[TusharK]

The Federation of Automobile Dealers Associations (FADA) has released a policy brief to introduce the Auto Dealers Protection Act in India.



In the recent past, we have seen numerous OEMs exit the Indian market. It is said to adversely impact the dealers and also the interest of consumers.

Dealers in India are predominantly small and medium enterprises (SMEs) which are either family-owned businesses or partnerships firms and have significantly lower bargaining power in comparison to the OEMs.

Therefore, in the interest of dealerships, FADA has proposed the Auto Dealers Protection Act. The summary of the Policy Brief is as follows:

• Dealership agreements in India do not have a standardized term with certain agreements having tenures as low as 1 year. It takes anywhere between 3-5 years for a dealership business to break even. The short term of the agreement is detrimental to the dealers as they do not give adequate opportunity to the dealers to recover the heavy investments made by them.
• Indian dealer agreements also tend to have vague and broad grounds of termination that provide greater flexibility to OEMs, in comparison to dealers. This adversely impacts Dealers’ ability to negotiate during OEM exits, causes employment losses, and also affect consumers who are left with no recourse with respect to after-sales services.
• The absence of repurchase obligations under the Indian dealer agreement, which would mandate OEMs to buy back leftover stock including vehicles, spare parts etc. in cases of termination, leads to added costs on the Dealers.
• OEMs are free to open multiple dealerships in the same territory without giving any rationale to the existing dealers. This makes planning difficult and significantly affects the dealer’s ability to recoup their investments.
• Dealers are often made a party to consumer complaints even though the liability may lie with the OEM, due to a lack of clarity in indemnity provisions.
• Dealers are not afforded the required flexibility in taking business decisions and they also have little to no role in deciding stock projections and targets in a particular financial year. There is very little consultation between the OEM and Dealer in this regard, and Dealers are often forced to accept the stock orders that the OEMs push them on to.
• Dealers are also often forced with procurement and selling of accessories (such as spare parts, aesthetic additions, music systems etc.) consumables (including lubricants, paints etc.), loans and insurance from the OEMs themselves or from a shortlist of approved vendors. This leads to an increase in dealer costs, the burden of which is eventually passed on to the consumers.

Link to Team-BHP News

[shashi792]

This is a good move. OEMs should start to own responsibilities on customer complaints. We also have heard about the break-in period. I kind of like the Mercedes Retail Model.

[abhishek46]

The exit of Ford (& GM previously) has definitely left a scar on the Dealership fraternity as a whole. Their pain points are understandable.

However, what the FADA is proposing is not easy to implement.

Different OEMs have different type of agreements with their respective dealers.

There is no possibility of even a single OEM agreeing to these 'standardized' agreement terms, which puts them at a disadvantage.

[Dry Ice]

Originally Posted by TusharK

[*]The absence of repurchase obligations under the Indian dealer agreement, which would mandate OEMs to buy back leftover stock including vehicles, spare parts etc. in cases of termination, leads to added costs on the Dealers.

Be the change you want to see?

How many dealers take back repaired/test drive cars sold instead of brand new cars to unsuspecting customers?

The same avenues are available to them as the customers. What’s stopping them from going to the courts for this matter if they feel wronged?

[frewper]

Originally Posted by Dry Ice

Be the change you want to see?

How many dealers take back repaired/test drive cars sold instead of brand new cars to unsuspecting customers?

The same avenues are available to them as the customers. What’s stopping them from going to the courts for this matter if they feel wronged?

So true.

This is just some heavy handed lobbying by the dealership mafia. How come there are no lemon laws yet given the number of cases that keep cropping up. Customers even have to pay for high markups on insurance payments are dealers force the customers to pay them.

Do the OEMs have to pay for the bad business decisions of the dealership as well?

And when the OEM after 10 years of trying decides to leave will be held accountable to serve the Dealer? What about the customer? The only party that the OEM should be accountable for is the customer. I am pretty sure the OEM can utilize the funds better to serve the existing customer than the dealership.

[GTO]

No way will I ever support any kind of "dealer protection" act. See what it did in the USA. Protected car dealerships became sort of cartels, destroyed the new car buying experience and OEMs cannot get rid of even the worst offenders.

Let the free market dictate the norms. If a dealer is really good at numbers + customer service, every OEM will be happy to work with him / her.

With respect to dealers left in the lurch by Ford & GM, yes, that is sad. But it is a business risk just like in any other industry. You consciously took a Chevrolet dealership after (hopefully) evaluating the pros & cons. No one held a gun to your head. If you don't have an appetite for risk, you shouldn't be in the notoriously intensive dealership business at all.

[landcruiser123]

Originally Posted by GTO

No way will I ever support any kind of "dealer protection" act.

Seconded.

The only thing I support is a law not restricting the dealer to one OEM. This should open enough avenues for dealerships to sell multiple brands under one roof. That way, a dealer from a weaker brand can club multiple brands in a single piece of land. (Wouldn't be too concerned about ASS as weaker brands sell very less cars)

Commonplace in the USA, pipe dream in India.

[Dhillon]

The only point I support in this is the "agreement tenure." 1 year is way to less specially for car dealerships. 3 Years should be the norm with strict and clear T&C from the OEM side on what is expected out of the dealer.
Also, I am surprised that the FADA is talking about employment loss and nothing about protecting the dealer employee's interest in case of job loss due to OEM's exit.

[gopalnt]

Can we also have a separate Customer Protection Act against the dealers? An OEM, as long as they are in business, do act by their agreements with the dealers. Are dealers acting in good faith with customer? They try to be creative in running over customers with their cheating ways. An OEM never does that to their dealers. In fact, they even support dealers when customers complain about dealers. I have no sympathy for them at all.

[harry10]

Dealers obviously incur losses if Manufacture exists the market. However many things in this proposal I don't see happening due to various reasons.

Will it be safe to say anyone thinking of opening a new car dealership should only look at home manufacturers like Tata and Mahindra or market leader Maruti. Even Hyundai/Kia are unlikely to quit Indian market. Rest all we never know.

Nissan/Renault were next in line who I thought might quit the market but their recent launches have given them space to breathe. This was the issue with GM and Ford. No new launches means no sustainable sales, no sales means no service which is the actual money maker for a dealer, so manufacturer and dealer both stay in loss and eventually pack there bags. Toyota has smartly partnered with Maruti so they are in for the long game. VW group have finally understood this and finally introduced Kushaq,Taigun and now Slavia is coming.

Also, more than dealers it's the employees who I feel gets the raw deal. As my wife is in this line I know about most dealerships in NCR. Most are owned by big business groups who have other primary aveneues to make money and this is just a side business for them. So, even when they wrap up they aren't left feeding for themselves. An employee doesn't have this luxury. I know a few people who are still looking for a job once ford showroom here closed out.

[WorkingGuru]

Dealer agreements are often very one sided. The actual on-ground leverage that a dealer has is its capability & willingness to invest & operate a reliable service center. Reliable for the car company to maintain brand image while being a good revenue generator in service, all while being somewhat reliable for the customer.

The one sided agreement leaves dealers in the lurch when brands like Ford advertise that they're coming with new offerings & suddenly pull out of the country. So any Protection Act should ONLY be to protect the relationship between dealer & parent company.

[SideView]

Before any Dealer protection laws are in place I would like to see customer protection laws.

That is the real need of the hour.

[das.sui]

Originally Posted by TusharK

Therefore, in the interest of dealerships, FADA has proposed the Auto Dealers Protection Act. The summary of the Policy Brief is as follows:

Seriously not a single point on the employees of dealers or maybe am I miss something. IMHO they are the worst affected when an OEM exits. OEM/Dealers need to invest in their marketing and service engineers if they are in the long game. Look at Maruti's service engineers and sales experience. More often than not it gets it right.

Also dealers over the years have a gotten a bad reputation because of their own actions. High time some of them do an introspection first.

[Accelerati]

Originally Posted by GTO

No way will I ever support any kind of "dealer protection" act. See what it did in the USA. Protected car dealerships became sort of cartels, destroyed the new car buying experience and OEMs cannot get rid of even the worst offenders.

Let the free market dictate the norms. If a dealer is really good at numbers + customer service, every OEM will be happy to work with him / her.

With respect to dealers left in the lurch by Ford & GM, yes, that is sad. But it is a business risk just like in any other industry. You consciously took a Chevrolet dealership after (hopefully) evaluating the pros & cons. No one held a gun to your head. If you don't have an appetite for risk, you shouldn't be in the notoriously intensive dealership business at all.

I defer to your point here. Though it is true that dealers who committed to Ford and GM did it on their own risk and hence they should be ready to burn their hands.

1. Imagine yourself establishing a dealership for an established OEM in a tier 3 city. Your investment including the cost of the land would hover around 800 Million Rs.

2. You are the second dealer in the city now and you hope to break even in the coming four years considering a growth of 10 % in annual total industry volume and hoping to get 50 % of the already existing market from your co dealer.

3. At the end of the third year :

- OEM floats a third dealer in the market
- OEM pushes you to start outlets in potentially unviable markets increasing your capex cost
- OEM suddenly cites no major reason and gives you a notice to discontinue operations
- OEM revises the agreement unilateraly and says the duration of the agreement in future would be only for 1 year.

Sadly all the above case scenarios of point three are happening very regularly. Just to attain a single percent market share over the other OEMs, new dealerships are opened very often. And the viability of the existing dealers is not considered.

How many times have we seen a new showroom in a rural area and wondered if it is actually breaking even? Most of them are actually not. I would really suggest to check the profitability of four wheeler dealerships of established brands. It is no more a profitable venture as it used to be earlier. And it is becoming increasingly treacherous due to the race for higher market share by OEMs.

We as customers blame the dealers many times for their mischiefs. But overlook the heavy handedness of the OEMs which push the dealers to a situation where they need to squeeze every penny out of the customers or else they themselves would perish.

I am not an advocate for complete protection of dealerships. We don't want PSUs here. But a balance of power is the need of the hour.

Also talking about free markets. Free markets always exist. But do rational markets exist is a bigger question. The outer appearance for a dealership business is that a dealer makes a lot of money, however the truth is that

- The dealer is completely dependent on the OEM
- The OEMs have a very dominating position in controlling the fixed costs of dealership such as working capital and manpower
- Every dealership business is a unique case study for the particular city / market / brand and most importantly investments both first time and recurring. All these make or break a dealership.

[Electromotive]

The road to hell is paved with good intentions.

As GTO and others have voiced, any protection provided will ultimately lead to exploitation of such protection measures. Even unions started as protection against labor exploitation and mutated into bastions of nepotism, incompetence and low productivity.

If a business person/team is not competent enough to judge the ramifications of the contract they are getting into they deserve to lose money.