Future Franchise Agreement a Hot Topic at Convention

The 2014 AADA National Dealer Convention will take an in-depth look at how changing market trends and laws will demand the need for a changed Franchise Agreement for Dealers.

In the last issue of Automotive Dealer, a number of significant proposed changes to the Franchising Code of Conduct were uncovered.

When the Federal Government released an exposure draft of the new Competition and Consumer Amendment Bill 2014 (Bill) and Competition and Consumer (Industry Codes-Franchising) Regulation 2014 (Regulation) earlier this year in April, a timetable outlining key Franchising Code amendments was also released.

The proposed changes are wide-reaching – dealing with issues as diverse as online sales, civil penalties and new obligations for parties to ‘act in good faith.’

Last issue’s Franchising Code article, penned by HWL Ebsworth Lawyers Lead Partner, Evan Stents, also uncovered a raft of other substantial changes. These include new minimum terms in Dealer agreements along with stronger auditing powers for the ACCC in ensuring compliance with the Code.

Although the new Code is expected to undergo some further amendments before its release – the scheduled commencement date of January 1, 2015 is fast approaching and will likely affect Dealers who sign new (or renew) agreements after this date. Dealers should also consider deferment of a new agreement until after the commencement of the new changes.

In what will no doubt be a highly informative and compelling address at this year’s Convention, the AADA is proud to welcome Evan Stents as a key speaker at the event this July – no doubt unlocking an outstanding opportunity for Dealers.

Stents’ presentation Motor Vehicle Dealers – Your Ideal Franchise Agreement will explore how proposed changes to the Code (along with the quickly changing automotive industry landscape) is set to alter the face of Dealer Franchise Agreements forever.

An ‘ideal’ Franchise Agreement between Dealers and manufacturers may never exist, and Stents will demonstrate how these aforementioned legislative changes could mean good news for Dealers if adopted.

For example, compensation for non-renewal or changes to ‘end of term’ agreements, along with greater disclosure about the conditions surrounding control and management of online sales are just two of the potential outcomes from the revised Code that all Dealers should be aware of.

However, legislative changes to the Code account for only one side of the story.

The gradual, albeit dramatic, shift in the conditions of the motor vehicle market provides another reason why Franchise Agreements will change (or need to change) – and this will be another area of focus in Stents’ address at the Convention.

In the new market landscape, changes to Franchise Agreements will (or should) arise out of the various structural changes to the motor vehicle market currently taking place. One particularly clear example is the impending end of local motor vehicle manufacturing. This has (and will continue) to raise a number of questions about how the auto industry is organised and how laws impacting on competition are structured moving forward.

Another major structural change surrounding Dealer Franchise Agreements includes the continued fragmentation of the market. Increasingly low tariffs, coupled with a growing stream of new marques being sold in Australia, is raising questions about how these variables are being addressed in agreements between manufacturers and Dealers. And indeed, they need to be asked.

The same goes for the rising volume of online sales.

The internet continues to change the way Dealers run their businesses. In many ways, the online world has created ‘a second front door’ for dealerships as well as blurred the lines of traditional notions of the Dealer Prime Market Area (PMA). As manufacturers further invest in their online activities as well as those of their franchisees, changes to the Franchise Agreement will need to take into account the interests of both parties.

So with all this in mind, what does the ideal Franchise Agreement look like?

Evan Stents will paint a vivid picture, outlining the changes which should ideally occur in a new market and trading landscape.

Among the changes that would benefit Dealers are more realistic settings of KPI targets – particularly in relation to the fragmented market and the manufacturer’s ability to terminate Franchise Agreements for failing to reach KPIs.

Manufacturers who no longer enjoy the dominant market share that they did with domestic manufacturing operations (when tariffs were much higher) should also be taken into account.
Reducing requirements for dealership size and capital expenditure is another ideal Franchise Agreement change, including manufacturers adjusting their expectations of dealership sizes, especially when their market share does not justify ‘massive glass-boxes’.

Similarly, when it comes to requirements for capital expenditure on dealership upgrades and marketing, there should be realistic recognition in Franchise Agreements of the market pressures faced by Dealers.
With the aforementioned fragmentation of the motor vehicle market, Dealers need flexibility in how they run their business. As such, eliminating multi-franchise restrictions when no single manufacturer has a dominant market share, should not be restricted.

More certainty about profit margins, including proper recognition of a Dealer’s entitlement to reasonable profits, as well as more security of tenure to project and protect return on investment should also be outlined in an ideal Franchise Agreement.

Since the AADA began its revitalised quest to protect Dealer interests, ensuring a fair and advantageous Dealer Franchise Agreement has been amongst our highest priorities – and with good reason.
In many ways, the Franchise Agreement is the binding document which governs the success (or failure) of the dealership business. As the auto industry market continues to evolve, the importance of an accommodating and up-to-date agreement only becomes more important.

The AADA wants a fair playing field for Dealers and believes that all Dealers who are serious about the future of their business should be seeking the same outcome.

Don’t miss Evan Stents at this year’s AADA National Dealer Convention as well as the various Q&A sessions which will focus on this major issue.


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