Thursday, 2 September 2021
Education and Employment References Committee; Government Response to Report
I present the government’s response to the report of the Education and Employment References Committee on its inquiry into the regulation of the relationship between car manufacturers and car dealers in Australia. I seek leave to have the document incorporated in Hansard.
The document read as follows—
The Australian Government welcomes the opportunity to respond to the Senate Education and Employment References Committee's report, Driving a fairer deal: Regulation of the relationship between car manufacturers and car dealers in Australia, released in March 2021.
The Government recognises the importance of a strong and competitive automotive sector in the supply, sales and servicing of vehicles. The Government has been putting in place a comprehensive suite of changes to the frameworks governing the automotive retail component of the car sector. These changes are intentionally designed to make the system fairer and more transparent for consumers, dealers and manufacturers.
The first tranche of changes were the automotive franchising reforms that commenced on 1 June 2020, which amend the Franchising Code of Conduct in three areas: improving end-of-term notification periods, improving transparency for capital expenditure requirements, and clarifying options for dispute resolution. This was the first time that a sector-specific part of the regulations was included in the Franchising Code.
On 12 March 2021, the Government announced a suite of reforms to the automotive franchising sector and a commitment to consult on the merits of a standalone automotive franchising code and options to strengthen alternative dispute resolution mechanisms for automotive franchisees through binding arbitration.
On 1 June 2021, the Government amended the Franchising Code including mandating the automotive best practice automotive principles and explicitly recognising dealers operating as a manufacturer's agent in relation to new vehicle sales. These reforms took effect from 1 July 2021.
A range of other reforms will also benefit new car retailers and include:
- Fairness in Franchising
The Government is committed to enacting reforms that are impactful and deliver for the nation and regions where transport is integral for economic and social needs. The Government has also shown its commitment to build on the critical work already done by the Government to ensure the reforms made will better the overall experience of consumers, who ultimately drive the demand that underpins the viability of the automotive sector.
The Australian Government's response to the Senate Committee's recommendations are provided below.
The committee recommends that the Australian Competition and Consumer Commission should expedite its investigations into the behaviour and actions of GM Holden and should commit to provide regular public updates on this investigation and similar investigations into the relationship between manufacturers and dealers in the future.
The Government notes this recommendation.
The ACCC is an independent statutory authority and is responsible for its own decisions, which it makes in accordance with its enforcement priorities.
It is a matter for the ACCC to determine when it is appropriate to make public announcements in relation to its investigations or enforcement activities. A relevant consideration would be whether the release of such information could interfere with any active or pending legal proceedings that may be put before the courts.
The committee recommends that the Australian Competition and Consumer Commission proactively ensures that General Motors Australia and New Zealand is meeting its Australian Consumer Law obligations to Holden vehicle owners in relation to warranty and recalls, technical support and access to parts.
The Government notes this recommendation.
The Australian Consumer Law (ACL) is administered under the one law multi-regulator model administered by the ACCC in conjunction with State and Territory ACL regulators. As an independent statutory authority, the ACCC exercises its powers and decisions independently in accordance with its Compliance and Enforcement Policy and Priorities.
The committee recommends that the Australian Government prioritise the new automotive reforms announced on 12 March 2021 and implement the increased fines, mandatory principles and protection of dealers operating as a manufacturer's agent by 1 July 2021.
The Government supports this recommendation.
The Government has provided further protections supporting the interests of Australian car dealers. On 1 June 2021, the Government amended the Franchising Code including mandating the automotive best practice automotive principles and explicitly recognising dealers operating as a manufacturer's agent in relation to new vehicle sales. These reforms took effect from 1 July 2021.
Further to its 12 March 2021 announcement, the Government is consulting on the merits of a standalone automotive franchising code and options to strengthen alternative dispute resolution mechanisms for automotive franchisees through binding arbitration (see Recommendation 5).
The committee recommends that the mandatory best practice principles include a provision for the reimbursement for all reasonable expenses incurred in relation to warranty and recall work, including expenses associated with diagnosis, administration of claims and claim audits.
The Government notes this recommendation.
The Government has amended the Franchising Code to mandate the existing best practice automotive principles from 1 July 2021.
The Australian Consumer Law already provides that a manufacturer of goods is liable to indemnify a supplier, where the supplier provides a remedy for a consumer guarantee failure that is the manufacturer's responsibility.
Australian consumer affairs ministers have agreed that a regulation impact assessment should be undertaken on options to prohibit manufacturers from failing to indemnify suppliers, and prohibit retribution by manufacturers against suppliers who seek indemnification. The assessment will consider the costs and benefits of applying the options across all sectors of the economy; and to new motor vehicles only. A Consultation Regulation Impact Statement is expected to be released in 2021.
The committee recommends that the Australian Government introduce mandatory binding arbitration to resolve disputes during contracted negotiation in the automotive industry which are not able to be resolved by other dispute resolution mechanisms.
This recommendation is supported-in-principle.
The Government has committed to further consultation with industry stakeholders to explore options to strengthen alternative dispute resolution mechanisms through binding arbitration of disputes during contract negotiations; and to consider the merits of a standalone automotive franchising code.
The committee recommends that the Australian Government appoint a senior officer in the Office of the Australian Small Business and Family Enterprise Ombudsman to investigate and coordinate dispute resolution investigations and facilitate mediation and arbitration arising from the transformation of the voluntary best practice principles into mandatory obligations.
The Government notes this recommendation.
Australian Small Business and Family Enterprise Ombudsman's (ASBFEO) key assistance functions enable it to provide assistance to disputing parties, facilitating communication and making recommendations on dispute resolution options. The Government's legislative amendments to the Franchising Code also ensures that ASBFEO can support the resolution of franchising disputes via the mediation and voluntary arbitration processes outlined in the Franchising Code.
The Government provided ASBFEO with an additional $1.5 million in the 2021-22 Budget to support its various functions and help small businesses identify and access support for dispute resolutions.
An independent review of ASBFEO's functions was undertaken on a range of matters including the interaction and effectiveness of ASBFEO's functions, and any new roles acquired since the previous review. The review also looked at any possible legislative and administrative improvements that could assist ASBFEO undertake its functions more effectively. A final report was tabled in Parliament in August 2021.
The committee recommends that the Australian Government undertake a review into effectively enforcing alleged contraventions of the Competition and Consumer Act 2010 as it relates to the regulation of the relationship between car manufacturers and car dealers.
The Government does not support this recommendation.
The Government does not consider it appropriate to undertake a review at this time as it has recently taken significant steps to strengthen the legislative frameworks governing the automotive retailing sector, as discussed in the response to Recommendations 3 to 5.
The Government is also ensuring that the ACCC has the resources and powers it needs to vigorously enforce Australia's competition and consumer law.
The Government provided the ACCC with an additional $116m in the 2021-22 Budget to maintain and enhance the ACCC's capability including its enforcement capability and better protect consumers and small businesses.
That the Senate take note of the document.
I seek to speak to the government's response to the report that's been tabled on the Education and Employment References Committee inquiry into the regulation of the relationship between car manufacturers and car dealers in Australia. It has been some time since our committee undertook that inquiry, but it was a really important one. The government has taken some steps to address some of the issues that we raised. I have to say that Australia doesn't quite feel like itself now that Holden cars and other Australian manufactured cars are disappearing from our roads.
It's been some years now since the car manufacturing industry stopped production in Australia. I still lament the day that happened, and I truly wish that the current government had done more at the time to ensure that Australia continued with a viable car manufacturing industry. However, here we are today with a new landscape, which existed before in terms of vehicle imports and retailers selling those cars. But now that Australian manufacturers have pretty much disappeared, it really brings to light the power dynamics between car dealers and retailers compared to the bargaining power that the manufacturers have over them.
I want to reflect briefly on some of the government responses to our recommendations. We had asked that the ACCC expedite investigations into examining GM Holden and providing public updates on that investigation and similar investigations into the relationship between manufacturers and car dealers into the future. The government has simply noted this, and I think that's acceptable in the context of the ACCC as an independent statutory organisation.
In that context, I want to call on the ACCC to remind them of what has already happened in this space and that consumers can be vulnerable to the fact that they are driving Holden cars, many of which are still under warranty, on Australian roads and that the warranty obligations have now been subcontracted or remain with different dealers. I'm concerned that, because they've no longer got a vested interest in their ongoing business in Australia, it's incredibly important that Australian consumers got what they paid for when they bought a Holden car in recent years.
We also recommended that the ACCC ensure that Holden meets its obligations to Holden vehicle owners in relation to warranties, recalls, technical support and access to parts. I'm very concerned to ensure that that is the case. I know that state and territory regulators in this space—because the ACCC gets many of its powers from the states—are indeed considering to ensure that we're able to strengthen that compliance and enforcement in that area.
The government announced automotive reforms in March of 2021 in relation to manufacturers' agents and new vehicle sales. They took effect back in July. This is in line with what the committee recommended in relation to increased fines, mandatory principles and protection of dealers who were operating as manufacturers' agents. We further made a recommendation in terms of mandatory best practice principles for the reimbursement of all reasonable expenses incurred in relation to warranty and recall work, including expenses associated with the diagnosis administration of claims and claim audits. Again, this points to a significant power imbalance between dealers, car retailers, manufacturers and customers.
In order to meet the consumer law, retailers have to ensure that they're providing a reasonable consumer guarantee. But the manufacturers of those goods who are supposed to meet what is in that guarantee are, in many cases, passing the cost and expense of meeting the failure of their products back onto the dealers who they licensed to sell those vehicles. It needs to be very clear that the consumer guarantee and a failure of a product that's sold are the manufacturer's responsibility. The car manufacturers that license suppliers here need to do a better job. I'm pleased that, in this context, consumer affairs ministers have agreed to look at options to prohibit manufacturers from failing to indemnify suppliers and to prohibit retribution by manufacturers against suppliers who seek indemnification for the work they have had to do.
I was disgusted to learn throughout the course of this inquiry about the extent to which car manufacturers are pushing their liabilities onto dealers. In that context, it's significant that they have been pushing that liability onto dealers because of the power imbalance. This really highlights a need for mandatory, binding arbitration to resolve disputes, which is what the committee recommended. We were very pleased to find that the government has supported this in principle, and I look forward to working with vehicle dealers in the future to ensure that the government makes good progress on this commitment. It is simply unreasonable that the importer has all the power and that small-business, or even large-business, owners can be left completely stranded, having, in good faith, made investments in their dealership yards et cetera to meet their obligations, only to find that the rug has been pulled out from underneath them by a large manufacturer. We saw this happen time and time again in the evidence that was given to us in the course of the inquiry.
I note, lastly, the response of the government to our recommendation in relation to the Small Business and Family Enterprise Ombudsman, and I look forward to following that up with them.
In closing, I want to say, given the short amount of time that is left, that it was not easy for car dealers to come forward to talk to us about the disadvantages they saw, because they felt that, even in giving evidence, they could be punished by these large manufacturers in future contract negotiations. Although we tried very hard to soothe them with the protections of the parliament for giving evidence, they felt very vulnerable in terms of being able to do that. I really want to pay tribute to the brave small businesses that spoke up and worked together to raise their concerns before our committee, and I would encourage this kind of engagement from them in the future.
I want to say thanks to Senator McGrath, as deputy chair of the committee, who is, unfortunately, leaving the committee now and will be replaced by Senator Canavan. I seek leave to continue my remarks later.
Leave granted; debate adjourned.