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Principles for new car dealership agreements

The Australian Government announced a suite of reforms to the automotive industry. The reforms transform the existing voluntary principles into mandatory obligations under the Franchising Code of Conduct. This guidance has been developed in consultation with industry to improve fairness and transparency in dealership arrangements. 

Principle 1

Franchisors should include provisions in new dealership agreements that provide for fair and reasonable compensation for franchisees in the event of early termination resulting from:

  • withdrawal from the Australian market
  • rationalisation of their networks
  • changes to their distribution models

Principle 2

Franchisors should not include provisions that exclude compensation in new dealership agreements.

Principle 3

The ‘fair and reasonable compensation’ as referred to in Principle 1 should include appropriate allowances for the loss a franchisee may incur, which can include:

  • lost profit from direct and indirect revenue
  • unrecovered expenditure and unamortised capital expenditure where requested by the franchisor
  • loss of opportunity in selling established goodwill
  • wind up costs

Principle 4

When an agreement is entered into it should provide franchisees a fair and reasonable time to secure a return on investments that have been required by franchisors as part of the agreement.

Principle 5

Agreements should include reasonable provisions for franchisors to compensate or buy back new vehicle inventory, parts and special tools, in the event of:

  • non-renewal
  • withdrawal from the Australian market
  • rationalisation of their networks
  • or changes to their distribution models

Principle 6

Agreements should include provision for timely commercial settlement and dispute resolution. 

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Last updated: 14 April 2021

Content ID: 68399