Mercedes-Benz to defend $650m dealer court action over fixed-price agency model

Mercedes-Benz will staunchly defend a $650m Federal Court action over its plan to sell cars through a fixed-price agency model in Australia.

Mercedes-Benz dealers around Australia have launched a $650m legal action in the Federal Court against the German auto giant, in a bid to stop its plan to switch to a fixed-price agency model for selling cars. Picture: Thomas Kienzle/AFP

Mercedes-Benz has vowed to “vigorously” defend a $650m Federal Court action launched by a majority of its Australian dealers in a bid to stop the German auto giant’s plans to switch to a fixed-price agency model for selling cars.

The legal action comes weeks after The Australian revealed the majority of the nation’s 52 Mercedes-Benz dealers had reserved their rights to litigate after signing on to the new sales structure — due to come into force in January — claiming they did so under duress.

The change would see new cars sold to consumers through dealers at a fixed price for a set commission – a change from the traditional franchise model of selling stock directly to car dealers, who can then sell to consumers at their own prices.

Dealer networks and the Australian Automotive Dealers Association claim the change will “decimate” the local industry by eliminating the independence of dealers, while no compensation is being offered for low commission rates that will endanger profitability and reduce goodwill.

Announcing the court challenge on Tuesday, AADA chief executive James Voortman said more than 80 per cent of dealers were backing the legal challenge against Mercedes and its parent company, Daimler.

“The changes forced on the Australian Mercedes Dealer network have major long-term implications for the automotive industry in general, Australia’s franchise industry more broadly and consumers,” he said.

“At the heart of this industry are Australian family businesses who have built up their businesses in some cases over generations with Australian ingenuity and plain hard work.

“The dealer network has invested hundreds of millions in growing their businesses only to have that value taken from them with the stroke of a pen in Stuttgart.”

The move to an agency model comes after Japanese car maker Honda made the switch last July.

The AADA has argued this has led to a decrease in price competition impacting sales, with Honda the only top 20 car brand to see a sales decline in Australia’s recent red-hot new car market.

Mercedes-Benz has argued the change to the agency model came after years of consultation with local dealers, who all eventually signed on to the new arrangement.

James Voortman, CEO of the Australian Automotive Dealers Association, is speaking out on behalf of a number of Mercedes dealers who have launched a legal action against a change in dealership structure by the auto giant. Picture: Jamila Toderas

A Mercedes-Benz spokesman said the auto brand had worked with dealers in implementing the new model and it will defend its position.

“We have worked collaboratively with our dealer network over the past three years ahead of the launch of the Mercedes-Benz agency model, which will better deliver to the demands of modern consumers,” he said.

“It will provide greater price transparency, better choice and a larger model availability for all customers.

“It is disappointing that some dealers have taken this action, but we believe the Mercedes-Benz agency model is compliant with all relevant Australian laws and will be defending our position vigorously.”

However, Mr Voortman said a majority of the dealers only signed on because the alternative was to lose their licence as a Mercedes-Benz seller.

“Mercedes had the Dealers over a barrel, forcing them to sign oppressive new agreements at short notice with the threat they could lose their businesses in the entirety if they did not sign and without paying any compensation for the value built up in these businesses,” he said.

“This is nothing short of bully boy tactics by a $140bn German colossus which according to recent filings took more than $4bn in sales out of Australia while paying only $36m in tax.

“By contrast the dealer network makes a substantial contribution to the Australian economy, employing thousands of apprentices and skilled employees and investing billions in the local economy.”

The legal challenge is another chapter in the battle between dealer networks and auto companies that began in 2020, when General Motors announced it would withdraw the Holden brand from Australia.

It lead to a Senate Inquiry into franchise regulation and a change to the franchising code of conduct to provide voluntary and alternative dispute resolution mechanisms.

Mr Voortman said the dealers had no choice but to take the action, with Mercedes resisting efforts to voluntarily arbitrate an outcome.

“The decision to launch this legal action was a last resort for dealers but they were left with no choice,” he said.

“Mercedes has ignored the dealers’ overwhelming rejection of the ‘agency’ model and it has consistently failed to negotiate with dealers on the issue of compensation for goodwill leaving them with no choice.”