Andrew Leigh

DRIVING A BETTER DEAL FOR AUTO DEALERS

Business Insider, 5 October 2018

A few years ago, a multinational car manufacturer told 25 car dealers that their franchise agreements would not be renewed. They hadn’t broken their agreements. They were profitable – some for decades, but some had not yet made enough money to cover their upfront costs. The manufacturer didn’t bother giving the dealers an explanation: the Franchising Code didn’t require it.

Car dealers may not be at the top of your sympathy list. But it’s worth understanding the pressures that Australia’s automotive retailers are under. Car selling is one of the few industries in our economy where the top four firms account for less than one-fifth of the market. Many of the 3500 new vehicle outlets are owned by individual operators or family groups.

But while car retailing is pretty competitive, car manufacturing is a good deal more concentrated. The largest four brands account for almost half the market. Manufacturers are massive global multinationals, who aren’t averse to putting the squeeze on car dealers to maximise their profits.

Admittedly, there are plenty of instances in which car dealers have a productive relationship with their dealers. But in too many cases, the power imbalance leads to unfair outcomes. The effective tenure of some dealer agreements can be as short as one year. If manufacturers terminate the agreement, they often refuse to buy back unsold cars. 

Most troubling is the fact that poor behaviour by manufacturers can lead to consumers not getting their car warranty rights. Absurdly cumbersome complaint-handling procedures has led to instances in which both the driver and the dealer agree that the car needs to be replaced – but the manufacturer refuses.

As the Australian Competition and Consumer Commission recently reported, ‘Commercial arrangements between manufacturers and dealers can constrain and influence the behaviour of dealers in responding to complaints’.

With the playing field tilted against Aussie small and family businesses, and in favour of multinational manufacturers, Labor has decided to act. A Shorten Government will implement an industry-specific auto dealership code, to guide the relationship between dealers and manufacturers, and ensure consumer rights are properly protected.

Regulated by the competition watchdog, an auto dealer code would govern dealership agreements and unfair terminations. Most importantly, we know dealers want to work with drivers to meet public expectations around consumer complaints, warranties and repairs. This code will help them help their customers.

Industry-specific codes are rare. We have them in areas with major market power imbalances, such as in the horticulture industry and the fuel retailing industry. Labor has also called for a code to be implemented in the dairy industry, where our 6000 dairy farmers sell to just a handful of milk processors and retailers.

Already, Labor’s call for an automotive dealer code has received the backing of the Australian Automotive Dealer Association and the Franchise Council of Australia. The Australian Small Business and Family Enterprise Ombudsman also supports it, saying ‘manufacturers continue to use their market power to constrain car retailers, which in turn disadvantages customers’.

Our support for automotive dealers reflects Labor’s desire to see more fairness across the Australian economy. It sits comfortably with other recent announcements we’ve made for small business. To help independent mechanics, Labor will require car manufacturers to share vehicle software updates and codes with independent repairers on commercially reasonable terms. To improve the handling of tax complaints, Labor will create a separate appeals area in the tax office, ensuring small business disputes are given the care and attention they deserve. We’ve supported the government’s small business tax cuts, and gone further with Labor’s Australian Investment Guarantee, allowing speedier depreciation of investments over $20,000.

Australia has too many monopolists, and too few start-ups. To make our economy more dynamic, we need to guard against the risks that concentrated industries will put the squeeze on competitive ones. Farmers and car dealers are among the sectors that risk getting hurt if we aren’t careful. Just as our farmers buy most of their chemicals and equipment from multinationals, so too our car dealers now find themselves at the mercy of a few big overseas behemoths.

Too often, the top end of town is able to run roughshod over everyday Australians and get away with it. We’ve seen it with the big banks, we’ve seen it with payday lenders and we’re also seeing many small and family businesses suffer at the hands of big corporations. 

Putting fairness back into the system is what you’d expect from a party that values egalitarianism. But it’s also the right path to promoting a more productive economy and delivering higher living standards. An auto dealer code will drive better outcomes for car dealers and drivers alike. It’s time to put it on the road.

Milton Dick is the Federal Member for Oxley. Andrew Leigh is the Shadow Minister for Competition and Productivity.

Authorised by Noah Carroll, ALP, Canberra.