8th October, 2021 · CEO Message

CEO Message No. 69

3 minutes to read

On 6 October 2021, an article ran in the Sydney Morning Herald/Age newspapers titled “Car makers push online sales as young Australians don’t want to haggle“. The story centres around a submission to the Government made by the Federal Chamber of Automotive Industries and contains a number of claims in support of the fixed-price agency model including statements that the franchised way of selling cars stifles both consumer choice and competitive prices.

The article in itself is extraordinary because less than a week ago Australia’s top 12 brands ruled out the move to a fixed-price agency model. There is clearly a disconnect between the FCAI and its members, most of who have publicly committed to the franchised model the FCAI is trashing.

The AADA is not here to prevent alternative models from arising in Australia. Cars in Australia are distributed through various models, including the franchised model, the agency model, OEM-owned stores, and online-only models. However, I absolutely reject the FCAI’s assertions that the franchised Dealer model that is responsible for 90% of sales in Australia is bad for consumers.

I have addressed some of the FCAI’s claims below:

Claim: Consumers will benefit from lower prices
Prices will be fixed and while the FCAI says these will be lower, the experience from Honda is that prices under the agency model have increased. The franchised model in Australia has resulted in competitive prices which have tracked well below inflation for the past 20 years.

Claim: Consumers will benefit from access to a greater range of vehicles
Australians have access to a wider choice of vehicles than markets such as the US and the EU, this is a comment often made by the FCAI themselves. The evidence from Honda’s move to Agency is that it was accompanied by a significant reduction in models and variants. We also know that Honda’s rationalisation of Dealerships has led to inconvenience for so many of the customers whose local Dealer closed, requiring them to travel further for servicing.

Claim: Young people do not want to negotiate on price 
The AADA has commissioned research which shows that 93% of consumers aged 35 years or less value the ability to negotiate a discount on a new car. Furthermore, the notion that anybody is compelled to negotiate in a Dealership is absurd and requests for discounts are initiated by consumers. If consumers hated discounts so much why is June always the top-selling month for new cars, because consumers know they can get a deal.

Claim: This will benefit consumers in less population-dense regional areas, and who currently need to shop out-of-area 
AADA research has found that 91% of buyers believe test driving a vehicle is quite or very important. The numbers would likely be higher for regional motorists who rely more on their vehicles than people living in cities. For the few that want to buy sight unseen, the option is available and Dealers have completed such transactions with ease during lockdowns. Regional car buyers also value the ability to buy a vehicle from the closest physical location as they are likely to return to that location for servicing.

Claim: Market share of businesses with one or two dealerships has declined as the industry becomes increasingly corporatized and consolidated
AADA has no idea whether this is correct. While it is true that there has been a process of rationalisation of Dealerships in Australia, ironically this trend has been driven by the Manufacturers and their relentless focus on sales volumes and market share at the expense of Dealer profitability. Despite this, Dealers becoming larger does not change the fact that there is a power imbalance between Dealers and OEMs. Even Australia’s biggest Dealers are small compared to the Fortune 500 companies to which they are franchised. It’s unclear why the FCAI repeatedly makes this point. They made it repeatedly during the GM Holden dispute – is it ok to treat Australian businesses unethically because some of them are large?

If the FCAI wants to support the fixed-price agency model, it has every right to do so. But let’s not do so under the false pretence that this is good for the customer. This is very clearly an attempt by some OEMs to improve their bottom line. OEMs are free to explore these models, but when you have built your brand in Australia on the back of Dealers capital, skill and effort, you should be compensating those businesses.