New car retail industry on notice: ACCC releases final report

By Adrian Kuti, Alexander Vial, and Gab Royle

21 Dec 2017

Australian car dealers and importers will need to upgrade their consumer law compliance to avoid ACCC investigations particularly in the areas of consumer warranty rights; vehicle emission claims and access for independent repairers to vehicle software and technical data.

Having sounded the warning bells in its draft report in August and continued to ramp up its enforcement actions within the retail vehicle sector, the ACCC's final recommendations from its new vehicle retailing industry market study clearly identify both Australian Consumer Law and competition law compliance deficiencies that are likely to form the basis of future enforcement actions, in particular against manufacturers, unless changes are made to what are currently standard industry practices.

Top of the New Year's "to do" list for Original Equipment Manufacturers (OEMs) in Australia should therefore be a review of internal policies and procedures, commercial arrangements with dealers and supply and technology access arrangements with authorised and independent repairers.

In particular, they will need to give careful thought to risks concerning:

  • misleading consumers and dealers as to the operation of the consumer guarantee provisions (both in terms of remedies available to consumers and rights of indemnification for dealers),
  • unfair contract terms for dealers; and
  • how OEMs' conduct and policies may impact the ability of independent repairers to compete in the market.

The ACCC's key findings at a glance

The ACCC's final report on its new vehicle retailing industry market study, published on 14 December 2017, is the culmination of about 18 months of investigation. The scope of the final report included:

  • activities that occur prior to sale, such as the advertising of new vehicles and representations made about vehicle performance or emissions;
  • activities that occur at the time of sale, including the sale of finance and insurance products, representations on standard manufacturer warranties, and the sale of additional warranties; and
  • post-sale activities, such as regular maintenance and the cost of spare parts for the new vehicle.

The ACCC considers that changes to the new vehicle retailing practices are required and has recommended changes in the following area:

  • consumer rights: consumers receive a refund or replacement (ie. a current "major failure" remedy) without needing to prove a "major failure" in cases where the failure occurs within a short time (eg. 30 days),
  • "lemon laws": multiple non-major vehicles faults or failures can amount to a major failure;
  • extended warranty clamp down: better disclosure when selling extended warranties;
  • dealer indemnities: manufacturers update their dealer agreements to reflect their obligations to indemnify the dealer for consumer defect claims under section 274 of the ACL and ensure these arrangements do not contain unfair contract terms;
  • dealer franchise agreements: the imbalance of power between dealers and manufacturers in commercial arrangements be the subject of further examination;
  • data sharing: a mandatory scheme be established to make it compulsory for vehicle manufacturers to share technical information with independent repairers;
  • original equipment (OE) manufacturer-branded parts be available to independent repairers unless the manufacturer publicly states that the part is subject to restricted access on security-related grounds;
  • emission claims: new vehicle buyers have more accurate information about their vehicles' fuel consumption and emissions by requiring new fuel consumption and emissions labels to be fixed to new vehicles and through the adoption of real world testing of new vehicles; and
  • consumer data: the Australian Government introduce a Consumer Data Right into the new car retail industry to deal with a range of new technology issues such as in-vehicle Telematics.

Below, we examine three of the more significant issues on which the ACCC has focused in particular in announcing its findings.

Consumer warranty rights and Commercial arrangements between manufacturers and dealers

Throughout the course of its investigation, the ACCC reviewed a number of dealer agreements. These agreements contain the terms which govern the relationship between vehicle manufacturers and dealers. The ACCC made the following observations:

  • dealers often respond to consumer guarantee claims using the framework of the policies and procedures put in place by manufacturers;
  • dealer agreements can make it contractually difficult for dealers deviate from the policies and procedures put in place by manufacturers. Systemic problems can arise when these policies and procedures promote a framework which does not adequately protect consumer rights; and
  • some manufacturers impose complicated warranty claim processes, making it uncommercial in some cases for dealers to provide repairs or remedies to consumers.

Under the Australian Consumer Law, dealers are responsible for providing consumer law remedies. However, they also can recover the reasonable costs of providing these remedies to consumers from vehicle manufacturers when the issue is the manufacturer's fault. For example, if a new vehicle suffers a major failure from production line faults, dealers can recover costs from manufacturers for complying with their obligations under the Australian Consumer Law to provide affected consumers with appropriate remedies (refund, repair or replacement, depending on the circumstances).

The ACCC has indicated that it will commence an investigation if it becomes aware that any particular manufacturer has prevented a dealer from discharging its obligations under the Australian Consumer Law. This is likely to include where manufacturers make it overly difficult for dealers to recover their costs from manufacturers.

Indeed, the ACCC has already increased its enforcement actions in this area, having commenced proceedings against Ford Australia in July 2017 for allegedly engaging in unconscionable and misleading and deceptive conduct, and making false or misleading representations, when responding to consumer complaints about apparently systemic transmission issues. The ACCC also accepted court enforceable undertakings from Holden in August 2017 to address concerns about how Holden had been conveying and potentially misconstruing consumers' rights under the Australian Consumer Law.

If you are a vehicle manufacturer, now is the time to review your dealer agreement and warranty policies to ensure that they do not mislead dealers and consumers about the concurrent operation of the consumer guarantee regime of the Australian Consumer Law.

Sharing of technical information with Repairers

The ACCC is concerned that independent repairers have had problems accessing the technical information required to repair and service new vehicles.

To rectify this issue, the ACCC has recommended that a mandatory scheme be implemented through legislation which would require vehicle manufacturers to share their technical information with independent repairers. This scheme would facilitate the sharing of technical information on commercially fair and reasonable terms, and implement safeguards to protect environmental, safety and security-related information.

This is not something the ACCC is able to implement on its own. It will be interesting to see whether the sitting Government responds to the ACCC's recommendation and, if it does, how.

Fuel consumption and emissions claims

The ACCC has called upon the Australian Government to introduce new vehicle labels which feature "a star-rating system or annual operating costs." This is an attempt to minimise the extent to which consumers interpret an "absolute" fuel consumption/emissions value as equivalent to what they would achieve in real-world driving conditions.

The ACCC has also recommended that the Government introduce realistic laboratory tests for new vehicle fuel consumption and emissions, including on road "real driving" tests to give new vehicle buyers more accurate information.

This recommendation is made following the ACCC's receipt of the Australian Automotive Association's finding that actual fuel consumption can be up to 23% higher on the road when compared to tests performed in the laboratory.

One of the reasons why the ACCC wants on-road testing of new vehicles is because it believes that one third of new vehicle purchasers regard fuel consumption as the most significant factor influencing purchase after price and model of vehicle.

The ACCC's recommendation is similar to real world emissions testing models being proposed in Europe. At the moment, new vehicles are typically not tested in Australia and are, instead, generally tested at the place of their manufacture. For example, if a vehicle is manufactured in Germany, the Australian Government relies on the testing performed by the relevant German authorities. It is therefore unclear at this point how receptive the Australian Government would be to implementing a domestic testing regime for new vehicles and what that might look like.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.