FIXED-PRICE SALES MODEL CONCERNS

As Honda and Mercedes-Benz continue to plan to shift to a set-price distribution model, AADA CEO James Voortman has expressed concern to a Senate Committee about the detrimental effect such a move would have on Australian Dealers.

Honda has announced its intention to move to the fixed-price model as early as 1 July, 2021, while Mercedes-Benz is reported to be planning to do similar from 1 January, 2022.

The Australian Competition and Consumer Commission (ACCC) on 16 September granted interim authorisation for the National Honda Dealer Council Limited (NHDC) to engage in collective bargaining with Honda Australia Pty Ltd (Honda) on behalf of Honda Dealers.

The authorisation, which ACCC will continue to review and receive submissions regarding before making a final decision, will enable the NHDC and the Dealers to:

  • discuss and share information about the terms of the termination of existing dealership arrangements between Honda Australia Dealers and Honda Australia,
  • discuss and share information about the proposed terms of a new fixed-price distribution model proposed to be entered into between Honda Australia and the Dealers, whereby Dealers would deal with constomerd as agents of Honda Australia in some respects rather than in their own right, and
  • commence collective negotiations with Honda Australia in relation to the above issues.

Discussions between NHDC and the Dealers, and negotiations with Honda Australia may cover terms and information including, but not limited to:
commissions

  • circumstances in which capital expenditure by Dealers will be reimbursed by Honda Australia and the nature and calculation of that reimbursement
  • Honda Australia’s proposed ‘one price everywhere’ model for new vehicle pricing
  • compensation and reimbursement for included services
  • vehicle servicing arrangements with Honda Australia
  • arrangements for finance, insurance, oil, aftermarket products, accessories
  • territory boundaries, and
  • processes for termination and transfers of the Dealers’ businesses,” the ACCC said in a statement.

“In addition, interim authorisation is not granted to permit entering into or giving effect to any binding agreements between any Dealers and Honda Australia as a result of collective negotiations. The entry into and giving effect to binding agreements following collective negotiations will be considered as part of the ACCC’s substantive authorisation assessment,” the ACCC stated.

“Interim authorisation commences immediately and remains in place until it is revoked, the application for authorisation is withdrawn, or the ACCC’s final determination comes into effect.”

Testifying at the Senate Inquiry into Holden’s withdrawal from the Australian market, Mr Voortman took the opportunity to express AADA’s concerns over the fixed-price model.

“We would argue that much of the investment is undertaken by the Dealer. The Dealer has the relationship with the customer, and they’re often taking the risks and creating the value in the business. We think that really does need to be considered when you are compensating your Dealers,” he said.

“An example is we currently have Mercedes-Benz looking at changing its model, and it has said that it will not be compensating its Dealers as they embark on a new model. But you can’t move away from the fact that there are Mercedes-Benz Dealers who have taken a brand in a particular area from essentially nothing and grown it to the extent that it has a massive database of loyal customers. Many of these Dealers would also have bought dealerships themselves and paid goodwill. I think any compensation process really does need to have goodwill as a central element to it.”

Mr Voortman said the fixed-price model was “very different to how Dealers operate these days”. OEMs would retain ownership of the vehicles with Dealers selling them at a set price and earning a commission on every car sold.

“There are various such models which are being trialled around the world. It’s a new thing Manufacturers are starting to do, and that is their right. They have the right to try new models. They have the right to sell vehicles online. They even have the right in Australia to sell directly, as they do in a number of cases. That’s not in question,” he said.

“Their right to change their business model is not in question; but, when they have engaged partners and asked those partners to expend significant capital in distributing their product and then they want to change that model, we believe that it has to be done in a fair and transparent manner. That’s all we ask. When models are changed, Dealers need to be compensated adequately. It’s that simple.”

Mercedes-Benz has already dipped its toe into the fixed-price model, offering the EQC electric SUV it launched late last year for sale online.
In a press release at that time, Mercedes-Benz set out its reasons for adopting the model, saying it would handle many of the administrative functions typically handled at the retailer level.

“This will enable EQ agents to focus on delivering optimal service, including creating a highly personalised handover experience for the customer,” the release said.

Of the 64 Mercedes-Benz Dealers in Australia, nine were initially announced as participants in the program. More have since been appointed, but have yet to be announced.

In the 2022 plans, Dealers will retain control of parts and servicing, as well as used cars.

The majority of Mercedes-Benz Dealers last year voted against moving to the fixed-price model. That didn’t stop the Manufacturer, which invited Dealers to apply for roles in the new model.

Mercedes-Benz already has similar models already in place in Sweden and South Africa and its German base is believed to be behind the push for its adoption in Australia.

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