Prospect of voluntary dealership code raises concern reforms could lack teeth

car sharing Australia

The federal government is seeking input from independent car dealers on the possible implementation of an industry-specific code of conduct for the automotive industry, but there is concern possible policy responses could fall short.

The Department of Industry, Innovation and Science yesterday released a Regulatory Impact Statement (RIS) examining potential policy solutions for addressing power imbalance between independent dealers and car manufacturers.

It examines a range of potential changes to the relationship between retailers and manufacturers in the sector, raising the possibility of a binding or voluntary industry code to implement reforms.

Currently, agreements between new car dealers and manufacturers are regulated by the Franchising Code of Conduct, but many in the industry have criticised this arrangement, saying it does not adequately protect small business owners.

Dealers are pushing for the creation of a separate code to meet the needs of retailers, which has support from Australian small business and family enterprise ombudsman Kate Carnell and the Franchising Council of Australia.

Pressure on dealers in the industry has, according to the AADA, left some dealers desperate enough to fake car sales to meet targets for financial incentives, a phenomenon known as ‘cyber cars’.

Reforms being considered by the department, include extending agreement termination periods from six to 12 months, compelling franchisors to provide reasons for non-renewal, stock-buy-back provisions and even a five-year minimum term on dealership agreements.

SmartCompany also understands a possible automotive code could contain a mandatory sharing scheme that would compel car manufacturers to share service and repair information with independent retailers on fair and commercial terms.

This could be achieved with changes to the current franchising code, but the government has committed to an industry-specific code. Attention is now converging on whether this will take the form of a voluntary scheme that could lack teeth or binding reforms.

In its analysis, the department conceded a voluntary code would be “unlikely to be effective”.

The benefits of self-regulation can only be realised where it is effective at changing the behaviour of industry participants,” it said.
“Previous attempts at addressing the problems identified in this RIS suggest that a voluntary code of conduct is unlikely to be effective.”
The Automotive Dealers Association of Australia (AADA) also doesn’t believe a voluntary code will deliver meaningful reform and wants binding changes.

Minister for Industry, Science and Technology Karen Andrews confirmed on Thursday the government remains committed to an industry code that will “support appropriate commercial dealing and competition in the new car retail supply chain for the benefit of both small businesses and consumers”.

Minister for Small and Family Business Michaelia Cash said in a statement on Thursday reforms shouldn’t create unnecessary red tape.

“It’s important government intervention provides appropriate protection for franchisees, without creating unnecessary regulatory burden or restricting the sector’s ability to adapt to business conditions and consumer preferences,” she said.

A voluntary code would be a step shorter than an earlier Labor commitment, which has promised to address the need for small business protection in the sector as a priority if elected.

“Labor has read the results of the 2017 ACCC inquiry, and we’ve is committed to a mandatory franchise code for car dealers,” Shadow Assistant Treasurer Andrew Leigh said in a statement on Thursday.

“The Coalition is committed to yet another inquiry. Australia’s auto dealers don’t need more delaying tactics, they need protection from a playing field that’s tilted against them.”

The Federal Chamber of Automotive Industries (FCAI) which represents manufacturers, has previously lobbied against the introduction of a code, raising concern an extended consultation period could sink mounting support for reform back into political quagmire.

The FCAI did not respond to a request for comment.

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