AADA Puts Microscope on Franchise Agreements

The importance of the Dealer franchise agreement cannot be underestimated. This significant document is the guiding force Dealers rely on as they invest substantially in dealership ownership. In recent years, changes to Australian manufacturing, vehicle advertising and consumer spending habits means that there are now a whole set of new and complex issues not taken into account in franchise agreements of old.

A major task of the AADA will be to ensure that Dealers have a franchise agreement that truly reflects current market conditions, taking into consideration issues which have been created by both internal and external forces.

The AADA has already initiated informal discussions with the Federal Chamber of Automotive Industries (FCAI) and hopes to build on a strong foundation that will benefit both parties into the future. The formation of annual meetings between the AADA and FCAI is currently underway, where it is expected that both parties will constructively work through the issues surrounding this important topic.

Australian Dealers have collectively invested $13 billion in franchise facilities, including compliance with expensive brand image programs that are arguably unnecessary in today’s business climate. The AADA believes that Dealers should rightfully expect a return on these substantial investments, as Dealers strive to achieve the branding outcomes expected by manufacturers.

Modern franchise agreements should also reflect changes in the wider automotive industry. For example, many Dealers are operating under agreements formed when their brands had greater market share, while almost all Dealers are being affected by online advertising, which is dramatically changing the PMA territory system, a cornerstone of all current agreements. It’s undeniable that the far-reaching nature of the internet is changing how consumers look for cars and where they’re willing to go to get the best deal.

Many argue that online advertising has eroded the protection that the territory system of franchise agreements affords Dealers. This is a major issue and one that has remained largely unchallenged until now.

As part of the campaign to review and amend franchise agreements, the AADA will release a discussion paper on the subject at this year’s AADA National Dealer Convention in July. Over the coming months, Dealers will also be asked to participate in focus groups aimed at identifying important areas of franchise agreements that need to be addressed.

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