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EC threatens to use legislation to force manufacturers to work to code of conduct

The European Commission has announced that it intends to initiate a "legally binding solution", which could take the form of a new sector-specific regulation, to improve relations between franchised dealers and manufacturers, unless an acceptable industry code of good conduct can be agreed between the two parties.

The warning comes after what has been referred to as 18 months of reluctance and resistance from manufacturers and its European trade body ACEA - despite consistent lobbying on the part of dealer representative bodies such as the UK's National Franchised Dealers Association, ECD (European Car Dealers - a division of CECRA*) and support from the European Parliament.

NFDA director Sue Robinson said: "The significant degree of unfairness experienced by dealers at the hands of manufacturers - ranging from arbitrary terminations to onerous standards - was highlighted in two European Commission consultations in 2011 and 2013 and as part of the NFDA market study conducted in 2012, which polled approximately 1,000 dealerships in the UK."

As a complement to its work on unfair practices, around 12 months ago the NFDA drafted and, in conjunction with ECD, presented a series of proposals for an industry code of conduct to the relevant department within the Commission (DG Enterprise) as part of the ongoing CARS2020 project.

In particular, the ECD and CECRA are asking for:

• the freedom to transfer the sales contract to a member of the authorised network
• the freedom to sell different brands at one site (multi-branding)
• the compensation of investments after termination of sales contract by the manufacturer which was not caused by dealer.

The commission encouraged manufacturers to consider these proposals.

Robinson said: "This is an important first step in bridging the harmful gaps left by the removal of the sector-specific block exemption."

The commission's commitment to a achieving a binding solution is set out in a final report of the relevant CARS2020 Sherpa Group, which describes key strategic objectives for the sector.

The report will be published and should form a basis for measures designed to improve the balance in dealer/manufacturer relations.
"We still have a long way to go, but this is a good sign.

"The clear message from the EU is that manufacturer intransigence is not an option.

"The NFDA is continuing to lobby on key fronts and, thanks to our members' support and that of our colleagues in Europe, a solution designed to support more predictable, clearer and equitable arrangements for dealers is very much becoming a question of "when" not "if".

"However, we need to keep this momentum going, particularly in view of the impending European Parliamentary elections. We have already written to all UK MEP candidates to brief them and enlist their support (which we intend to follow up in meetings with them post-election where possible).

"When markets are more buoyant, as they are now, the issue of unfairness in dealer/manufacturer relations may appear less acute.

"However, the outcome of this initiative should, as well as helping dealers grow in better times, support more predictable and transparent relationships when markets become more challenging."

The European Parliament’s report, drafted by MEP Franck Proust, made it clear that better relations between dealers and manufacturers could be achieved through “the introduction of a code of conduct” which “should at least include clauses relating to dealer relocation, multi-branding and compensation entitlement for unjustified termination of the contract by the manufacturer.

However, despite numerous discussions and the strong support of various stakeholders, this ‘soft-law’ approach has not been successful.

Therefore, the final report discussed by the CARS2020 Sherpa Group highlights the necessity of finding a legally-binding solution in case no consensus is reached on a voluntary code of conduct.

The current wording of the report stipulates that, if no voluntary solution is found, “the Commission intends to initiate a legislative procedure aimed at the development of a legal framework, which will regulate relations between different actors of the automotive sector”.

* The European Council for Motor Trades and Repairs

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  • Guy Ainsley - 20/05/2014 07:27

    Over the past twenty years, dealer trade associations and other lobby groups have been consistently out-manoeuvred and out-politiced by manufacturers and this will continue. There are manifest biases in the franchise system framework. Aside from buyer strength, there is no valid reason why a seller cannot sell their business to another buyer in already in the network. There is also a shortfall in the protection given to dealer on the cost of investments made in meeting franchise standards. Work needs to be done to moderate the pettiness of “standards” and their abuse at a local level. However, the proof is in the pudding. In general, manufacturers with the highest expectations and control of their franchise networks have the best absolute and relative returns over the business cycle.