FRANCHISE FIGHT A KEYNOTE ISSUE

AADA Chairman Terry Keating dismissed the Federal Government’s proposed voluntary Code of Conduct as “worthless”, while Government Senator David Van committed to continue his support for a fairer deal for franchisees, during the Keynote Session at the AADA 2020 Moving Forward online event on 10 November.

NADA Chairman Rhett Ricart also spoke via video, pledging his and NADA’s support for Australian Dealers, including testifying before the Australian Senate Committee inquiry into the relationship between Dealers and OEMs.
Mr Ricart detailed how when the pandemic struck, NADA was one of the first organisations to approach the White House, advocating for assistance for American Dealers.

“When most of America shut down in March and April, dealership service centres stayed open, and we were busy. We showed legislators and regulators why people need their cars, especially the very important essential workers,” he said.

“Today, we’re still tackling every issue big and small, from dealership health and safety to relief loans, taxes, and factory production issues.

Mr Ricart said he was proud of the grit that had allowed dealerships to continue operating and seen the return of customers, “but it’s an ongoing battle and so very unpredictable”.

Senator Van, a director of the Australian Association of Franchisees prior to being elected last year, was also involved in the 2018 Joint Parliamentary Inquiry into Franchising in 2018.

“I’m probably one of the few people, including many of the people on that Committee still, who read every one of the submissions into that Inquiry, which was at times quite haunting and quite harrowing because of the damage that was talked about, because of the power imbalance that occurs in franchising currently,” he said.

“So, both prior to being elected to Parliament, and definitely since then, I’ve been an advocate for change to the regulations that affect this. I think we’re getting somewhere, there is certainly an appetite to change that power imbalance within government (but) there is not an appetite at the moment for wholesale change.

“Some of the things that I’ve been advocating for are a shift from regulation of franchising from being around the Franchising Code, which is administered by the ACCC, to moving it to Corporations Law under ASIC, given that the franchisees tend to be some of the largest investors in a franchise business.”

Senator Van said that with up to 85% of the capital within a franchise system coming from franchisee, “that’s an awful lot of capital to be investing to not have the sorts of protections and obligations that go along with that if it was any other form of investment”.

“It’s not going to be a simple process but I believe it’s one we can do over the medium to longer term. Making that sort of legislative change, where you’re changing the complete structure of how an industry is regulated is no simple matter. At departmental level, the changes that would be needed would be quite big as well. It’s something that needs to be done over a longer term and in a very considered way,” he said.

“But one of the things I’ve been advocating for is that the legislation, regulation that looks after franchising be sent off to the Australian Law Reform Commission. That is the body that can look at legislation and say, ‘Is this the best way to legislate for a particular set of circumstances?’”

AADA CEO James Voortman asked Senator Van about dispute resolution and the possibility of making mediation mandatory rather than compulsory. Senator Van said the Government had a “strong appetite” for the proposal but had been advised it was unconstitutional.

“Even if we put it in legislation it would have been defeated the first time it was tested,” he said.

Senator Van said the ability to undertake dispute resolution as a group would be a “game changer”.

“If you can all share the costs of that, if you all have the same problem, you’re going to have a much stronger chance of defeating it than under the current Code, which allows franchisors to take away rights in your contract by saying ‘you can’t collectively run a dispute’. That just doesn’t happen anywhere else. So that needs to go, you need to be able to run disputes collectively; one, to share the costs, to multiply the voice, and just to be more effective. But that seems to be one of the changes that the FCA (Franchise Council of Australia) are fighting the most. So, fight for that one.”

In his annual Chairman’s Address, AADA Chairman Terry Keating said 30 consecutive months of declining sales meant the industry was not in a good position, with Holden’s demise having a major negative impact on most of not all of the 185 Holden Dealers around Australia. Mr Keating said that Australian franchise law had allowed General Motors to ignore “decent and fair business practices” and in rejecting all government requests to improve their offer to Dealers.

“They would not have done this in their home country, the United States, because State laws there prohibit such actions. But apparently here it’s okay,” he said.

“It astounds me that our very sensible and very pragmatic Prime Minister will continue to allow his business portfolio ministry to prevaricate on this issue and not legislate. To be fair, the Department has, after much pressure from us, established a doctrine of six principles to protect our interests, and by and large, these six principles would mark a substantial step forward in establishing equality. However, the same Department insists we should accept this new regime as a voluntary Code of Conduct and not a mandatory Code of Conduct. In other words, it’s worthless. Quite frankly, if it wasn’t so serious it would be a joke.”

Mr Keating commended the Federal Government’s JobKeeper program, “which for many of our members, kept their businesses afloat”.

“When I reflect on negative events, setbacks, roadblocks, whatever you might want to call them, it reminds me that as new car Dealers we are nothing if not resilient. Indeed, that could almost be our theme going forward: resilience,” he said.

“Like all organisations we’ve had to live within a reduced income environment, and this has meant cutting costs. Sadly, we had to let one person go from the secretariat – effectively a 20 percent reduction in staff – and further, all of our key people agreed to take a pay cut to see this year out.”

As a result, the audited accounts, released at the AGM later the same day, showed a decline in Retained Earnings of $220,000.

“This result, however, was impacted by a mandatory accounting standards, where in our case, revenue earned but not received as at balance date can no longer be included in our annual results as it has been in past years. Excluding this one-off impact, we made a small surplus of about $130,000 (as at 30 June),” Mr Keating said.

“Since then our revenue has declined further, in line with new car volumes. But we’ve managed to be circa-break even in the last quarter. So, as an association, we’re still in good shape. But to put the decline in new car volume into context, the industry was at a peak in 2017 of almost 1.2 million units. By 2019, it had declined to one million and sixty thousand approximately. And this year we think we will struggle to get to 850,000.”

Mr Keating said many OEMs were ethical organisations that did not engage in predatory conduct and would have nothing to fear from a mandatory Code of Conduct.

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