Dealers welcome increased protections outlined in Report of Franchising Inquiry

AADA has welcomed calls for increased protections for Dealers contained in the report from the Parliamentary Inquiry into Franchising.

AADA CEO David Blackhall said the association welcomed the recommendation for changes to the Franchising Code, to embody specific industry protections within schedules to the current Franchising Code.

“While the Report stopped short of recommending our preferred approach of a standalone Automotive Code, we are prepared to discuss with Government the Committee’s proposal for a core Franchising Code with greater powers, and schedules to the Code that address specific industry considerations,” he said.

“We particularly welcome the prohibition on unilateral changes to the Terms and Conditions of Dealer Agreements, and the buyback conditions for stock, parts and equipment when a Dealership Agreement is terminated. The Government needs to include these proposals in their consideration of a standalone Automotive Code.

“It is now very important for the Government to respond to the Inquiry Report quickly. This will maintain momentum and address the power imbalance between overseas vehicle Manufacturers and local new car Dealers, which currently leaves Australian businesses and their many employees extremely vulnerable.”

In a damning report released on 14 March, the federal parliamentary inquiry into the $170 billion franchising sector called for a total overhaul of Australia’s franchising system.

While both the Government and Opposition have committed to the establishment of an industry-specific Automotive Franchising Code, it can only help the cause of franchisees to have this kind of spotlight shone on the many issues and unfairnesses built into the current system. With pressure now to be applied to the franchisor side of the relationship, this marks an opportunity for retail automotive Dealers to pursue more equitable rules and regulations to ensure a fairer outcome.

The bipartisan report calls for new laws, greater enforcement powers and penalties for the regulator, as well as a host of changes to the franchising code.

The report states that the current franchise code has “manifestly failed to deter systemic poor conduct and exploitative behaviour and has entrenched the power imbalance”. Its authors even went so far as to compare behaviour in the franchising sector with that revealed by the banking royal commission.

“The extent of poor corporate governance in some areas of franchising is comparable to that in the financial services sector,” it said. “There are deeply rooted cultural problems that will not be resolved by a franchisor replacing a few senior executives.”

The report suggests the government create a franchising task force, made up of representatives from Treasury and the Department of Jobs and Small Business, to look into its recommendations.
The Opposition has said it will support such a task force and act on its recommendations. Small Business Minister Michaelia Cash said the government would analyse the report and consider what improvements needed to be made.

“The government is committed to supporting effective and fair reforms to the franchising sector without imposing unnecessary regulation on the sector,” she said.

The report also calls for improvements to disclosure and transparency, including provision of all financial information when franchises are sold or transferred. This would include Business Activity Statements and increased clearness and culpability with regard to marketing funds.

It recommends the task force consider making illegal the provision of unfair contract terms in franchise agreements, and explore the possibility of a public franchise register, via which franchisors would update disclosure documents and template franchise agreements on a yearly basis.

The report calls for civil penalties if franchisors fail to comply.

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