Long-awaited car industry report urges fix for broken dealership system

A long-awaited report suggests car manufacturers could be subject to a media bargaining code-style arrangement if they fail to resolve disputes.

The report was launched after General Motors pulled its support for the Holden brand in February 2020. Picture: David Caird

Car manufacturers could be subject to a media-bargaining-code-style arrangement if they fail to resolve disputes, a long-awaited report into the dealership industry has proposed.

The report calls for the government to bring forward its attempt to tackle bad-faith actions by big international players in the car market and resolve the imbalance of power between dealers and manufacturers.

The report, Driving a fairer deal: Regulation of the relationship between car manufacturers and car dealers in Australia, was launched after General Motors pulled its support for the Holden brand in February 2020.

The scope of the report was widened after Mercedes-Benz Australia/Pacific and Honda Australia announced major changes to their distribution models.

The report, tabled in the senate on Thursday, found many dealers in Australia were powerless in the face of pressure from international car manufacturers.

“The imbalance is evident to anyone with even a passing knowledge of the industry. The dealer primarily takes the risk and the initial major investments in stock, personnel, dealership space but have almost no protections or access to mediation if the (original equipment manufacturer) decides to change their business model,” the report says.

“This imbalance and lack of care from foreign corporate boardrooms has real world impacts in our local communities.”

The report calls on the government to introduce a code similar to the News Media and Digital Platforms Mandatory Bargaining Code to structure a binding arbitration mechanism between dealers and manufacturers.

The news media code establishes a negotiation framework with an independent arbiter to determine the nature of deals.

If parties are unable to reach a deal then the arbiter would determine the level of remuneration via a balanced final offer arbitration model.

Committee members on both sides of parliament supported the report, including its call for the government to bring forward its suite of reforms to the automotive industry it announced on March 12 and implement them by no later than July.

It would also boost maximum fines to as much as $10m or 10 per cent of operating revenue, whichever is greatest.

Labor senator Deborah O’Neil said the report shed light on an “Australian industry in desperate need of regulatory reform”.

“We must make the car-dealer industry one that is sustainable into the future, one that entrepreneurs and family investors can invest in comfortably and without fear of an exploitative relationship with an overseas manufacturer,” she said.

“This is but one sector of Australian industry in desperate need of regulatory reform to fix the imbalance.”

The proposed changes would transform voluntary codes into mandatory obligations to dealerships under the franchising code.

However, in its report the committee flagged its concern that car dealers would be subject to the franchising code and urged the government to assess whether it would be better to create a standalone automotive code of conduct.

The committee also noted it considered it best practice to ensure a provision was created to ensure dealers were reimbursed for “all reasonable expenses incurred in relation to warranty and recall work, including expenses associated with diagnosis, administration of claims and claim audits”.

The committee suggested a role be created in the office of small business and family enterprise ombudsman to co-ordinate any investigations and disputes arising from the shift to a mandatory code.

Originally published as Long-awaited car industry report urges fix for broken dealership system