New code to deliver power imbalance reform between independent car dealers and large manufacturers

The federal government will combat concern about power imbalance between independent car dealers and large manufacturers by establishing an industry-specific code of conduct for the sector.

Placed within a $1.4 million small business package detailed in Mid-Year Fiscal and Economic Outlook (MYEFO) papers on Monday, the government confirmed it will develop the code to “support appropriate commercial dealing and competition”.

Currently, arrangements between car manufacturers and licensed dealers are regulated under the Franchising Code of Conduct, but the Australian Automotive Dealers Association (AADA) has been a pushing for a specific code amid complaints it is not fit for purpose.

Dealerships have previously reported being strong-armed by their business partners, having their dealer agreements ended with little notice and receiving a raw deal on returns of faulty cars.

The AADA has argued pressure on dealers is so great many have resorted to making up sales to make thresholds for manufacturer incentive payments.

This practice, known as the cyber-cars phenomena, has even attracted ACCC scrutiny recently.

The contents of the code are yet to be confirmed, but AADA chief executive David Blackhall said he’ll be working with the government to bed down the specifics in the coming months.

“This is excellent news for the industry and I congratulate the Government for addressing the imbalance in power between franchised new car Dealers and vehicle manufacturers,” Blackhall said in a statement.

The AADA wants to see more transparent sales target setting and better conditions for terminated dealers, including longer notice periods and stock-buyback arrangements, included in the code.

The government commitment matches an earlier promise from Labor to create an industry-specific code.

Shadow Assistant Treasurer Andrew Leigh said in September a sector-specific code will deliver a better deal for small businesses.

“Power imbalance manifests itself in a number a ways, and if it continues to go unaddressed, we may see an increase in either market concentration of dealerships, or in the market power manufacturers can exert, with an inevitable decline in positive outcomes for consumers and the family-owned and small businesses that serve them,” he said at the time.

Australian small business and family enterprise ombudsman Kate Carnell and the Franchising Council of Australia have also supported calls for a new code.

The code has been placed in a broader small business growth package that also includes previously announced targets for government contracts with SMEs.

The entire package is worth $1.4 million over two years but will be funded from “existing resources” within the Department of Industry, Innovation and Science.

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