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Perspective

Senate Committee increases impetus for better regulatory protections for car dealers

The Senate Committee that was appointed to investigate the regulation of the relationship between distributors and car dealers in Australia has released its report and detailed seven recommendations to Government.

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The seven recommendations made by the Senate Committee on 18 March 2021 will provide an increased impetus for regulatory reforms to better protect dealers from unfair conduct by distributors.

Recommendation 1 

3.92 The committee recommends that the Australian Competition and Consumer Commission should expedite its investigations into the behaviour and actions of GM Holden and should commit to provide regular public updates on this investigation and similar investigations into the relationship between manufacturers and dealers in the future. 

Recommendation 2 

3.93 The committee recommends that the Australian Competition and Consumer Commission proactively ensures that General Motors Australia and New Zealand is meeting its Australian Consumer Law obligations to Holden vehicle owners in relation to warranty and recalls, technical support and access to parts. 

Recommendation 3 

5.82 The committee recommends that the Australian Government prioritise the new automotive reforms announced on 12 March 2021 and implement the increased fines, mandatory principles and protection of dealers operating as a manufacturer’s agent by 1 July 2021. 

Recommendation 4 

5.83 The committee recommends that the mandatory best practice principles include a provision for the reimbursement for all reasonable expenses incurred in relation to warranty and recall work, including expenses associated with diagnosis, administration of claims and claim audits. 

Recommendation 5 

5.84 The committee recommends that the Australian Government introduce mandatory binding arbitration to resolve disputes during contracted negotiation in the automotive industry which are not able to be resolved by other dispute resolution mechanisms. 

Recommendation 6 

5.85 The committee recommends that the Australian Government appoint a senior officer in the Office of the Australian Small Business and Family Enterprise Ombudsman to investigate and coordinate dispute resolution investigations and facilitate mediation and arbitration arising from the transformation of the voluntary best practice principles into mandatory obligations. 

Recommendation 7 

5.86 The committee recommends that the Australian Government undertake a review into effectively enforcing alleged contraventions of the Competition and Consumer Act 2010 as it relates to the regulation of the relationship between car manufacturers and car dealers.

Our comments on some of the recommendations

Recommendation 1

We would extend the investigations to include monitoring of:

  • the take-up by dealers utilising the class exemption;
  • the number of distributors agreeing to engage in collective negotiation with dealers or their appointed representatives; 
  • the types of matters upon which dealers are seeking to engage in collective negotiation; and 
  • the grounds put forward by distributors for refusing to accept a request to engage in collective negotiation (if reasons are disclosed at all, the class exemption does not require distributors to provide reasons).

Recommendation 5

There are constitutional concerns that would need to be considered in determining whether mandatory arbitration can be imposed at law. In the interim, dealers could utilise the class exemption to negotiate the inclusion of an arbitration clause into dealer agreements as the ‘next step’ where mediation fails to resolve a dispute.

Recommendation 6

We support the appointment of a suitably qualified party to coordinate dispute resolution arrangements arising from disputes concerning dealers.  We would extend this recommendation to consider the implementation of cost-effective measures to make mediation and in particular, arbitration more accessible.  It is not unusual for the costs of an arbitrator to equal or exceed the costs of bringing a dispute before a Court.  Distributors are large multi-national companies and have deeper pockets than dealers, for who the cost is often a deciding factor with respect to progressing a dispute.

Recommendation 7 

We strongly endorse this recommendation, however:

  • It is unclear whether this recommendation would include investigating the effectiveness of penalties in existing legislation or whether the recommendation is for government to conduct a review to improve enforcement of breaches of the CCA by a distributor.
  • Having completed investigations and reports into the franchising sector and also the regulation of the relationship between dealers and distributors, examining the effectiveness of the existing penalties would be sensible.  
  • If the government adopts this recommendation, it will be interesting to see if the effectiveness of the good faith and unconscionable conduct provisions in the Code will be examined.  Effectively establishing that a party has acted without good faith or unconscionably to the requisite standard is often very difficult. 
  • For any such investigation to be fulsome and meaningful it should include a process for dealers or dealer councils to make submissions about their experiences with distributors particularly with respect to the conduct of distributors concerning sales targets, KPIs, and performance management. Failure to meet sales targets (or other KPIs) is often the reason for a distributor to issue non-renewal notices or issue short-term dealer agreements which can result in dealers suffering direct, significant financial loss as well as indirect loss from the inability to secure a fair and reasonable return on capital investment.  As disclosed in the Senate Committee’s report, dealers gave evidence outlining inappropriate conduct by some distributors regarding dealer performance. 

What happens next?

Notably, the Senate Committee states in its report that:

  1. While there were examples of distributor and dealer relationships that did not seem to exploit the imbalance of power it appears that this is not the case across the majority of the industry.
  2. There is widespread failure of distributors working with dealers to ensure that capital investments can be recouped, unfair contract terms are eliminated and dubious practices to not fully reimburse dealers for warranty and recall work is addressed.
  3. The evidence presented by stakeholders to the Senate Committee from the industry highlights the experiences of many dealers attempting to enforce their rights and that such “experiences underscore the failure of the current regulatory regime and demonstrate the urgent need for further reform”.

It is now up to the Government to consider each of the Recommendations and decide whether it will adopt any.  It will be interesting to see if the Government will proceed with Recommendations 1 and 2 as doing so would involve close monitoring of the conduct of General Motors.  

While the Government’s recently announced reforms and the Senate Committee’s recommendations are all encouraging signs, dealers will be eagerly awaiting the urgent implementation of the following foreshadowed reforms: 

  1. Commencement of the ACCC Class Exemption for Collective Bargaining.
  2. The reforms announced by the Government on 12 March 2021 to mandate the best practice principles to be included in dealer agreements and which should commence no later than 1 July 2021.
  3. The introduction of unfair contract terms to extend to dealer agreements.
  4. The above Recommendations made by the Senate Committee.

Until all these reforms are in place dealers continue to be exposed to unfair and exploitative conduct by distributors.

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