4th February, 2022 · CEO Message

CEO Message No. 72

2 minutes to read

Every day in franchised new car Dealerships across Australia, thousands of customers bring their vehicles in to have a fault repaired. If the vehicle is new and within the warranty period, they would usually expect that car to be fixed free of charge and in a timely manner which allows them to get back on the road as soon as possible.

They are entitled to this expectation not only due to their new car warranty, but also because of the overarching consumer guarantees they have under the Australian Consumer Law (ACL). The consumer guarantees require products to be of acceptable quality and fit for purpose. If they are not, the customer is entitled to a remedy under the law which usually means repair, but in some circumstance could mean a refund or a replacement.

Because the Dealer is the supplier under the law, they are required to provide the remedy and are legally entitled to seek indemnification from the OEM for the labour, parts and associated costs of a repair (loan vehicles, etc). They are also entitled to costs in circumstances where a refund or replacement has been provided.

This is all wonderful in theory as the law always is. In practice it is a lot more complicated and for the Dealer it can often be messy and costly.

We know that often OEMs prefer to look at these issues through the prism of the warranty. Customers don’t care about the technical differences between consumer law and Manufacturer warranties. All they want is for their vehicle to be running smoothly, reliably and defect free.

But the technicalities do matter to the Dealer. By emphasising the warranty, OEMs play an integral role in approving and managing the claims. While Dealers often want this support from the product Manufacturer, it is the Dealer that is obliged to honour the consumers ACL consumer guarantees. It is also the Dealer who is customer facing and Dealers have to carefully manage disappointed or frustrated customers with whom they are seeking to maintain a good relationship.

Of greater concern is how focusing on the warranty process allows OEMs to claw back claims from Dealers. All too often claims get knocked back based on Dealers not complying with unnecessary and rigid process manuals – it matters not that the customer is happy and the fault in the vehicle has been properly repaired, quickly and efficiently. We also know about the warranty audits and the practice of extrapolating a small sample of claims across a wider period. Dealers can lose hundreds of thousands in claims annually.

We have long argued that these clawbacks may constitute a failure to indemnify the Dealer and are a breach of the ACL.

The Government is currently investigating options to better enforce the consumer guarantees and uphold the Dealers right to indemnification.

The AADA has surveyed its members on this issue and has heard back from almost 150 Dealers representing hundreds of franchises and we will use this information to try and drive some change so that Dealers are fully compensated for the cost of assisting their customers and complying with the law.