7th April, 2021 · Industry News

Changes to Automotive Franchising Laws

2 minutes to read

AADA members would by now be aware of an announcement on 12 March 2021, by the Prime Minister Scott Morrison and former Family and Small Business Minister Michaelia Cash about strengthening of the Franchising Code of Conduct (FCC) and other measures to better protect new car Dealers.

The first tranche of changes takes the voluntary principles introduced late last year and embeds them in the FCC as mandatory obligations.

The FCC will be changed to reflect the following principles:

Principle 1

Franchisors should include provisions in new dealership agreements that provide for fair and reasonable compensation for franchisees in the event of early termination resulting from: withdrawal from the Australian market; rationalisation of their networks; or changes to their distribution models.

Principle 2

Franchisors should not include provisions that exclude compensation in new dealership agreements.

Principle 3

The ‘fair and reasonable compensation’ as referred to in Principle 1 above should include appropriate allowances for the loss a franchisee may incur, which can include:

  1. Lost profit from direct and indirect revenue
  2. Unrecovered expenditure and unamortised capital expenditure where requested by the franchisor
  3. Loss of opportunity in selling established goodwill
  4. Wind up costs

Principle 4

When an agreement is entered into it should provide franchisees a fair and reasonable time to secure a return on investments that have been required by franchisors as part of the agreement.

Principle 5

Agreements should include reasonable provisions for franchisors to compensate or buy back new vehicle inventory, parts and special tools, in the event of: non-renewal; withdrawal from the Australian market; rationalisation of their networks; or changes to their distribution models.

Principle 6

Agreements should include provision for timely commercial settlement and dispute resolution.

The AADA is working with the Department of Industry to finalise the detail of these changes and ensure that the intent is captured in the new regulations. The Government has also committed to making sure that the new reforms will explicitly capture new agency arrangements and that in future breaches of the Code are liable to incur fines of up to $10 million.

Further work will also be undertaken by the Government, in consultation with the industry, to establish a dispute resolution process that includes mandatory binding arbitration while also investigating the option of creating a stand-alone Automotive Franchising Code.