Level of Disputation in the Motor Vehicle and Motor Retailing Sector Remains High

The Motor Traders’ Association of New South Wales recently surveyed its franchised motor vehicle dealers and franchised motorcycle dealers about the level of disputation between franchisees and franchisors in the motor vehicle and motorcycle retailing sector.

The results of that survey highlight that the level of disputation between franchisees and franchisors in the motor vehicle and motorcycle retailing sector remains high, with fifteen per cent of franchisees surveyed involved in a dispute with their franchisor. The vast majority of those disputes were of a serious nature.

The survey also revealed that over half of the franchisees surveyed had been involved in a dispute with their franchisor in the preceding twelve months and that sixty-three per cent of franchisees had been involved in a dispute with their franchisor in the last five years. Only twenty-five per cent of franchisees who had been involved in a dispute over the past five years reported that the dispute had been resolved.

The survey found that the most common reasons for disputes were:

• the reduction of dealer margins without consultation;
• the transfer of costs to the dealer;
• guarantee of supply of product;
• the provision of a ‘take it or leave it’ agreement;
• the improper use of customer satisfaction indices; and
• insistence by the franchisor that the franchisee operate a sole franchise or provide separate facilities/site for its franchise.

Thirty-four per cent of franchisees surveyed also reported that their franchisor had exercised unfair bargaining power or engaged in exploitive business practices.

MTAA believes that, in light of the survey’s findings, the Franchising Code of Conduct needs to be strengthened to prohibit:

• unilateral variation of franchise agreements;
• the use of ‘take it or leave it’ contracts; and
• the termination of franchise agreements at will without due cause.