The Federal Government has announced significant reforms to the Franchising Code of Conduct that will address the current power imbalance between car dealers and their franchised manufacturers.

The new regulations released will take effect as of 1 July 2021, and will offer Australian dealerships greater protection in regards to the investment they undertake and the compensation they are entitled to. Changes to the Franchising Code includes improved disclosure of information and the restriction of franchisors to unilaterally vary agreements.

Minister for Employment, Workforce, Skills, Small and Family Business, Stuart Robert, said Australia’s franchising sector makes a significant contribution to the economy through approximately 90,000 franchisee small and family businesses. The sector currently has over 1,200 brands and is worth $154 billion.

“The Morrison Government is ensuring the Franchising Code keeps pace with changes to business and the sector can contribute to our economic recovery by improving access to information for franchisees and prospective franchisees, a better balance the rights of franchisors and franchisees and improved access to justice through additional, more efficient dispute resolution processes,” said Minister Robert.

The Government has also committed to increasing the available penalty for breaches of the Code, with enabling legislation currently before Parliament.

“These changes come after a difficult 18 months for Australian Dealers which saw Detroit-based General Motors terminate every Holden Dealer without adequate compensation. It is clear that other manufacturers are considering making changes to Dealer networks which is why these reforms are so important,” said James Voortman, Australian Automotive Dealer Association Chief Executive Officer.

“These changes will bring a degree of balance to the relationships between new car dealers and the manufacturers to which they are franchised. The reforms are sensible and fair and will bring all Manufacturers up to the standard they are already being employed by ethically-minded car brands operating in Australia.”

The reforms follow the 2021-22 Budget announcement of $4.3 million for a new Franchise Disclosure Registry which will assist prospective franchisees in making an informed decision before entering a franchise agreement.

A discussion paper to consider further reforms for franchising in the automotive sector will be released shortly.

Further detail of the Franchising Code of Conduct reforms can be found at www.treasury.gov.au

Sources:

Australian Treasury | New protections for small and family businesses in Australia’s franchising sector

AADA | Auto Franchising Good News for Car Dealers 

1 June 2021