The new AADA – five years on

It is five years since the new AADA was reconstituted with the aim of providing a strong, united voice on behalf of retail automotive Dealers.

AADA chairman, Terry Keating; CEO, David Blackhall, and former chairman, Ian Field, got together to discuss the progress of the last five years and the challenges that lie ahead.

Terry Keating: “Very early in that five years we built a foundation on the rock, not the sand – despite what the cynics thought – and today we’ve got a pretty strong association with a pretty fair reach and pretty fair recognition. I think that’s one of the great achievements of the five years: it sets us up to go through the next however many five years.”

Ian Field: “I remember when I went to Nick Polites before there was a new AADA (and said) ‘if we do nothing we’ll get what we have now: nothing. Who knows where this is going to go? It will go where we take it, but it will be us making the decisions about where it goes, and that’s different to now’. Nick… gave me a hug and supported it.”

There were some sceptics early on who wondered how and if the new structure would work, but the determination and passion of AADA is winning those doubters over.

AADA wants to work with OEMs in partnership, not as a threat to them.

David Blackhall: “I think what we’ve tried to show in the last couple of years is there’s serious work to be done by people who understand what it’s like to be, to own, to run, to try and manage a new car franchise in this country.

“It’s not about any secret agenda to go head-to-head with any OEM; that just isn’t what it’s about. Does it mean we agree with them all the time? Absolutely not. Does it mean we’re going to try and fix things we regard as being detrimental to our businesses? Yes we are going to fix those things; we’re determined to do that.

“AADA is about the right articulation of the correct voice; it’s not about anything else. It’s about articulating to policy-makers and regulators correctly, clearly, the things that need to be done to give this business a fair and equitable break. We don’t have any particular group in our sights; it’s what’s fair, what’s right, what’s transparent, what’s proper.”

The need for a franchise code

TK: “It’s pretty obvious to me. If you’ve got a Michael’s Patisserie or a Kentucky Fried Chicken or AP Eagers, they’re all essentially covered by the same Act of Parliament and it just doesn’t work.

“I pointed out to the politicians that we make a couple of per cent, the OEMs might make three or four or five, we’re not sure, but the Government at certain levels of pricing can make 30 and 40 per cent. And therefore, if they want to make cars more competitive, my words were ‘you’ve only got to look inside this House’ (Parliament).”

Terry told the story of how Anthony Altomonte told then Treasurer, Joe Hockey, with whom he went to school, that allowing parallel imports would be his ‘pink batts moment’ – that a lot more people would die in low quality imported used cars than did in the Rudd Government’s disastrous pink batts campaign.

TK: “I think that was the turning point in the argument.”

IF: “No-one understands the industry we’re in other than the people who are in it. You can’t possibly understand what it is to be a motor Dealer in this country unless you have been one or are involved heavily in dealerships.

“For the same reason we are arguing that we need a unique franchising code for our industry. We never had that five years ago. For all sorts of reasons we allowed people who had never actually even worked in a motor dealership to make policy and decide what was in our best interests. And we changed that. We’ve now got an organisation that focuses purely on what it is that a motor dealership needs – what a Dealer and investors in it need.

“That is not always compatible with the other members of our industry – and they’re all entitled to earn a living. I’m not anti anyone in our industry, but to say that we can be represented, all of us, by the same voice, is wrong, and I think in the last five years we’ve proven that.”

DB: “In our submission (to the Federal Government) we make a couple of points about what distinguishes our need for a code from the sorts of businesses Terry just mentioned.

“It makes for some really interesting macro numbers, and I know these numbers so well because I’ve told them to so many people. According to the Franchise Council of Australia 79,000 Australian franchisees generate around $150 billion in annual sales. If we compare that with the $70 billion generated by the 3,500 (retail automotive) stores it is immediately apparent that the average business size for a new car franchise is 100 times larger, just on a revenue basis, than the average franchisee in other sectors. That really underlines to people who don’t understand the business, it underlines in bold black ink, the scale issues.

“The second point is investment. I can get into a food franchise for as little as 100 grand, according to some business brokers. I can’t even open the doors on a modest new car franchise for a million dollars. There’s the second scale issue – mega investment.

“After scale you move to the nature of the relationships. The prominent operators in the franchising business in Australia are names like Dominos and the RFG (Retail Food Group). They are domiciled here but, with respect, they are tiddlers compared to Ford, General Motors or Toyota. We deal with offshore giants who can do pretty much whatever they like financially, operationally and geographically. That relationship for a franchised new car Dealer is dramatically different in comparison with being, say, a Dominos franchisee. Totally different. The resources that come into play, the political influence, the regulatory influence – all those things – are vastly different than what the average non-automotive franchisee faces.”

IF: “Car manufacturers are making around six per cent margins; car Dealers less than two per cent at the moment. Whereas carsales.com – 58 per cent! BHP 30-odd per cent. The people who dig the crap out of the ground make more money than we do and yet we’re the ones the regulators come and have a go at all the time, because we’re the bad guys. Well, if we’re so bad how come we’re not making the margins others make?

“They (government) make at least 20 per cent on our turnover…and we get two? It’s ridiculous that they focus on us all the time – reduce the tax!”
The importance of advocacy

DB: “The intense scrutiny our industry attracts is for one reason and one reason only, in my opinion. It’s because of the high profile nature of the product. Everyone wants a new car. If you’ve got a new car you’re happy; if you drive a 20-year-old car, deep down you’re usually not so happy. There’s a reason you’re driving less than you deserve to drive. There are obviously exceptions but everyone’s aspirational at some time in their car-buying life. We never stop hearing from regulators “…it’s the second most significant purchase people make…” So even if the brand desire is not so strong in some consumers, the financial motivation is there – unquestionably.

“There’s a lot of focus on us. The examples I used in Canberra that really got some people thinking were the add-on insurance issue and the flex-commission issue. I said to a couple of politicians, ‘think about this: who wrote the commission schemes on flex? Do you seriously think a bunch of Dealers sat around in a room and said let’s go and talk Westpac into giving us a flex scheme?’

“No, the insurance companies and the finance companies wrote the schemes, they presented them to the Dealers and Dealers were faced with this proposition: ‘I can make $5 selling that over there or $50 selling this over here – I think I’ll sell the $50.’ No rational business person would make any other decision.

So why is the focus relentlessly on the retail end of the car business? How about you go to the root cause when you look at issues? They’re starting to take notes on that.”

IF: “I think they are too. I think they’ve shifted away from us to where the cause is.”

DB: “I know they have, based on conversations I have with ACCC and ASIC at the highest levels.

“One of AADA’s long-term objectives is to make sure the conversation is around root cause and not just the visible end of the business, which is the retail end.”

TK: “It would be nice to have policy settings on which you can make your investment in the belief that the country’s policy settings will still be very similar in 10 to 15 years’ time.”

IF: “We don’t care what the rules are, just tell us what they are and keep them the same.”
The future

IF: “The world is changing so fast and we’re all having to adjust to a new market. Those who are prepared to change and adopt new ways of doing business are going to succeed. Unfortunately there are a lot of people who are past their use by date, who will not change and will get out of the industry.

“We want a level playing field and that’s what we should be aiming for. Not to protect under-performers. Some of them want you to hold their hand and protect them from themselves, and you can’t.

“I believe the debate that has to take place over the next few years is about competition. There’s a naïve belief that the more people in the industry competing with each other, the better it is for consumers, and I would argue that is not the case.

“There is a limit to how much competition you can put in a marketplace, because what happens is the weakest ones with an internet-based retail system set the price for everybody. And every good operator in the country then has to justify why (that price is unrealistic). You’ve got to have this longwinded conversation with the customer who couldn’t care less. (They argue) ‘If somebody’s advertising it at that (price), you should be able to sell it at that’.

“We have to argue our case articulately and with proper research, and we can’t use emotive language. And we’ve got to be logical. That’s why you have associations. That’s why the biggest companies in the country have an association to represent their interests. Because they don’t want to be necessarily leading the charge for change. If the Government’s got some idea (that the big companies disagree with), they don’t want to be seen to be resisting government, they want a semi-autonomous body – the Business Council of Australia – they want them to charge forward with the banner flying.

“And that’s why we need advocacy; we need a body that can talk on our behalf so that none of us get put in the spotlight.

DB: “That is a legitimate argument, among many, for building an effective industry association. One of our next key steps is the creation of the Dealer Electoral Action Committee, already approved and funded by the AADA Board. The DEAC will deploy funding against precise, specific political objectives. DEAC will, in a sense, fly air cover for any Dealer in Australia who wants to participate and contribute financially to a specific party or politician.

Contributions will be aggregated in a single entity – the DEAC – registered under the appropriate legislation, and will only show one payment. It doesn’t say anything about individual contributions, and that’s important – in fact it’s best practice, widely used by industry associations. The North American Dealer Association has operated a DEAC for many years, to great effect.”

“In a sense, the creation of DEAC is a signal that AADA is continuing its maturation into a fully effective advocacy organisation.

The three leaders agreed that creating the right conversation around policy is important, and that the work done and success around parallel used car imports was one of the great achievements of the new AADA. It was also a great demonstration of how to work with the most effective and favourably disposed politicians. It showed how much AADA learned and how AADA’s influence has grown in the last half decade.

The people representing franchised Dealers now have more influence on the industry – and this is indeed a very good thing for every Dealer in Australia.

Here’s to the next five years!

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