19th September, 2017 · Media Release

Franchising code needs an overhaul

An industry-specific franchise code that applies to new car dealers needs to be introduced if dealers are to survive, an automotive industry legal specialist said today.

Evan Stents, lead partner of the Automotive Industry Group of HWL Ebsworth Lawyers, told the Australian Automotive Dealer Association Convention that the existing Franchising Code does not go far enough in protecting the interests of dealers.

“As presently drafted, the Code permits a manufacturer to terminate an agreement where there is no breach or consent by the dealer.”

“There is no commercial justification for this,” Mr Stents said.

Mr Stents described the Franchising Code as a ‘one size fits all’ that does not address dealers’ specific issues and the recent reforms to the Code in 2013 do little to change this.

The problem with this is that dealer agreements are totally different to other franchise agreements.

He said manufacturers routinely put pressure on dealers to incur capital expenditure under a threat of receiving a non-renewal notice.  A dealer can receive a non-renewal notice even if there has been no breach of the agreement by the dealer.

The manufacturer can also issue a non-renewal notice even if the dealer has met or exceeded KPIs or incurred signitficamnt capital expenditure in the initial term of the agreement.

“The manufacturer does not have to provide a reason which is untenable,” Mr Stents said.

“Tenure is the single most important aspect of a dealer’s business but in recent times, tenure has decreased.

“Tenure is left up to the manufacturer but a lack of minimum tenure and a lack of control over the right to renew leaves tremendous uncertainty over dealers’ ability to recoup significant capital expenditure,” he said.

Mr Stents called on manufacturers to offer dealers a minimum initial term of five years and a renewal period of five years to allow time to recoup investment.

He called for the termination for convenience clause be deleted from the Code.