Automotive Franchise Code of Conduct Working Group

Public news

The automotive industry and the MTA have been working towards an Automotive Franchising Code of Conduct for 15 years and the announcement last month from the Federal Government for the development of such a Code is a major step forward for new car dealers.

For a long time, government agencies did not recognise that vehicle manufacturers and new car dealers were two separate entities. During the ACCC’s Market Study into New Car Retailing, the MTA and other automotive industry representative bodies argued that they are very different, which was accepted in the ACCC’s final report. This report recommended the development of a Franchising Code of Conduct.

The power imbalance between car manufacturers and dealers is set to be addressed within the new Automotive Franchising Code of Conduct and both sides of Federal Government have committed to its development. The Federal Government is seeking the automotive industry’s feedback following the release of a Regulatory Impact Statement (RIS) in December last year.

Click here to access the RIS.

The RIS outlines a number of possible solutions for addressing issues being experienced between dealers and manufacturers which were identified by the ACCC in 2017.

In one prominent example of imbalances in the relationship between dealers and manufacturers, GM Holden (GMH) decided to close 30 dealership franchises across Australia. This included a number of affiliated dealerships within South Australia.

One of those, a local dealer, alleged in the Federal Court that the manufacturer had been misleading and deceptive, did not act in good faith and engaged in unconscionable conduct.

In this instance, there was no single contract term that was unfair, but the totality of the terms imposed unreasonable conditions upon the business, without the opportunity to recover their investment.

The Code is intended to level the playing field between franchisees and franchisors when negotiating their contracts.

The purpose of the MTA’s upcoming Working Group on 24 January is to enable franchised New Car Dealers to consider the options outlined in the ACCC’s proposed reforms to franchising including the development of the new Automotive Franchising Code of Conduct. The MTA will then put this position to the Federal Government.

The RIS discussion paper states that it is intended to apply to ‘only the arrangements between new car dealers and manufacturers…’

While the concerns of new car retailers are critically important and should be resolved as a matter of urgency, we have strongly recommended that any solutions to the issues in automotive franchising agreements must equally apply to motorcycle, heavy vehicle and farm machinery retailers who experience similar difficulties.

We are also discussing these issues on the day and the need for automotive franchise reform with members from our Farm and Industrial Machinery Dealers Association (SA Division), Commercial Vehicle Industry Association (SA Division) and the Motorcycle Industry Association of South Australia.

It is important for dealers to consider all of the implications that the Code could have on our industry and to reach a consensus.

The Statement identifies that the most significant issues requiring attention for dealers are:

1. End of Term Arrangements including:

(a) Insufficient notice periods for non-renewal of dealership agreements

(b) Franchisors providing reasons for non-renewal

(c) Stock buy-back arrangements when dealership agreements are not renewed

2. Ability to recoup capital expenditure during a dealership term by:

(a) Enhanced disclosure requirements

(b) Minimum tenure with right of renewal for the dealer

The discussion paper identifies four primary options as having the most benefit to dealerships experiencing difficulties with franchise agreements. These principal options are listed as:

Option 2A – Requiring manufacturers to provide at least 12 months’ notice when not renewing a dealer agreement.

Option 2B – Requiring manufacturers to provide a statement to a dealer whose agreement is not being renewed outlining why the agreement is not being renewed.

Option 2D – Requiring pre-contractual disclosure of significant capital expenditure to have a greater degree of specificity.

Option 2F – Enabling multi franchise mediation.

The paper also canvasses discussion on an additional four options, which have been assessed by the government as not having substantial benefits to dealerships:

Option 1 – Maintaining the status quo.

Option 2C – Mandating that manufacturers buy back stock when an agreement is not renewed.

Option 3B – Minimum five year terms with right of renewal.

Option 4 – Voluntary Code of Conduct.

For clarification on the above, contact the MTA’s Industry Policy Specialist, Nathan Robinson by clicking here.