Mercedes fires back

THE perceived unfair non-renewal at the end of last year of the Mercedes-Benz franchise agreement of the high-profile Cairns motor dealer family, the Irelands, was a matter of unfortunate timing, Horst von Sanden, managing director of Mercedes-Benz Cars in Australia, has indicated in an interview with GoAuto.

Mr von Sanden was responding to an article in GoAuto last week which questioned the fairness of the non-renewal provisions in the Mercedes-Benz dealer agreement and the fact that the Irelands were not given a reason why they were losing the franchise after 36 years.

The article also questioned the fairness of the ability of a distributor to effectively transfer the business of one dealer to another dealer without payment of goodwill.

GoAuto also raised the issue that if dealers were not given certainty on their future then banks would become wary of funding multi-million-dollar dealership upgrades because of the risk of them not recovering the capital if the franchise agreement was subject to hair-trigger provisions.

GoAuto reported that the matter was raised by Queensland senator Ian Macdonald in parliament earlier in the month.

Left: Mercedes-Benz Cars Australia/Pacific managing director, Horst von Sanden.

When asked about the Irelands, Mr von Sanden said: “I am not prepared to go over old ground. This occurred in a transition period ... today we have a very transparent and clear process of performance management of our dealer network.”

He said at the time the Irelands were told they would not be renewed “we did not have a structured performance management process. We have implemented that and it has been in place now for a year.

“We use that (to work with dealers) in a very transparent way. Before that there was no structured process. There were performance reviews but not a properly documented or structured process of performance management. That has changed now.

“From that point of view I think that some of your concerns and dealers’ concerns are completely justified and I am happy to give you the inside (details on our new performance management system) to dispel the myth of uncontrollable and unfair exit (of dealers). I think that is more conducive to the discussion than going back over old ground.”

Mr von Sanden said the new transparent process involved a dealer scorecard which is issued every month to the dealer.

“If the dealer falls below our expected performance standards we will every month work with them with our field force to rectify the issue,” he said.

“If, after three consecutive quarters of all the effort to get it back on track and there is still no improvement, then we start the performance management process in terms of talking about non-renewal or termination.

“This is a process we developed with our dealer council with the support of the dealer network. Our dealers say they are not interested to have colleagues in our network that clearly under-perform for months and years and drag (down) the whole level of Mercedes-Benz.”

He said the process came into practice about a year ago. The notice of non-renewal was issued to the Irelands about 17 months ago.

Asked about the transparency of non-renewal without giving a reason, Mr von Sanden said: “The reason we did not want to give details was to avoid airing dirty laundry and going through everything.”

When asked to compare the franchise agreement with dismissing an employee without reason, he said: “Of course they (employees) have the right to get that information (but) even if you did not give a reason they would well know what the reason is.” He added: “I have no pleasure and nor does anyone in my team have any pleasure in terminating any dealer because it is expensive and it is disruptive for the business.

“We have put so much effort in repairing and improving our business relationship with the dealers and last year that was quite successful. In the latest Nielsen survey we elevated our position by 11 ranks (into the top 10).

“That shows that we have a network that is fully on board that is a valued business partner of ours who do not have to live in fear of losing their livelihoods. Quite the opposite. I want loyalty and that is a big part of our brand.”

GoAuto put to Mr von Sanden the potential for abuse if there was not complete transparency when discontinuing one dealer without reason and appointing another dealer.

“I totally agree there is a possibility.” But he added that the new performance-based procedures now provided necessary transparency that would avoid any potential for abuse.

Another concern expressed by some dealers was that Mercedes-Benz is increasingly becoming an owner of its own dealerships.

GoAuto asked Mr von Sanden if there was any protection for dealers within the current dealer agreement that would prevent Mercedes-Benz Cars from taking over potentially lucrative territories run by independent dealers without a reason and passing the business on to itself without paying goodwill.

Mr von Sanden replied: “There is some fear (of that) and some of that fear is artificially fuelled and some of it is part of a gossipy culture. But we have made it very clear to our network that the current four we have (Brisbane, Sydney plus airport, Melbourne plus airport and ex-Worrells which is Mercedes-Benz of Toorak) is the maximum we will do.

“We have clearly an agreement with Stuttgart that we will not expand our percentage and we have always been open with our dealers on that.

“We do upgrade those facilities in terms of quality. That is only necessary because we cannot accept that our facilities look shabby and older than our independents.

“But there is no attempt, no intention and no plan to grow our own retail share. Those four dealerships are very clearly our maximum engagement in retail and this is known to our dealers. We are not a retailer we are a car manufacturer and wholesaler. Our own retail outlets are a branding exercise and they are benchmark facilities (for the network).”

Mr von Sanden told GoAuto that dealers were protected if they invested heavily in facilities.

“We certainly understand that we cannot expect a dealer to invest in an upgrade or a new facility and stick to the one-year agreement we normally have,” he said.

“We have two types of dealer vehicle sales agreements. Our core dealer agreement contains a ‘non-renewal’ clause which provides 90 days notice prior to end of the term of the agreement which is usually one year. Since 2007 where dealers have agreed to major investments in buildings, facilities etc the term of the agreement is 3 years x 3 years x 3 years. The ‘non renewal’ period is still 90 days.”

He said Mercedes-Benz Cars wanted to nurture a culture of partnership.

“We are not interested in reining our dealer network with fear,” he said.

Last week’s article relied on information obtained from a range of sources, but GoAuto acknowledges that it did not contact Mercedes-Benz Australia/Pacific for comment prior to publication, which is not standard GoAuto Newsroom practice.