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Best practice principles for new car dealer agreements – a toothless tiger?

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On Friday 11 December 2020, the Federal Government released six best practice principles to guide motor vehicle distributors in developing the terms of new dealer agreements with car dealers. The timing of the release of the principles is strange as it comes just days after the Senate Committee announced an extension to release its findings – now expected for release in March 2021.

The principles are voluntary, but the recommendation is that four of the principles be included in dealer agreements:

Principle 1: Provide for ‘fair and reasonable’ compensation to dealers in the event of early termination resulting from specific events such as, a distributor exiting the Australian market or changing its business model.

Principle 2: Do not expressly prohibit compensation payable to dealers.

Principle 3: Define ‘fair and reasonable’ compensation, referred to in Principle 1, as including loss suffered by a dealer such as goodwill and the loss opportunity to realise capital expenditure.

Principle 5: Reasonable provisions to compensate or buy back new vehicle stock, parts and special tools in the event of non-renewal, withdrawal from the Australian market, network rationalisation or changes to the business model.

When questioned by the Senate Committee during the public hearing last month, a representative of Mercedes Benz expressed concern about over-regulation in the dealer marketplace. When asked whether Mercedes Benz would support the best practice principles being mandated, the response was that major changes had recently been implemented, and there is sufficient protection for car dealers.

We consider these comments by Mercedes Benz are likely to be indicative of the position adopted by other distributors, and that it is unlikely any distributors will opt-in and adopt the principles.

The Government has stated that the best practice principles will be reviewed in two years.

We suggest that peak industry dealer bodies request the Government to provide a direction to the ACCC to monitor the adoption and compliance with the principles over the next two years with a view to providing a public report as to their effectiveness in improving distributor/car dealer relations.

 

FCW Lawyers’ Motor Dealer team are planning an event for leaders in the automotive industry, to take place in March 2021. Please register your interest below if you would like to take part in the conversation, as we review the current regulatory and legislative landscape.

 

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