Equipment dealers miss out in franchising deal

A new Franchising Code of Conduct for the automotive industry over a decade in the making is close to being signed, sealed and delivered…but only dealerships selling predominantly new cars stand to benefit from it.

This means businesses selling other types of vehicles including bikes, trucks, construction machinery and farm machinery are left out in the cold, at least for now.

The industry-specific Code of Conduct was put together with input from several motor industry bodies including the Victorian Automobile Chamber of Commerce (VACC) and Australian Automotive Dealer Association (AADA).

The code has been issued in draft form and is now the subject of consideration by car dealer groups before it goes to the Federal Government to be enacted.

This comes as welcome news for the VACC which, for the past 10 years, has been pushing for more open and honest dealings between car makers and dealers.

The Code of Conduct has been drafted with the aim of improving relationships between car makers and sellers, but more importantly increase the transparency of negotiations between car dealers and manufacturers as well as distributors.

One of the proposed items include a longer franchise agreement more consistent with the huge investment made by a dealer into a dealership.

While the VACC is close to achieving what it sought for car dealers, the code unfortunately won’t apply to farm machinery, truck and motorcycle dealers, the organisation said.

“It had taken a long time to get the draft of the franchise code and adopting the machinery dealers would extend the time even further,” said VACC CEO, Geoff Gwilym. However, he said the VACC remains committed to ensuring these dealers get the same security as car dealers in the next round of negotiations.

“We are now looking for the government to urgently grant the same protections to farm machinery, truck and motorcycle franchisees. This is imperative,” he said.

“The terms of agreement (between car maker and dealer) for a car dealership is about a year, but less than that for motorcycle and farm machinery dealerships. In a lot of cases, these dealerships are operating on good faith. The problem with good faith is that it runs out.

“When that runs out, the manufacturer can tell the dealer to take the signs down and move out.”

Gwilym added the machinery, truck and motorcycle dealers are not covered under the new arrangements due to lack of research and focus on those industries. Historically, studies have only concentrated on the new car sector especially for the Access to Service and Repair Information legislation as well as amendments to the franchise code.

“These studies into the new car market date from 2015. But it was about cars, not farm machinery or trucks or motorcycles,” Gwilym said.

“Once those changes are up, we’ll go back and advocate for these other dealers. To do that now would slow down the outcome even further.”

Gwilym said the Federal Government intends to extend the code to include dealerships of other vehicles after examining the impact of transition to the new regulations which could take between 18 months and three years.

“The VACC and Motor Trades Association of Australia will continue to advocate inclusion for these important industries as well as general reforms to other parts of the Franchising Code such as fuel retailing,” Gwilym said.

In discussing the new draft franchise code, the Australian Automotive Dealer Association (AADA) said one of the biggest factors taken into consideration was the power imbalance between manufacturer and dealer and the consequential insecurity of tenure for dealers.

AADA CEO, James Voortman, said the issue has been identified by the ACCC as one of concern in its retail market study, but to date has been left out of draft regulations.

“There are dealers in Australia who over the course of many years have invested millions of dollars in facilities, stock and equipment at the behest of manufacturers, only to be given a one-year agreement,” he said.

“To put that into perspective, there are fast-food franchisees with substantially lower capital investment requirements which are given 20-year agreements by their franchisor.

“While we acknowledge improvements in end of term obligations, manufacturers are still not required to purchase back the stock which they have compelled their dealers to purchase from them.”

The VACC’s Gwilym said assurance and transparency on behalf of the manufacturers is necessary for dealers who have invested a huge sum of money into new dealerships.

“We are calling for - in addition to the franchising code - a negotiation of what those costs are up front so the dealer can make a call on whether the income over a period over time represents the investment he has made,” he said.