“Levelling the playing field”: New ombudsman backs bigger fines for large automotive companies breaching the franchise code at the expense of small business

The Morrison government has proposed changes to the franchising code to address the power imbalance between multinational car corporations and family-owned automotive businesses.

The reforms would increase penalties for multi-national car companies that breach the Franchising Code of Conduct from $66,000 to $10 million.

Such breaches would include changing contracts, poor compensation and breaking promises made under warranties.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Bruce Billson has welcomed the changes.

In his first official media statement since starting the role last week, Billson said he supported the suite of reforms, which seek to “mitigate the power imbalance between multinational car manufacturers and Australian dealers”.

“These proposed changes represent significant progress and once passed, will go a long way to levelling the playing field in the automotive franchising sector,” Billson said.

Billson said higher penalties for serious breaches of the franchising code will act as “a big stick”, forcing the larger players to “think twice” before acting unfairly towards franchisees.

“I continue to encourage franchisees who believe they have been unfairly treated by a franchisor or are engaged in a franchise dispute to contact my office for assistance,” he said.

Billson’s support for franchisees as small business ombudsman comes after much anticipation of how he would approach the sector.

Between 2016 and 2018, Billson was the executive chair of the Franchise Council of Australia, which was later criticised for not effectively representing the interests of franchisees.

The reforms would make the existing voluntary automotive principles mandatory, to address the industry’s concerns that multi-national manufacturers will not follow the principles if they are not binding.

The amendments would also recognise that dealers operating as a manufacturer’s agent are still protected by the Franchising Code when selling new vehicles, to keep pace with emerging industry practices.

The government will also consider establishing a new mandatory automotive code that includes measures to ensure automotive dealerships are protected from unfair contract terms in their agreements with manufacturers.

An industry-specific code could include mandatory binding arbitration for automotive franchisees, similar to those in the recently legislated Media Bargaining Code.

Billson supports the government’s interest in exploring arbitration measures to provide small businesses with access to binding and right-sized dispute resolution pathways, which he says will be less costly and faster than going through the court system.

Announcing the proposed reforms on Friday, Prime Minister Scott Morrison said if the government can stand up to big tech companies, it can also stand up to multi-national car companies who are “riding roughshod over many family-owned Australia car dealers”.

“Car sales are surging and it’s further proof that the Australian economy is on the comeback.

“We need to ensure Australian family-owned automotive businesses continue to reap the rewards of this growth and the support from our supercharged instant asset write-off,” Morrison said.