Senate Inquiry Into the Operation and Effectiveness of the Franchising Code of Conduct

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Key Outcomes for Dealership Members

  • This is a rare bipartisan finding, with all sides of politics agreeing with the findings
  • The report calls for:
  • The establishment of a Franchising Taskforce
  • Greater enforcement powers
  • Enforcement penalties
  • Supports changes that better protect dealers through a range of changes to existing regulations and laws and the potential of an automotive code, which is already being progressed by the Industry Department.

  • Key Final Report Recommendation:

    Recommendation 17.1

    17.32 The committee recommends that the Department of the Treasury and the Department of Jobs and Small Business give further consideration to identifying reforms that would support the fair handling of capital intensive stock when franchise agreements between car manufacturers and new car dealers are not renewed, including, but not limited to:

  • manufacturers being required to provide at least 12 months' notice when not renewing a dealer agreement;
  • dealers not being compelled to upgrade the dealership after notice of nonrenewal or termination has been given to the dealer; and
  • in the event of the non-renewal of a lease, mandating that the franchisor buy back at cost price all vehicle parts up to three years old, with the cost of any independent valuation of stock to be split evenly between the franchisor and franchisee.

  • Other Key Recommendations

    Recommendation 4.1

    4.73 The committee recommends that the Australian Competition and Consumer Commission be given power to intervene and prevent the marketing and sales of franchises where a franchisor shows a track record of churning and/or burning.

    Recommendation 6.2

    6.108 The committee recommends that the Australian Government amend the Franchising Code of Conduct to provide that franchisors must provide the information statement set out in Annexure 2 to franchisees as a separate document that is also subject to the disclosure and cooling off provisions, and not as an attachment to the Franchising Code of Conduct.

    Recommendation 6.4

    6.117 The committee recommends that the Australian Government amend the Franchising Code of Conduct to provide that all financial information relating to the franchise business must not be provided to the franchisee separately to the disclosure document (that is, it must be provided in or attached to the disclosure document).

    Recommendation 6.5

    6.118 The committee recommends that the Australian Government amend the Franchising Code of Conduct to require the franchisor to include the following statement in the franchise disclosure document concerning financial statements it provides:

    "To the best of the franchisor's knowledge, the earnings and other financial information provided in this disclosure document are:

    a) Accurate, correct and compliant with the Franchising Code of Conduct and relevant Australian Accounting Standards Board standards at the time of signing;

    b) Except where discrepancies have been identified in writing at the time of signing."

    Recommendation 7.1

    7.52 The committee recommends that the Franchising Taskforce examine how to amend the Franchising Code of Conduct to provide that franchisors are required to include within the disclosure document to franchisees for the two year period prior to the franchisee entering the franchise:

  • where the maximum resale price of each item has been below the cost price of the product purchased by the franchisee including, but not limited to, the cost of the product inclusive of any fees associated with the purchase of the product, royalties, other fees and fixed and variable costs in relation to the purchase and sale of the product have been added; and
  • the margin between the purchase price paid by the franchisee and the maximum price or recommended resale price of the top five by volume of goods and services sold by the franchisee; and
  • if data is not available for that particular franchise, then data for a comparable franchise needs to be provided.

  • Recommendation 7.2

    7.53 The committee recommends that the Franchising Taskforce consider whether the Australian Competition and Consumer Commission should conduct an inquiry into all terms in franchise agreements relating to the discretion of the franchisor to decide the volume and frequency of supply orders for goods and services to be sold in the franchised business to prevent exploitative behaviour around over-ordering.