Franchising Reform a Win for Australian Automotive

MTA SA/NT, together with the Motor Trades Association of Australia (MTAA) has achieved a major victory, with the Federal Government pressing forward with strong franchise reform that will protect Australian new car dealers.

Earlier this year, Prime Minister Scott Morrison announced the Government would “protect Australia’s family-owned automotive businesses and their employees from the growing power imbalance with multi-national car companies by introducing new significant financial penalties for wrongdoing under the Franchising Code of Conduct.”

A fine of up to $10 million could be given to international car companies that undertake systemic breaches under the Code, including unilaterally changing contracts, poor compensation and reneging on warranties.

The existing voluntary automotive principles will be made compulsory and a new mandatory automotive code will be strongly considered, following consultation. The Government will also explore mandatory binding arbitration provisions within this new code, similar to those in the Media Bargaining Code, which were developed to curtail the power of the Big Tech platforms.

NEW MEASURES

The new measures announced will:

• Increase available penalties under the Franchising Code to up to $10 million. This will strengthen penalties for wilful, egregious and systemic breaches of the Franchising Code by large and profitable multinational companies.

• Establish best practice by transforming existing voluntary principles into mandatory obligations under the Franchising Code. This will address concerns multi-national manufacturers won’t follow voluntary principles.

• Ensure that the Franchising Code keeps pace with changes to business practice by explicitly recognising that dealers operating as a manufacturer’s agent in relation to new vehicle sales are still protected by the Franchising Code.

In addition, the Government is committed to working further with the automotive franchising sector and will consult on:

• Ensuring appropriate protections for automotive dealerships from unfair contract terms in their agreements with manufacturers;

• Options to achieve mandatory binding arbitration for automotive franchisees, to address power imbalance when there is a dispute; and

• The merits of a standalone automotive franchising code.

“It’s important that Australian dealerships, which are often family businesses that have made significant investments in automotive brands and their communities, are not left high and dry when large corporates like GM leave the market,” said Kaes Cillessen, the MTA’s Industry and Government Engagement Manager.

MTA WELCOMES CHANGES

The Federal Budget included provision for $4.3 million over four years from 2021-22 to design and implement a Franchise Disclosure Registry to enable prospective franchisees to make an informed decision before entering a franchise agreement.

The challenge is for businesses to understand how they can use these new tools to their advantage. As part of this, MTA CEO Paul Unerkov attended the launch of the new dealer regulatory reform guide – a collaboration between MTA SA/NT, national body the MTAA, other state industry associations and FCW Lawyers.

“As we already know, the Federal Government has introduced major reform for dealer franchise arrangements and together with incoming Unfair Contract Terms legislation, the guide is a game changer for industry which breaks the reforms down into practical advice for dealers,” said Paul.

“The guide has been written specifically for dealers and dealer councils. Notably, this guide provides a roadmap for how dealers and dealer councils can use various reforms to effectively and efficiently improve their bargaining position.”

Paul said the MTA was pleased to see that the franchising reforms set out a range of scenarios such as multi-party dispute resolution, increased penalties and requirements around capital investment requests.

“It enshrines new car dealers having their own schedule in the franchising code, which is a really massive deal.” he said.

“It reflects a broader recognition by the Government that new car dealers have made such large investments over a long period of time.”