Changes to the Franchising Code of Conduct to address car manufacturers' / car dealers' perceived power imbalances
Parties to "new vehicle" dealership
agreements need to be aware of
changes to the Franchising Code
of Conduct which took effect 1
June 2020, earlier than anticipated.
The changes to the Franchising
Code are part of the Government's
legislative reform of the automotive
industry and follow increased
regulatory investigation and
enforcement action by the ACCC
into the new car retailing market
since 2015.
On 28 May 2020 the Government
made the Competition and
Consumer (Industry Codes – Franchising) Amendment (New
Vehicle Dealership Agreements)
Regulation 2020 (Amending
Regulation) amending the
Franchising Code to address the
effects on commercial
arrangements arising from the
perceived power imbalance
between car manufacturers as
franchisors and new car dealers as
franchisees. The Amending
Regulation introduces a separate
Division into the Franchising Code
to deal with issues specifically
affecting "new vehicle" dealership
agreements, defined as
agreements for dealerships that
predominantly deal in new
passenger vehicles seating up to
nine persons, and/or vehicles
constructed primarily for the
carriage of goods and with a gross
vehicle mass not exceeding 3.5
tonnes
(drawing on the equivalent
definitions applicable under the
Motor Vehicle Standards Act and
the Vehicle Standard (Australian
Design Rule
–
Definitions and
Vehicle Categories) 2005). Large
goods vehicles, motorcycles,
motorised
farm machinery,
motorised
construction machinery,
aircrafts and motorboats are
excluded.
The Amending Regulation will have
significant impacts on how renewal
and termination decisions
regarding dealership agreements
will need to be conveyed to the
dealer network and what must be
included in new disclosure
documents going forward.
Whether these new requirements
will apply to dealers will depend on
the status of existing agreements
and how the transitional
arrangements under the Amending
Regulation may apply to any
renewals, variations or extensions
of those existing agreements.
The new Code provisions will also
give franchisees greater powers in
relation to disputes with OEMs
moving forward by enabling
franchisees with disputes of the
same nature to band together and
negotiate collectively with the
franchisor. More details about the changes can be found here.
There has been a groundswell shifting the
conversation on how an individual's personal data is handled.
Consumer Data Rights and wrongs
Vehicle manufacturers are
seeking to enhance a
customer's driving experience
by introducing 'connected
vehicles' which allow customers
to
personalise
their vehicle or
provide a unique experience.
For example, upon identifying a
driver, a vehicle may alter the
interior settings (eg. seat
position or cabin temperature) or
enable apps to be
customised
to
the user (eg. navigation apps).
Personalisation
of the driving
experience however, requires
the collection and use of
personal data. Currently, the
collection and use of personal
data is
analysed
within the
framework of the Privacy Act
and the Australian Privacy
Principles. However, globally,
there has been a ground swell
that is shifting the conversation
as to how an individual's
personal data is handled.
Recently, the Australian Federal
Government completed its
Review into Open Banking in
Australia. In response to the
review, the ACCC introduced
the Consumer Data Right (CDR)
to give Australian consumer
greater visibility over their data,
and develops a secure and
transparent framework within
which consumer data is
transferred. The ACCC sees this
as an important reform,
improving consumer protection
and market competition.
Currently, the CDR only applies
to the Big Four banks however,
it is intended that the scheme
will be expanded, first to the
energy and telecommunications
sectors and then
beyond.
Of
interest, the CDR requires a
holder of personal data to share
that data with an approved third-party if requested by a
customer, giving customers
control over the access of their
data. The scheme also allows
competitors visibility over key
information, affording them the
opportunity to more vigorously
compete.
OEMs/importers will need to
consider how these changes to
the collection and use of
personal data affects their
current business activities, for
example, in how the information
is collected and stored, how the
information is accessed, what
information is collected and
what commercial effects may
arise by its disclosure and
transfer.
Parliamentary
Inquiry into Litigation Funding
The Australian class action
regimes are thriving. Plaintiff
law firms and litigation funders
are always looking for the next
class action and it is no secret
that they keep a watchful eye
on the automotive
sector, with
a number of class actions
presently on foot in both the
State and Federal jurisdictions.
On 13 May
2020, the
House of
Representatives referred an
inquiry into litigation funding
and the regulation of
class
actions in
Australia to the
Parliamentary Joint Committee
on Corporations and Financial
Services. The report is due by
7 December 2020
. Written submissions are available on the APH website. The submission of the Federal Chamber of Automotive Industries (FCAI), the peak representative organization for vehicle importers/distributors in Australia, is available here.
The FCAI also appeared
before the Inquiry on 24 July.
This follows several other
reviews into class actions and
litigation funding in Australia,
including the Victorian Law
Reform Commission’s
March
2018 report
Access
to Justice:
Litigation Funding and Group
Proceedings
and a December
2018 report by the
Australian
Law
Reform Commission
Integrity
, Fairness and
Efficiency
An Inquiry into
Class Action Proceedings and
Third-Party Litigation
Funders.
To date, and with the exception
of
the introduction of contingency fees in Victoria in June 2020, recommendations
by
the VLRC and
ALRC in
these reports
have not been
acted upon.
In addition to tighter regulation
of litigation funders (which will
soon include
a requirement to hold an Australian Financial Services Licence) we expect
that the Committee will address
a number of procedural issues
in class actions, including common fund orders, class closure
and treatment of
"overlapping" class actions
(where similar proceedings are
commenced by different
plaintiffs against the same
defendants).
We expect the
reform agenda
moving into next calendar year
will be
significant and will
have
an immediate impact
on the
Australian class action
landscape.
In the next edition,
we will explore the impact
these developments may have
on the automotive sector.
"Contactless" car sales: Are online transactions the way forward?
COVID-19 has, at least for the
foreseeable future, changed
consumer
behaviour
dramatically. Consumer
spending and those sections of
the economy that rely on it, have
had to adapt to the new retail
environment. In the motor
vehicle sector, early adapters
have paved the way for online
sales as a new form of
"contactless" engagement. While
this may seemingly appear an
easy transition, challenges do
arise and lessons have been
learned from those who have
pioneered this new type of
transaction.
From a brand perspective, there
is an understandable desire from
importers/OEMs to ensure an
optimal user experience by
seeking to manage both the
consumer and dealer ends of an
online sales portal. Taking
control of this process needs to
be balanced with ensuring that
consumers understanding that
they are transacting directly with
dealers rather than the
importer/OEM who generally
facilitates the transaction.
Agreements with dealers will
need to be in place to manage
the transaction, dealing with
issues such as deposits and
refunds, liabilities and
indemnities, sharing of data and
information and customer
management (including KPIs
addressing customer response
times). On the other side, terms
and conditions need to be
developed that govern the
consumer's use of the portal and
the transaction, which are likely
to be separate to an importers
more general website terms and
conditions (although not
entirely).
Further, like any promotional
material, it is also important to
ensure that the information being
displayed is accurate and does
not mislead or deceive
consumers. This includes, for
example, images that depict the
actual vehicle and performance
figures that are representative of
the vehicle. While appropriate
use of disclaimers may assist in
creating a user friendly
experience on the website, those
disclaimers must be sufficiently
prominent to avoid misleading
representations being made on
the website. This is particularly
import with respect to price.
Incorrect information, including
component pricing or an
inaccurate description of the
vehicle may increase the risk of
suppliers contravening the
Australian Consumer Law.
ACCC continues to prioritise the automotive sector
The automotive industry
continues to find itself in the
regulatory crosshairs following
the Government's early
release of the "new vehicle
dealership" provisions of the
Franchising Code of Conduct
designed to recalibrate the
power balance between
manufacturers and dealers.
The industry, and in particular
the major international
automotive brands operating
in Australia, have been at the
centre
of increased regulatory
investigations, enforcement
actions and legislative change
in the period since 2015, with
regulatory and legislative
scrutiny further increasing
significantly off the back of the
ACCC's findings in its 2017
new car retailing market
study.
Those
findings included
competition law concerns
stemming from the perceived
power imbalance in the
commercial relationships
between
the large car
manufacturers and the two
other key players in the
market
–
new car dealers and
independent repairers.
Alongside
increased
regulatory investigations and
enforcement action by the
ACCC (including in relation to
Franchising Code
compliance), the Government
has also actively pursued
legislative reform including:
Meanwhile, the ACCC
continues to look closely at
the industry, most recently
stepping in to put pressure on
General Motors
Holden
in
relation to its negotiations with
185 Holden dealers to
compensate them for GM's
withdrawal of the Holden
brand in Australia by 2021.
The ACCC considered that GM Holden's conduct of the negotiations with dealers raised concerns under the good faith obligations of the Franchising Code and the unconscionable conduct provisions of the Australian Consumer Law, and said that it had been preparing for court action had GM Holden not changed its position.
Regulatory and legislative scrutiny further increasing off the back of the ACCC's
findings in its 2017 new car retailing market study