Landmark reforms to automotive franchising

16 March 2021

The Federal Government announced on 12 March 2021 that it intended to make significant reforms for the automotive industry which aim to address the significant power imbalance between Dealers and multi-national car companies.

On 27 February 2020, the Senate referred the inquiry into the announcement by General Motors Holden on 17 February 2020 to withdraw the Holden brand and operations from Australia, to the Education and Employment References Committee (Senate Committee).

Originally the Senate Committee was to meet and report back to the Senate by May 2020. However, subsequent extensions were granted to allow the Senate Committee to hear evidence from stakeholders in the automotive sector and examine the regulation of the relationship between car manufacturers and car dealers in Australia. As a consequence the Senate Committee report was not due to be tabled until 18 March 2021.

It appears the Federal Government have not waited for the Senate Committee to table its report and have moved earlier to pre-empt changes.

These changes target the automotive sector and are in addition to other proposed changes to be made to the Franchising Code later this year.

Importantly these new reforms include:

1. Increased available penalties

A fine of up to $10 million could be given to international car companies that undertake systemic breaches under the Franchising Code, including unilaterally changing contracts, poor compensation and reneging on warranties. The Government indicated that strengthening penalties for wilful, egregious and systemic breaches of the Franchising Code by large and profitable multinational companies will act as a strong deterrent to this kind of conduct.

2. New mandatory principles

Existing voluntary principles will be made compulsory and a new mandatory automotive code will be strongly considered, following consultation. This will establish best practice and address concerns multi-national manufacturers won’t follow voluntary principles.

3. Ensuring the Franchising Code remains relevant

Ensuring 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 would still gain the protections afforded by the Franchising Code.

The Federal Government acknowledged that Australia’s automotive dealers employ more than 60,000 Australians, and contribute significantly to Australia’s economy. Additionally the Government has committed to working further with the automotive franchising sector to 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 code.

At this stage there is no published commencement date. However, if the Government moves quickly these reforms may commence as soon as 1 July 2021. It is unclear if the timing will coincide with the commencement of other reforms to the Franchising Code.

This article was written by Evan Stents, Partner and Derek Sutherland, Partner.


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