News & Insights

The Australian Government has recently announced important changes to the franchising code that will affect motor dealerships.

By way of background, in June 2020, the Franchising Code of Conduct (Code) was amended to specifically include new motor vehicle dealership agreements. This was a welcome but imperfect solution dealing primarily with end of term obligations, capital expenditure and dispute resolution for new vehicle dealerships.

The proposed changes are aimed at strengthening the Code’s application to the motor industry, and include:

• Increasing penalties for contraventions of the Code to $10 million. The Government has not minced words in suggesting that such penalties could be aimed at international car manufacturers who undertake systemic breaches to the Code.
• The (previously voluntary) best practice principles for new car dealership agreements will be made mandatory. The principles include, amongst other things, that manufacturers should provide for fair and reasonable compensation to franchisees for early termination such as withdrawal from the Australian market or changes to their distribution models.
• New vehicle dealers operating as manufacturer’s agents will be specifically included in the Code. Presently, the Code contemplates the traditional dealership model of buying cars from the manufacturer and then reselling to the public, leaving doubt as to whether the agency models are regulated by the Code. This change will remove such doubt.

These changes were announced on 12 March 2021, although it is unclear exactly when the changes will be implemented.

In the announcement, the Government has also foreshadowed (but without making commitment at this stage) other measures to protect the motor dealer industry, including:

• Establishing a dedicated code of conduct for motor vehicle dealership agreements.
• Including mandatory and binding arbitration procedures to address power imbalances where there are disputes.
• Protecting motor dealers from unfair contract terms in contracts with manufacturers.

If you’d like more information about what is being proposed, please contact our Motor Dealers team.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.