AUTOMOTIVE CODE DRAFT DISAPPOINTING

AADA was extremely disappointed with the draft regulations released by the Federal Government to incorporate automotive industry-specific protections into a Schedule to the Franchising Code.

AADA is disappointed with both the breadth of the issues covered, and by the tepid nature of the protections being offered to new car Dealers. The AADA remains firmly of the view that new car Dealers need a standalone Automotive Code of Conduct.

The draft Regulations focus on End-of-Term arrangements, capital expenditure and multi-franchisee dispute resolution. They are silent on issues such as unlawful warranty audits and claw-backs, the duration of terms being offered to Dealers, and the need for an explicit link between capital expenditure and tenure.

AADA CEO James Voortman said Australia’s car Dealers need strong regulatory protections similar to those in force in other advanced countries.

“Unfortunately, the regulations as drafted will have very little effect on the status quo,” he said.

“Global car manufacturers are using Australia’s lax regulatory regime to squeeze their Dealers and they see our market as an ideal place where they can experiment with alternative distribution models, usually at the expense of Dealers. Such behaviour is simply not possible in a country like the United States which does have strong automotive franchise laws.

“It is so important that these regulations are bolstered before they are finalised, particularly at this time when sales of new cars have been going backwards for 22 months and a number of regional dealerships have had to close their doors.”

Mr Voortman said the biggest factor influencing the power imbalance is insecurity of tenure for Dealers. It was identified by the ACCC as an issue of concern in its retail market study, but to date it has been left out of the draft regulations.

“There are Dealers in Australia who over the course of many years have invested millions of dollars in facilities, stock and equipment at the behest of manufacturers, only to be given a one-year agreement. To put that into perspective there are fast food franchisees with substantially lower capital investment requirements which are given 20-year agreements by their franchisor,” he said.

“While we acknowledge improvements in end of term obligations, manufacturers are still not required to purchase back the stock which they have compelled their Dealers to purchase from them.”

The key issues of Dealers being denied warranty payments and Manufacturers pressuring Dealers to dismiss ACL claims from consumers have also not been covered in these regulations.

The AADA believes it is crucial that these draft regulations are strengthened before they are finalised and will be raising concerns directly through the consultation process.

The draft regulations will support the work that the Franchising Taskforce has undertaken in recent months. The Taskforce will provide advice to the relevant Ministers prior to a public announcement of the Government’s position later this year.

The regulations are intended to address the major power imbalance between new car Dealers and offshore vehicle Manufacturers but fall well short and will continue to leave Australian Dealers vulnerable.

The AADA have made a submission to the Government addressing these concerns.

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