Auto Franchising Reforms Good News for Dealers

The automotive franchising reforms introduced in July will bring greater fairness to the commercial relations between Australian car Dealers and overseas Manufacturers.

The new regulations released as part of significant changes to the Franchising Code of Conduct took effect as of 1 July 2021 and provide Dealers with more certainty in terms of the investment they undertake and the compensation they are entitled to. New agency models are also subject to these rules.

Dealers will also benefit from changes to the Franchising Code, including improved disclosure obligations and restriction of franchisors ability to unilaterally vary agreements.

“These reforms are all about fairness and Australian Dealers will now be in a better position when a car Manufacturer leaves the country, reduces its network or changes its business model,” AADA CEO James Voortman said.
“I congratulate the Morrison Government for standing up for Australian Dealers and implementing these changes. We also look forward to working with the Government on the upcoming consultations on dispute resolution and the merits of a separate automotive code. These matters are now open for comment following the release of a discussion paper by the Minister for Small and Family Business, Stuart Robert.

“These changes come after a difficult 18 months for Australian Dealers which saw Detroit-based General Motors terminate every Holden Dealer without adequate compensation. It is clear that other Manufacturers are considering making changes to Dealer networks which is why these reforms are so important.”

Mr Voortman said the 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.

“Dealers in regional towns and cities all across the country will be welcoming these reforms. Automotive dealerships are important local businesses which employ Australians, invest in Australia and pay their taxes in Australia. Dealers look forward to healthy commercial relationships with their Manufacturers, so they can continue to bring many benefits to Australian consumers and communities,” he said.

In March of this year, the Morrison Government announced a set of changes to the Franchising Code of Conduct (FCC) aimed specifically at providing greater protections for franchised new car Dealers. These automotive specific principles passed into legislation as part of a wider reform package which strengthen the FCC to better protect franchisees and include significant increases in penalties applied to those found to be in breach of the regulations.

Highlights from the reforms include:

  • A revised definition of a motor vehicle dealership that includes those who act as an agent of a Manufacturer/Distributor.
  • Improved clarity about the requirement for Manufacturers to act in good faith.
  • An obligation for Manufacturers to compensate Dealers when they withdraw from the market, rationalise the network or change the distribution model.
  • The components of compensation are specified, and compensation cannot be contracted out of in the Dealer Agreement.
  • Dealers must be given a reasonable opportunity to recoup Manufacturer specified capital expenditure.

More broadly, applicable to all franchising agreements, the reforms legislate strengthened dispute resolution procedures and confer responsibility for administering them on the Australian Small Business and Family Enterprise Ombudsman.

The Government has also committed to further investigating the merits of a standalone Automotive Franchising Code.

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