ACCC STUDY SHOWS NEED FOR FRANCHISE CODE

The ACCC’s new car retailing industry market study clearly demonstrates the need for a new car retail industry code. The question is, what should it look like?

The ACCC’s final report examined the relationship between new car Dealers and vehicle manufacturers and found a number of issues worthy of further investigation including:

  • minimum tenure and capital investment requirements
  • non-renewal practices
  • changes to commercial arrangements
  • reimbursement for remedies.

“The ACCC’s 18-month long investigation has revealed a structural imbalance in the relationship between Australia’s new car franchised Dealers and vehicle manufacturers,” said AADA CEO, David Blackhall.

“New car Dealers are of the firm view that the only way to address this imbalance is to develop an industry specific code for the new car retail industry.”

Currently, Dealers are facing three unstoppable global trends that are washing over their businesses with the force of a tsunami: compression of the average 2 per cent margin on the sale of a new motor vehicle, regulatory intervention, and digital disruption including online selling.

The relationship between a multinational OEM and an Australian resident Dealer is characterised by an imbalance of power. OEMs compete in a globalised mainly free trade market with enormous investment in R&D, manufacturing plants, new products and technology. A recoupment of this investment and quest for market share translates into unrelenting pressure on the management of Australian subsidiaries to achieve sales targets set by foreign executives in a business environment such as Korea, Japan, US, EU or UK, the market conditions and business practices of which are different.

This in turn forces Australian management to set unrealistic sales targets on brand franchisees.

“This relationship is skewed very much in favour of the offshore manufacturers and local dealerships that employ tens of thousands of Australians countrywide are suffering,” Mr Blackhall said.

“An industry code needs to address the fact that Dealers have no security of tenure; are increasingly being served with non-renewal notices; have ineffective capital expenditure protections; and unfair end of term arrangements.”

Shortfalls in OEM targets (and often revised targets) results in a reset of Dealer targets with little or no notice. The prospect of securing a generous bonus to meet revised targets, remain viable and retain the franchise has led to margin compression, frequently pushing Dealers to the limit of economic viability.

“This report underscores the need for a new car retail industry code and the AADA will be making the case for such a code to Government in order to protect Australian consumers and businesses,” Mr Blackhall said.

The ACCC also recommended a mandatory scheme for car manufacturers to share service and repair information with independent repairers.

“The AADA has consistently made the point that any regulatory scheme for sharing of repair information needs to impose strict conditions and safeguards for access to sensitive data, particularly security, safety and emissions information,” said Mr Blackhall.

“We are pleased that the final report has acknowledged this point, especially as we move to an increasingly connected world in which vehicle technology is advancing rapidly.”

The AADA has expressed in principle support for the ACCC’s recommendations on consumer guarantees and vehicle emissions labelling and stands ready to assist the Commission and Government in improving consumer information.

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