On 14 August 2019 the Federal Government announced it will shortly commence industry consultation on the development of new draft regulations for the Automotive Franchising sector.
In a joint media release, the Ministers for Industry, Science & Technology and Employment, Skills, Small & Family Business announced a range of reforms to automotive franchising arrangements will be considered for implementation. The joint media release states that the objective of the foreshadowed reforms will be to address end of term arrangements and capital expenditure arrangements between dealers and manufacturers. The foreshadowed changes will seek to address concerns raised by new car dealers in relation to end of term and capital expenditure issues, while at the same time striking an ‘appropriate balance’ with flexibility required by car manufacturers to manage their dealership networks.
The media release comes after both major political parties announced policies in the lead up to the 2019 Federal Election for the implementation of an industry code dedicated to the new car retailing industry. More recently, the Parliamentary Joint Committee on Corporations and Financial Services released a report following its enquiry into franchising which, among other things, recommended that:
- Further consideration be given to identifying reforms that would support the fair handling of capital intensive stock when franchise agreements between car manufacturers and new car dealers are not renewed; and
- Definition of ‘significant capital expenditure‘ be developed to ensure that franchisees are able to make a return on investment within their existing terms, including, for example, only paying pro-rata and/or allowing provision for compensation in the event that a franchisor terminates a franchise agreement before a franchisee received a return on their investment.
It is not yet clear how many of the recommended reforms (or other lobbied reforms) will be given effect to in the foreshadowed regulations, or whether the regulations will form part of a standalone automotive industry code or some other legislative instrument.
This article was written by Evan Stents, Partner and Christian Teese, Senior Associate.
P: +61 3 8644 3509
E: estents@hwle.com.au