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Dealers warm to franchise laws review

Lots of change: The AADA is recommending new measures to offer dealers more protection.

Proposed changes to franchising rules “re-balance the balance”, says industry group

General News logo21 May 2013

PROPOSED changes to franchising laws should help “rebalance” the balance of power in new-car showrooms, one of the industry’s peak representative groups says.

Australian Automobile Dealers Association (AADA) principal policy officer Colin Duckworth said the 18 recommendations to come out of the Review of the Franchising Code of Conduct, released publicly last Friday, would all help to offer dealers more protection.

The federal government review – the first since the rules governing franchises were changed in 2008 and 2010 and meant to assess how well the changes are working – dedicated an entire chapter to the new-car trade, a factor that Mr Duckworth said was “a little bit unheard of” for the industry.

“It was sort of telling, I think,” Mr Duckworth said. “There’s always been that power imbalance, or it can be argued that there’s a power imbalance between the manufacturers/suppliers and the dealers.

“That’s simple economics, despite the dealership being a considerable multi-million-dollar investment with a multi-million-dollar turnover.

“If we were to just pick a manufacturer out of the hat ... the comparative expenditure and the comparative economic – and therefore political and legal – power (of an international car-maker compared with a local dealership franchise) is a little bit disproportionate, I think you could say,” he said.

“So it has always been there, and the object of the game is to try and have the rules of engagement in franchising established in such a way so that those powers and balances are balanced – are a little bit brought back to something that is fair and equitable.

“It’s rebalancing the balance.”

Two of the report’s recommendations in particular, he said, would help make franchise legislation better for dealerships.

The first was a suggestion to amend the code to “include an express obligation to act in good faith” – however, without defining what would constitute a breach of the code, a key factor for the AADA.

This would help dealerships with what could be considered unreasonable demands to make improvements to showrooms – however, it will come with its own set of problems, Mr Duckworth said.

“The one drawback with this is, for instance, if you’re trying to determine what you’ve done to me is unconscionable, the way you only really find out is if you go to court,” he said.

That, he added, would cost money.

According to Mr Duckworth, the proposed amendments would also help with unreasonable demands placed on dealerships.

“It’s ridiculous when you’ve got, say, a prestige European manufacturer, and you do have have a reasonably contemporary showroom, and the bigwigs or a supplier turns up from a big European country and they point to the tiles on the floor and say ‘they’re the wrong ones’,” Mr Duckworth said.

“Next thing you know you’re up for $500,000 to get the right ones.”

Mr Duckworth said the other big win for new-car franchises would be a requirement to assess the impact of a minimum term and standard contractual terms for motor vehicle agreements before any future reviews of the codeThis would help to overcome a problem where dealers wished to invest significant amounts of money in showrooms to add a brand, but were locked into short-term contracts at the behest of the importer, he said.

Mr Duckworth said that because the review “was one that had to happen” in response to changes to the code of conduct in 2010, it was a good opportunity to “once again press home the arguments that had been pressed home in the past”.

“With the passage of time and the collection of bit better intelligence over the intervening years we were able to make perhaps slightly more persuasive arguments to this review,” he said.

Bob Gardini, a partner in the automotive industry group for HWL Ebsworth Lawyers, said one of the key recommendations would help dealers avoid having to make even more unexpected investment in their showrooms over a franchise contract’s lifespan.

He said another important recommendation would help dealers reduce the amount of risk, with current short-term agreements not giving dealers the time needed to make a decent return on investment.

“The average period is probably three to five years, when investment in the businesses often amounts to many millions of dollars,” Mr Gardini said.

“Therefore there isn’t a fair equation between risk and return for dealers.”

Representing the car-makers, the Federal Chamber of Automotive Industries (FCAI) director of industry operations Tony McDonald said as the report was only released on Friday it was too early to comment on what it meant.

However, he said the car industry should not be singled out for a separate franchise code.

“A lot of people – not the FCAI – have been pursuing an agenda that sees an automotive code as an appropriate avenue, (but) we don’t support that.”

Even so, he said the FCAI looked forward to taking part in discussions surrounding the review’s findings.

“There are some recommendations in the report that ... subject to a little further investigation we would support, such as the reference to good faith, but still the reliance on common law as the driver,” Mr McDonald said.

“Some tidying up around disclosure for overseas-related parent companies and things like that that appear to be included in the documents.

“As I say we need to look closer at it – we haven’t got there yet.”

The AADA’s Mr Duckworth said while he still received some complaints from dealers about the framework of the existing franchise code of conduct, it did appear to be working.

“Most franchisees out there understand that there’s a set of rules,” he said. “If you play by the rules, it’s not a problem.

“If you can’t play by the rules or a supplier does start to get nasty, things do hot up.”

The review received almost 60 public submissions, with one from the AADA withheld from public scrutiny at the association’s request.

Mr Duckworth said the AADA submission was confidential “for a whole lot of very good reasons”.

The federal government will now consider its response to the review.

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