‘Fairness in Franchising’ finds fault in car dealership agreements

The ‘Fairness in Franchising’ Report recommends increased regulation for non-renewal of car dealership agreements

On 14 March 2019, the Parliamentary Joint Committee on Corporations and Financial Services (Committee) released its ‘Fairness in Franchising’ report (Report). The Report seeks to address the deficiencies of the Franchising Code of Conduct (Code) and systemic issues within the sector.

The Report covers various issues. These range from the establishment of a Franchising Taskforce and enhancing the enforcement powers of the Australian Competition and Consumer Commission, through to more industry-specific regulation of car dealership agreements.

See Hall & Wilcox’s detailed summary of the key recommendations of the report here.

Car dealership issue

Various stakeholders, including the Motor Trades Association of Australia (MTAA) and the Australian Automotive Dealer Association (AADA), made submissions to the Committee advocating for the introduction of a separate automotive industry code of conduct.

It was proposed that a separate code of conduct would address industry-specific concerns overlooked by the Code. Specifically, submissions to the Committee outlined some of the concerns arising from the power imbalance between manufacturers and dealers, including:

  • Unreasonable return on investment timeframes and lack of protection for considerable capital investment.
  • Arbitrary termination of dealership and franchising agreements.
  • Imposition of unfair terms on dealers, including end of agreement terms which leave dealers with unsold stock.
  • Limited capacity to address consumer complaints.
  • Fear of retaliation from franchisor manufacturers.

While the Report did not recommend a standalone automotive industry code of conduct, it did recommend strengthening protections for dealers. The AADA has expressed support for the recommendations which are set out in more detail below.

Key recommendations

Key recommendations of the Committee in relation to car dealerships include:

  • Further enquiries being made into whether automotive franchise agreements should include a provision mandating that a franchisor be required to buy back all vehicles and parts up to three years old at cost price in the event of non-renewal of the lease.
  • Where buy backs occur, the stock should be independently valued and this cost should be split evenly between franchisor and franchisee.
  • Manufacturers should be required to provide at least 12 months’ notice when not renewing a dealership agreement.
  • Dealers should not be obliged to upgrade a dealership after notice of termination or non-renewal has been issued.
  • The Department of Treasury and Department of Jobs and Small Business should ensure that multiple codes applying to the industry remain aligned over time to avoid inconsistency.

The Report also suggested that a separate automotive industry code of conduct that deals with non-franchising matters would be received favourably provided that it did not obstruct any of the other recommendations of the Committee.

Conclusion

Both franchisors and franchisees in car dealership agreements will need to be ready to make changes to their operational practises ensuring compliance under any new laws or the amended Code.

Hall & Wilcox will continue to monitor how the findings of the Report will be implemented and provide updates on any proposed changes to the law and to the Code as they arise.

This article was written with the assistance of Ashlee Johnson, Law Graduate.


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