Federal Government Increases Penalties for Franchise Code Violations

Jhe federal government is introducing tougher penalties for violations of the Franchising Code of Conduct, with companies facing fines of up to $10 million.

The changes respond to the recent trend of automakers changing the traditional way of selling cars in favor of the ‘agency model’, as well as protecting dealers if a manufacturer chooses to exit the Australian market – as was the case with Holden’s departure in 2020.

As part of the increased sanctions, automakers could be hit with a fine of up to $10 million, an amount equal to three times whatever financial benefit results from their actions, or 10% of their turnover. Annual Business – as applicable. is the biggest.

“We will continue to protect hard-working Australian franchisees from abuse of bad practice and conduct,” said Minister for Jobs, Labour, Skills, Small and Family Businesses, Stuart Robert , during the announcement.

“These multinational franchises need to know that we stand up for our small family businesses.”

Although the changes were first announced last year, they have only come into effect now and are part of a series of reforms aimed at making it easier for buyers to get help if their car is faulty. shifting repair or replacement costs from the dealer to the manufacturer and plans to introduce a stand-alone code and mandatory binding arbitration.

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Honda Australia was the first manufacturer to implement the agency model in Australia in July last year, reducing the number of its dealerships and introducing Honda’s fixed price promise, although the brand has seen a decline of sales during a boom period for the industry in the months since.

Mercedes-Benz also switched to an agency model in Australia from January 1 this year, but a group of 38 franchise dealers have sued the German car giant over the changes, with a trial set to begin in August 2022. .

Although agency models differ from company to company, this largely involves manufacturers owning the vehicle stock rather than franchises, and setting a national price at the drive-thru instead of allowing customers to haggle. to get a better deal.

The issue has divided the auto industry, with some claiming it’s a good thing for buyers, while others say it allows multinationals to take advantage of small businesses.

“Stronger penalties associated with the recently introduced reforms to the franchising code of conduct are good for small businesses and they are good for franchised new car dealers,” said James Voortman, CEO of the Australian Automotive Dealer Association.

“The sanctions come after a series of franchise disputes between auto dealers and automakers and they further deter franchisors who violate the Franchising Code of Conduct,” he said.

“Government reforms are not about stopping change, but rather about ensuring it is carried out in a fair and reasonable manner.”

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Tony Weber, chief executive of the Federal Chamber of Automotive Industries – the body representing manufacturers – argues, however, that the agency model introduces innovation that benefits buyers.

“The agency model is an example that enables innovation and evolution and provides choice and competition for today’s consumers, wherever they live, who do not want the same methods of purchasing cars and the same experience as their parents and grandparents,” Weber said in October 2021.

“Even the federal government has recognized the importance of the agency model as an option by including it in the Franchise Code, which was implemented in July 2021,” he said.

“This model will for the first time allow regional car buyers to purchase any model through their local dealership and not have their choice limited by their location.”

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