GM Holden had changed its corporate structure in October last year from a limited company to a proprietary limited company, and said it was important to gain an understanding of how that would affect the liability of General Motors Holden going forward.
“This is important for the Holden Dealers who have not yet settled with Holden and are considering legal action; however, it has wider importance, because GM has ongoing obligations to the owners of its vehicles and to the Dealers servicing these vehicles. It needs to honour its Australian Consumer Law obligations and honour its recall and warranty obligations and guarantee the supply of parts. It should demonstrate what funds it has set aside to honour these commitments, particularly under the obligations its parent company has under US federal law and certain statutory obligations. GM does not have a good track record in this area, which is why it is currently subject to a court enforceable undertaking with the ACCC, although this was signed by the previous limited company. As a sign of good faith, GM should extend this undertaking beyond its expiry at the end of this year.”
Mr Voortman urged the committee to examine the way in which Dealers were misled, to look at GM’s behaviour since the announcement and the way it had compelled Dealers to accept inadequate compensation, consider the wider power imbalance that exists between Dealers and Manufacturers and make recommendations to remedy this imbalance. Finally, it should also ensure that GM fulfils its warranty and parts supply obligations to the many Australian consumers with Holden vehicles.
Committee member, Labor Senator Don Farrell asked Mr Voortman about what he described as “a thinly veiled threat” Mr Aquilina had made on 9 June – the day mediation was to begin – to give service business to operators other than Holden Dealers.
“That was truly an incredible statement because of when it was made,” Mr Voortman said. “It started with the Dealers, who were about to enter that mediation, reading that Holden was discussing giving their servicing contracts to independent repairers. It needs to be remembered that automotive Manufacturers provide the training, systems and special tools to service these cars, but here they were, on the morning of mediation, suggesting that they had options and that they could go elsewhere. It was a thinly veiled threat, as you said, and it undermined the mediation.
“The other thing they did on that morning was to go on the ABC and proceed to say that the Australian Holden Dealer Council’s legal team was just trying to drag this to court and to drag out the process in order to make more money. So that was on the morning that they were about to meet with the Holden Dealers and with their legal team, who they had just trashed in the media. That just sums up this whole process and how little credibility they have when it comes to determining whether they engaged in a good-faith process.”
Labor Senator Deborah O’Neill said Australian Holden drivers “would be absolutely stunned to think that General Motors are acting in this heavy-handed way with Australian businesses”, and grilled Bruce Wilson, Head of Division, Industry Growth, Department of Industry, Science, Energy and Resources, about 24 unanswered emails from Holden Dealers to Minister Karen Andrews over three months.
Mr Aquilina described the decision to withdraw as “sad” and said that “everyone at Holden and General Motors is hurting as a result”.
He denied the decision had been made well in advance of the February announcement, saying he had been informed only three days prior.
He admitted he had been “feeding into that process” since December 2019, but said it would have been inappropriate to advise anyone external to the company at that point, and rejected the claim GM had acted in bad faith.
Mr Palmer said that while it might be true that 90 per cent of Dealers accepted the agreement by the deadline of 30 June, two days prior to that 176 Dealers were still ready and willing to proceed towards litigation.
“The fact that that fell away so desperately in the last two days indicates the pressure that was on them, some of it financial, to take the offer. Then there was—I think many Dealers will readily admit this—FOMO, fear of missing out, and, once the numbers dropped away, their deemed cost of litigation frightened them, so most of them took the offer,” he said.
“One of my very good friends and colleagues has openly stated to me, in the one and only time he’s been able to speak to me since 1 June—we used to talk all but daily—that he hates himself for accepting the offer, so strong, in my opinion, was the pressure from General Motors Holden.”
Mr Palmer said Dealers were never afforded the opportunity to engage in two-way dialogue and communication with GM, and that “in any correspondence that I’ve had with General Motors Holden the offer was not negotiable”.
The Senate Inquiry is scheduled to deliver its report into Holden on 12 November, 2020.