Archives: Dealer Bulletins

Yesterday, ASIC issued the final Legislative Instrument banning flex commission in its present form.

The new regulations have an implementation date of November 1, 2018. This provides financiers and dealers with around 14 months to make changes to systems and processes to ensure compliance with the new regulatory régime.

Key points for you to note:

• Well run new car franchises will continue to earn important income from the sale of financial products to customers
• The changes will have less impact on overall finance income than the initial discussion drafts indicated, specifically:
  • Commissions will be allowable on contracts written at a range of base rates available to consumers as nominated by the lender and agreed with the dealer in advance
  • Dealers can legally earn commissions on contracts written with ‘negative flex’ discounts of up to 200 bps (2%) below the lenders’ nominated rates
  • If a lender agrees to write a contact at a rate that is more than 200bps (2%) below the nominated base, the dealer can legally earn commission at the rate that would have applied if the discount was 200bps (2%)
• This is a significant improvement compared with the original proposal which would have banned all commissions above the 200bps discount
• The new regulations will allow dealers to continue to receive origination fees and other forms of compensation which do not directly impact the effective APR paid by consumers
• Under the new rules, lenders are required to supervise dealers more closely and to ensure that their product distribution practices are compliant with the Act

We are continuing to work with senior executives at ASIC to ensure we can provide AADA members with the best guidance and advice during the transitional period leading up to implementation in November 2018. We will of course issue you with updates as needed during this time.

In the meantime, if you have questions please a call any of the team members listed below.

Yours Sincerely,

David Blackhall
Chief Executive Officer
Australian Automotive Dealer Association Ltd
E: dblackhall@aada.asn.au
M: +61 413 007 833

Following the issue of a recent VACC press release, several dealers have contacted AADA expressing their concern about the sentiment and accuracy of the statements made in it.

In particular dealers have taken issue with statements in the release claiming:

1. A benefit to small businesses if the ACCC recommendations to mandate the sharing of service and repair information are introduced
2. That the ACCC recommendations will create a “fair and balanced” automotive repair and service marketplace
3. The ACCC report is a “good outcome” and is “not intended to divide the automotive industry but to bring it together”.

The following is a more detailed discussion of the issues raised and of the dealer concerns, dealt with in numerical order:

1. Many dealers, especially in rural and regional areas, consider themselves small businesses and they can see no benefit to them or their businesses in the ACCC recommendations. These small business dealers tell us that the local independent repairers with whom they compete, typically outnumber them and some members have as many as five or six tin shed repairers surrounding their dealership. Even though collectively these independent repairers might only employ ten to twelve people, they are still able to attract a considerable amount of customers and their ongoing survival and success is testament to their ability compete and provide choice to consumers.
2. While dealers acknowledge that competition in the market creates benefits for consumers, they also point out that for competition to be fair, those competing must be on a level playing field. Dealers are disappointed by the VACC press release, as it fails to acknowledge or make mention of the stringent requirements placed on them by the dealer agreements they operate under. As all dealers know, these agreements call for staff, including those in the service department, to undertake ongoing training. In addition, dealers are required to hold prescribed levels of spare parts and purchase special tools and other repair equipment. Taken as a whole, with the inclusion of facility requirements and other performance criteria like minimum CSI scores, the dealer agreement places huge capital investment demands on dealers, none of which independent repairers are exposed to. Dealers are concerned that those without a clear understanding of the industry will not appreciate that independent repairers, who may employ unqualified staff in a tin shed, do not bare overheads comparable to those of a dealer. It is unfortunate that the VACC press release does nothing to dispel these concerns. Granting independent repairers access to tools, equipment and repair information, with none of the expenses that a dealer must incur, would create an inequity in the market and effectively give them an unfair advantage, tipping the scales too far in their favor.
3. Dealers have voiced their incredulity at the naivety of these statements, questioning how anything that gives independent repairers an unfair advantage, while providing no appreciable benefit to the value proposition offered to consumers, could do anything other than drive a wedge between dealers and their larger (by repair market share) independent competition. It is difficult to understand how this is a “good thing” for anyone except independent repairers.

Dealers should be aware that AADA does not subscribe to or agree with the points of view contained in the VACC press release. In its response to the ACCC New Car Retailing Market Study, AADA will be submitting a comprehensive paper that deals with all of the issues, particularly those around ensuring an equitable market remains and dealers are not unfairly treated. Franchised new car dealers compete openly with their surrounding independent repairers, and other dealers, to provide consumers with an exceptionally high level of service and choice. Contrary to the views of the VACC, AADA does not regard the ACCC intervention as being necessary, fair or likely to produce better outcomes for the industry or consumers.

Please find attached further correspondence with the Australian Financial Review concerning the paper’s recent editorial treatment of the important issues being dealt with by the ACCC.

Please click here for letter.

We are attempting to open a meaningful dialogue with the AFR in the interests of fairness and accurate coverage.

We will keep you updated on any progress.

Please contact me if you have questions.

Kind Regards

David Blackhall
Chief Executive Officer
Australian Automotive Dealer Association Ltd
E: dblackhall@aada.asn.au
M: +61 413 007 833

We attach for your information a letter recently sent to the editor of the Australian Financial Review in response to the biased reporting of profit margins in our industry.

Please click here for letter.

Please contact me if you have questions.

Kind Regards

David Blackhall
Chief Executive Officer
Australian Automotive Dealer Association Ltd
E: dblackhall@aada.asn.au
M: +61 413 007 833

Yesterday, we met with senior members of the ACCC team to be briefed on the key points contained in the first discussion draft on the above study ahead of its release today.

The draft may be reviewed in full here.

The accompanying ACCC media release entitled “Car Industry Put On Notice” may be reviewed here.

The discussion draft is 148 pages long, contains considerable detail and will require significant analysis. We have been asked to submit our response by September 7, 2017.

In the interim, we set out below the key matters raised in the discussion draft for your information:

1. Australian Consumer Law guarantees and warranties:

• ACCC rejects the argument (mounted separately by AADA and FCAI) that consumer complaints of unresolved issues are a small percentage of the 1.1m annual vehicle sales
• they assert that motor vehicles are regularly in the top ten complaint categories received by ACCC – far ahead of white goods and household electronics according to their internal statistics
• this leads ACCC to the view that ‘systemic’ issues exist across the industry
• ACCC accepts that dealers often receive inadequate support from OEMs in the resolution of consumer complaints but still considers dealers have an important role to play in reducing the level of consumer dissatisfaction
• ACCC intends to publish guidance for consumers on their rights in the event there is a problem with their new car, including guidance for dealers to distribute to consumers at the point of sale
• we were told that this may take the form of a one or two-page consumer disclosure document to be added to the deal file to provide evidence that dealer sales processes adequately explain ACL rights to customers.

2. Access to repair data

• ACCC engaged an ‘independent expert’ to review cases provided by FCAI involving 9 different brands
• in a majority of cases the expert was unable to resolve the repairs in a reasonable time due to lack of repair data, according to the draft report
• ACCC has formed the view that excessive margins in the franchised channel are driving business behaviours by OEMs and dealers that are unacceptable and that have resulted in consumer detriment
• the ACCC recommends regulatory intervention to mandate the sharing of technical information with independent repairers on ‘commercially’ fair and reasonable terms
• this is likely to include wider access to parts
• we will need to work through the detail to understand the framework proposed

3. Vehicle Labels

• ACCC has formed the view that present label data are misleading and not useful to consumers
• ACCC supports moves to enhance the quality of information supplied to consumers currently being considered by the Ministerial Forum into Vehicle Emissions, including the introduction of a more realistic laboratory test and real driving emissions testing.

AADA Initial Assessment

• ACL Disclosures: The incremental administrative costs of the ACL disclosures in the F and I and Sales Offices may be minimal if the ACCC writes and mandates a simple disclosure document. However, this will need to be assessed as to its potential impact on consumer attitudes and predisposition to purchase both of the vehicle and any additional products such as warranties and the like.
• Data Sharing and Parts Availability: The draft has implications for dealer revenue streams in the workshop and parts supply businesses. The potential impact is difficult to assess until the proposed rules are clearer.
• Labelling Data: The vehicle labels are the responsibility of the manufacturers. The data used on them are the consequence of the application of a government-mandated testing procedures both for fuel consumption and emissions. It is difficult to see how dealers might play a role other than ensuring that accurate data from the labels are used in both the sales process and in any advertising.

Media

We have noted the comments from the ACCC Chairman Rod Sims and various commentators. Members will be concerned about many of these remarks. We will be making further comments after we have analysed the report in its entirety.

Response Timeline:

• Draft made public – August 10, 2017
• Submission deadline – September 7, 2017
• Workshop – September 25, 2017
• Final report – December 31, 2017

We were told that there will be extensive further consultations with individual groups.

Once we have reviewed that actual draft we will provide a further update, but in the meantime if you have questions, please call.

Kind Regards

Chief Executive Officer
Australian Automotive Dealer Association Ltd
E: dblackhall@aada.asn.au
M: +61 413 007 833

Members will have read media reports or seen news clips concerning the possible failure of Takata airbag inflators following the death of a man in NSW when his Honda CR-V was involved in an accident.

AADA does not intend to comment on this matter and will refer enquiries to the attached FCAI media release .

Quite clearly, the vehicle manufacturers and importers together with the FCAI have the lead role in this matter. We understand that dealers with affected brands have been or will be contacted direct by their franchisors.

The ACCC, working with the relevant Ministers, is seeking urgent information from the Department of Infrastructure and Regional Development and car manufacturer. This link provides further information: Government Airbag.

ACCC Chairman Rod Sims has also expressed the ACCC’s view on retailers’ responsibilities to keep customers informed on this matter. Please click here to see the ACCC Statement.

We recommend you work with your OEMs to obtain the necessary information outlined in Mr Sims’ press statement.

If you have questions or feel we can assist you in any aspect of this urgent issue, please do not hestiate to contact us.

Kind Regards

David Blackhall
Chief Executive Officer
Australian Automotive Dealer Association Ltd
E: dblackhall@aada.asn.au
M: +61 413 007 833