As readers will be aware, the ACCC has been studying the new car retailing business. In October it released an Issues Paper to which AADA responded in November.

The study is examining:

  • consumer guarantees, warranties and new cars
  • fuel consumption, carbon dioxide (CO2), noxious emissions and car performance
  • post-sale service arrangements, and
  • access to repair and service information and data.

“Consumer issues arising in the new car retailing industry are a priority area for the ACCC,” the issues paper reads.

“The Market Study seeks to inform the ACCC’s understanding of practices in the new car retailing industry. This market study will explore the broad structure and operation of the new car retailing industry, assessing whether market characteristics, including new car buyer behaviours and expectations, are conducive to competition.”

The ACCC claims that it and other Australian Consumer Law agencies receive a high number of complaints from consumers about defects with vehicles, covering a broad spectrum of manufacturers.

Potential outcomes

The ACCC says information collected during the market study might lead to a range of outcomes, such as:

  • increased consumer knowledge and awareness of their rights under the Australian Consumer Law (ACL) when engaging with the new car retailing industry
  • recommendations for policy/regulatory change in order to address any identified competition or consumer law issues, and
  • further action taken by the ACCC to address any behaviour in the industry that raises concerns under the ACL and Competition and Consumer Act 2010 (Cth) (CCA).

“The ACCC is interested in further exploring franchise relationships regarding sales, service, and repair,” the issues paper reads.

“With competition in the new car retailing market leading to lower margins, Dealers increasingly depend on post-sale service arrangements such as car servicing and the sale of parts to remain profitable. Similarly, as cars continue to evolve technologically, the cost of increasingly sophisticated equipment required for servicing and repair is leading to lower profit margins, particularly for independent repairers.

“The ACCC is interested in exploring the impact of these trends on the degree and nature of competition between authorised and independent repairers and parts suppliers.”

Questions on the structure and operations of the new car retailing industry

  1. How well does the ACCC’s understanding of the new car retailing industry supply chain reflect market participants’ understanding of the supply chain? Which key market participants does it not capture? How could the ACCC’s definitions be improved?
  2. What search costs do consumers typically incur when buying a new car? Have online sales decreased these costs?
  3. What are the key factors determining vertical relationships and contractual arrangements in the car industry? In particular:
    (a)    what is the contractual relationship between manufacturers, authorised Dealers and authorised repairers?
    (b)    what are the common features of these contracts?
    (c)    to what extent do contractual relationships raise barriers to entry and exit and/or reduce the degree of competition in the car market (or specific submarkets)?
  4. What is the nature of the business model applying to new car Dealers? To what extent does the sale of new cars, service and repairs, finance and insurance and used car (purchases) and sales, respectively, underpin gross profit margin of Dealers? Is there variability between Dealers in the market?
  5. To what extent do consumers substitute between brands and models, particularly responding to price differences? Do consumers show loyalty to particular brands of cars and dealerships, particularly for the after-care of their new cars and for future car purchases?
  6. What is the level of competition between participants in each sector of the market? For example between authorised and independent:
    (a)    Dealers
    (b)    service and repairer operators
    (c)    parts distributors.
  7. Has competition increased in the new car industry over time and, if so, what is driving this change and how have dealers/manufacturers responded?
  8. What are the main drivers of the increase in new car sales, e.g. import tariff reductions, competition from used cars, lower prices due to increased competition?
  9. Are there other trends developing in the new car retailing industry in Australia? For example, has there been any consolidation in the dealership segment? What impact might these trends and changes have on consumers?
  10. What is the level of intra-brand competition (for example competition between retailers of the same branded product)?

Consumer guarantees, warranties and new cars

The ACCC says the automotive industry’s compliance with consumer guarantee requirements is an area of focus for it.

“In 2014-15, the ACCC and ACL regulators received around 1,800 consumer contacts about consumer guarantee issues relating to cars. In 2015-16, the ACCC alone received over 1,300 contacts,” the paper reads.

“The issue of car specific ‘lemon laws’ is being canvassed by the current ACL review being conducted by Consumer Affairs Australia and New Zealand (CAANZ). Through this market study the ACCC will examine whether lemon laws are likely to provide any additional consumer protections to the consumer guarantees that already apply in the new car retailing industry. The ACCC is also interested in exploring the responsiveness of manufacturers and Dealers to consumer complaints about defective vehicles in the context of consumer guarantees, manufacturers’ warranties and Dealers’ extended warranties.”

This section examines:

  • consumers’ options for seeking a remedy for a defective new car
  • consumer guarantees – manufacturers’ manufacturers’ and Dealers’ handling of complaints
  • consumer guarantees – enforcement enforcement and access to remedies
  • manufacturers’ warranties and dealers’ extended warranties – commencement and interaction with servicing, and
  • non-disclosure agreements.

The ACCC is also looking into consumer access to choice of repairer and choice of parts.

AADA submission

AADA responded to the Issues Paper on 21 November 2016. Our submission can be found here:

The AADA submission provided a response to 55 listed questions from the ACCC Issues Paper. AADA responded with a significant amount of data related and industry relevant data to address many of the concerns of the ACCC.

Notably AADA provided the ACCC with evidence of the intense level of competition in the new car retailing and the positive outcomes this results in for consumers.
The ‘News from AADA this Week’ Newsletter No. 17 in late November queried the ACCC reliance on dubious data sourced from Choice Magazine.

Choice surveyed 1,505 consumers who said they purchased a new car between January 2011 and January 2016 – a period during which we sold about 5 million new cars. This is a sample rate of 0.03 per cent of all new car sales – but let’s be generous and call it 0.06 per cent by excluding fleet buyers.

That is a very low sample size.

Choice found that 66 per cent of these 1,505 consumers (about 990 owners) had experienced a problem with their cars in the last five years. These owners provide the statistical basis for the ‘two thirds’ of new car buyers that the ACCC refers to in the paper. Choice also found (not mentioned in the ACCC paper) that only 9 per cent of those complaints could be classified as ‘major’ (with ‘major’ not defined).

In other words, the ACCC assertion that two thirds of new car buyers experience problems in their first five years of ownership is based on unverified information from about 990 new car buyers, 90 of whom might have had something ‘major’ go wrong (although we can’t actually know what ‘major’ is).

That’s 0.0036 per cent of all retail customers over the period who might have had a ‘major’  issue. That is a very low percentage.

The AADA’s CEO David Blackhall and Stefanee Lovett, Managing Director of our strategic advisors, Capital Hill Advisory, attended the ACCC’s stakeholder forum in Melbourne on December 13.

At this meeting we learned more about the ACCC’s thinking around the issues raised in their paper. We also had an opportunity to discuss our submission and to further explore the important points raised therein.

This consultation process will continue through the first half of 2017, after which time the ACCC plans to publish an initial draft position. The final paper is scheduled to be finalised by December 2017.

AADA will, of course, keep Dealers fully appraised as we work though these steps.

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