SENATE COMMITTEE TO REPORT ON DEALER-OEM RELATIONSHIP

The Senate Standing Committees on Education and Employment, which broadened its initial inquiry into the operations of General Motors Holden to include the wider industry, is due to report by December 10.

On 24 November, the Senate Inquiry concluded its public hearing phase, which was the last round of industry consultation it took in preparation for its final report.

Testifying before the Committee on the final day of hearings were:

  • David Blackhall, Managing Director, Raglan Ridge Advisory, and former AADA CEO
  • Matthew Callachor, President and Chief Executive Officer, Toyota Motor Corporation Australia Ltd
  • Kate Carnell, Ombudsman, Australian Small Business and Family Enterprise Ombudsman
  • Stephen Collins, Director, Honda Australia
  • Peter Cully, Head of Division, Small & Family Business, Department of Industry, Science, Energy and Resources
  • Rami Greiss, Executive General Manager, Enforcement Division, Australian Competition and Consumer Commission (ACCC)
  • David Hayes, Chairman, National Toyota Dealers Association
  • Nick Heys, Deputy General Manager, Enforcement Coordination and Strategy, Enforcement Division, ACCC
  • Alexandra Hordern, Director of Advocacy, Australian Small Business and Family Enterprise Ombudsman
  • Tim Hore, Director of Sales, Mitsubishi Motors Australia Ltd
  • Catherine, Humphreys-Scott, Public Relations Manager, Mitsubishi Motors Australia Ltd
  • Kate Lynch, Principal Adviser, Market Conduct Division, Department of the Treasury
  • Brett Mills, Incoming Chairman, National Toyota Dealers Association
  • Jason Nomikos, Director of Network Development and Customer Management, Mercedes-Benz Australia/Pacific Pty Ltd
  • Toby Robinson, Unit Manager, Consumer Policy Unit, Market Conduct Division, Department of the Treasury
  • Horst Von Sanden, Chief Executive Officer, Mercedes-Benz Australia/Pacific Pty Ltd
  • Andrew, Wills, Manager External Affairs, Toyota Motor Corporation Australia Ltd
  • Bruce Wilson, Head of Division, Industry Growth, Department of Industry, Science, Energy and Resources
  • Simone Zerial, General Counsel, Toyota Motor Corporation Australia Ltd

NADA representatives Andy Koblenz and Lauren Bailey testified before the Committee on 19 November (see accompanying story), as did AADA CEO James Voortman.

This Inquiry has brought into sharp focus the nature of the power imbalance that exists between Dealers and their franchisor OEMs and has revealed many shocking and disturbing features of the relationships between the parties. In particular, there has been much discussion about a list of “Principles for new car dealership agreements” the Industry has developed alongside Government. There are currently suggestions that these principles should only apply on a voluntary basis. The AADA has been very clear that these principles need to be mandatory and enforceable.

Mr Hayes told the Committee that as a Toyota Dealer, he enjoyed “a transparent, collaborative, constructive and approved business partnership with our OEM”, but nonetheless expressed his strong support for mandatory dispute resolution.

“As chairman of the NTDA, I have had several conversations with Toyota Dealers who also represent other OEMs, and there is certainly an imbalance of power in some situations that doesn’t go the right way…I definitely see situations on multiple occasions where other Dealers with other OEMs drastically need the protection discussed and the mandatory arbitration and mandatory dispute resolution process,” he said.

Senator O’Neill questioned Mr Hore on why Mitsubishi would view a mandatory arbitration process as a cost rather than a means to ensuring a successful partnership with Dealers. He responded that it was regular changes to the Code that were costly, and expressed his desire to wait and see the effect of the most recent changes.

The Senator said the Committee called Mr Hore to testify because Mitsubishi had had “some particular problems that we’ve become aware of” regarding sales targets set for Dealers.

“Has a Dealer or Dealers ever complained to Mitsubishi about unreasonable targets that you’ve set? Some Dealers have been told that around 800 to 900 vehicles per year are to be sold. Has that ever been a point of conflict between Mitsubishi Australia and your Dealer network?” Senator O’Neill asked.

“We heard from Toyota that they have a very sophisticated set of KPIs, that their relationships are built on win-win-win—I think is how they described it—for the distributor, the Dealer and the customer, and that they’ve moved to a model that’s more sophisticated than units sold. Does Mitsubishi acknowledge that setting high vehicle sales targets places very significant pressure on car Dealers to meet bonuses, which the car Dealers can then use to help deliver savings through the consumer?

Senator O’Neill said she had heard that Mitsubishi had been setting unreasonable targets and had pressured smaller Dealers to engage in pre-reporting “cybersales” of vehicles.

“Can Mitsubishi, for the record, agree that these vehicles were never sold to a retail customer but were reported as sold, or as demos, to improve Mitsubishi’s reporting of the market share in Australia?” she said.

Mr Hore denied Mitsubishi had “encouraged” Dealers to pre-report vehicles or report fake sales to boost a sense of market share. He said he believed Mitsubishi had set realistic targets but acknowledged Dealers often did not agree with that assessment.

Mr Collins said the existing dealership business model was outdated, broken, and must change. He expressed regret that some Dealers would not continue with Honda but put forward that a continuation of business as usual would be disastrous. He said Honda “undertook a thorough, objective and considered process to determine which Dealers would form part of the new agency model”.

Senator O’Neill grilled Mr Collins on the matter of compensation, saying many Dealers were unsatisfied with the amount of compensation, and mentioning that the Committee had received a report of intimidatory behaviour by Honda towards its Dealers.

“People walking away because they can’t stand the pressure anymore, or they’re worried—cutting their losses and running from situations,” she said.

“We’ve got the No. 1 successful trader for Honda in Melbourne appealing to the Senate, saying: ‘We had an agreement. They walked away. They’ve used all their power. They’ve employed Deloitte. We’ve been intimidated and we haven’t got any adequate compensation. They’re not going to pay us anything for redundancy costs. We’re not covered properly for our capital investment.’ That’s what we’re hearing from small businesses—successful businesses.”

Mr Collins rejected any claims of intimidation by Honda.

In his evidence, Mr Blackhall outlined what he saw as the main regulatory challenges to ensure that changes to distribution arrangements were made fairly and with due compensation to Dealers who were not being included in the networks.

“When the relationship breaks down under the current rules, the last-resort protection is a legal redress under contract law. I’d like to ask the Committee to please carefully examine ways to bind these large offshore wealthy multinationals into a fair compensation process on termination or non-renewal of a franchisee or agent agreement. We need to find a way to do it without resorting to expensive litigation,” he said.

“A key ministerial adviser asked me yesterday if I thought vehicle Manufacturers would opt into a binding agreement on a voluntary basis. I had a pretty disappointing answer for him based on my past experiences. Again, ministers of the Crown requested General Motors to engage voluntarily, and they did not do so in the Holden matter. Manufacturers will always be happy to go to court, because they’re confident they have the deepest pockets in the room. If court action remains the only solution as it is today, Dealers will never receive full and fair compensation for their life’s work.”

The AADA consulted extensively with members in the preparation of its submission to the Senate Committee, and also urged Dealers to make their own submissions. The Senate Committee is due to make its final report by 10 December.

Video and transcripts of the hearings are available here.

Leave a Reply

Your email address will not be published.