4th November, 2021 ยท CEO Message

CEO Message No. 70

2 minutes to read

The big news in our industry this month is that 80% of Australian Mercedes-Benz Dealers have launched an action against Mercedes-Benz Australia in the Federal Court. The action seeks $650 million in damages under the Competition and Consumer Act and Australian Consumer Law, arguing a breach in their good faith obligations.

News of the action has travelled all around the world and AADA has been contacted by associations representing Dealers in Europe, North America and beyond. The world is watching, and many see this as a landmark case for the industry not only in Australia, but at a global level.

Through my conversations it has become clear that Dealers across the world remain sceptical about agency models. In essence they believe a system where a manufacturer focuses on their strength (making the vehicles) and the Dealer focuses on what they do best (retailing the vehicles) serves the customer the most effectively. In Australia, these fears seem well founded as some OEMs are battling with the introduction of the Agency Model, losing customers in the process and leaving newly appointed agents incredibly frustrated in their inability to influence outcomes in their own businesses.

Regardless of these concerns, the AADA has always acknowledged the OEMs right to change their distribution models. That right is not in question, but it is all about how it is done. Dealers have invested enormous amounts of capital and expended great time, effort, and skill to develop and maintain a customer base which forms the backbone of their businesses. For an OEM to offer extremely one-sided agreements with no room for negotiation and no prospect of renewal beyond the initial term represents massive risks for Dealers. It essentially means that an OEM can acquire the goodwill in a Dealership for no cost whatsoever.

 

It’s only a few short months since new automotive regulations were brought in under the Franchising Code of Conduct after a Senate Inquiry exposed the exploitative behaviour of some OEMs towards their Dealers. It was hoped that these new laws announced by the Prime Minister in March would allow the industry to reset and work towards more harmonious relations.

Unfortunately, not all OEMs have responded in the spirit of the new regulatory regime and we are seeing franchise agreements with creative clauses clearly intended as a work around to the new regulations.

Clearly, we are facing a time of great change in the industry. But change can never be an excuse to simply disperse of partners and investors which played such an important role in growing an OEM’s brand. The world is watching and so are our elected officials in Canberra and the regulators of Australia’s laws.