NSW car dealers revolt

GM HOLDEN has denied it engages in the practice of “dumping” unwanted stocks of new cars on its dealers in the wake of a move by NSW car dealers to seek Australian Competition and Consumer Commission (ACCC) intervention to stop car manufacturers and distributors from doing so.

“We’re not forcing cars on dealers,” said Holden chairman an managing director Mark Reuss on Friday – two days after the Motor Traders’ Association (MTA) NSW announced its dealers had united to “demand a better deal from manufacturers”.

“Dealers take cars and sell cars to make money and there’s a certain amount of money that goes into financing a floor plan and when the floor plan is filled up the finance company can’t accept more cars because their book’s full.

“We adjust as an industry to meet demand, which is why we cut production so quickly,” he said.

Toyota Australia spokesman Peter Griffin would not comment on the MTA NSW move, saying only that “Toyota continues to work closely with its dealers during this challenging time”.

Similarly, Ford Australia communications manager Sinead McAlary told GoAuto this week that, like Holden, Ford had already reduced production to meet demand.

“We have a really good relationship with our dealers and we’re working closely with them to manage stock levels for both Ford Australia and our dealers,” she said.

“We’ve already taken actions to reduce our line speed so we can manage production according to demand, so we’re not in a position to need to dump stock – unlike potentially some others.” The MTA (NSW) announced on December 3 that it will seek ACCC intervention to make it illegal for Australian vehicle manufacturers and importers/distributors to deliver unordered vehicle stocks to dealers.

An extraordinary 2.5-hour meeting between about 50 NSW dealers and the MTA (NSW) in Sydney the previous evening also passed a unanimous resolution demanding that all capital expenditure be put on hold, while a third resolution calls for the NSW government to pass legislation to halt Sunday trading.

“The MTA will be approaching the federal government to get legislative changes to give car dealers, as franchisees, a greater ability to prevent manufactures/distributors dictating the rules,” said MTA (NSW) CEO James McCall in a statement on Wednesday.

Left: Holden chairman an managing director Mark Reuss and MTA (NSW) CEO James McCall.

“We are encouraged by the recommendations just handed down by the Parliamentary Joint Committee on Corporations and Financial Services that has inquired into the Franchising Code of Conduct, and will seek to build on this positive step.” The MTA (NSW) said that as a result of Tuesday night’s meeting NSW car dealers are now prepared to give the MTA evidence of unfair demands placed on them by manufacturers and distributors.

“For example, dealers have been asked to spend millions of dollars upgrading their premises with no guarantee that their franchise agreement will remain in place until this investment has been recouped,” said Mr McCall.

“In the past, I think it’s fair to say dealers have tended to go their own way, especially in good times, but there is a strong realisation across the state that now is the time to get structural change so that this industry can remain viable until the economy recovers.” Under the group’s first resolution, the MTA (NSW) will write to all Australian vehicle makers and distributors to urge them to suspend any requirements for capital expenditure at any dealerships until December 31, 2009 and to then reassess market conditions at that time.

The second resolution will see the MTA (NSW), which represents about 5000 new- and used-car dealers in the state, write to manufacturers/distributors to express concerns about arrangements that: “Involve franchisees having to accept unwanted stock and/or stock not ordered by that dealer utilising automatic bailment facilities to effect delivery of unordered stock linked to a bonus threaten sanctions under dealership agreements or withholding bonus/discount payments forcing dealers to acquire slow moving/obsolete stock as part of an entitlement to get fast moving/popular stock make reference to the ACCC letter of July 2008 seeking information on this practice, and to take all new information to the regulator.” Mr McCall said that long-standing practices that worked against the interests of dealers must now be addressed, and cited a bulletin from one manufacturer – believed to be Holden – as an example of renewed pressure from manufacturers to sell cars in the current market slump.

As part of the alternative “cash sales” service offered by the manufacturer, dealers must: provide bank guarantees to the value of all vehicles ordered, deposit funds with the manufacturer before transport, and pay an estimated $200 administrative fee. The new deal also stipulates that any orders placed with manufacturers cannot be cancelled.

“This bulletin from this manufacturer just highlights the pressures dealers are coming under,” said Mr McCall. “At a time when they are all under increasing hardship, such demands are totally unacceptable – especially when you consider that some of these dealers have been with this manufacturer for generations.” The federal government on Friday announced the imminent establishment of a $2 billion Special Purpose Vehicle (SPV) trust to provide liquidity to car dealers that have faced difficulty in obtaining floor plan financing as a result of the global credit crisis. As reported, the fund will be established with the support of the Commonwealth, National and Westpac banks.

Asked how many Holden dealers could be forced to close their doors due to the exit of major wholesale vehicle financiers GMAC and GE Money, Mr Reuss said: “The goal is none. I can’t give you a number.

“There is a fairly low percentage of people (dealers) that we’re going to have a problem with.

“People who run a good business generally have done a good job with securing financing and people who haven’t run a good business, in other words the risk profile that was held by GMAC and GE … that risk profile still exists.

“I don’t control those risk profiles of those dealers. They have a risk profile all by themselves as a separate entity.

“All I’m saying is that I don’t have an idea of that until … I think you’ll see an announcement today from the government that helps a lot. So there’s a time effect on that… for me to sit here as the OEM and predict when someone’s independent business is going to fail and why it fails is probably not appropriate.” The Holden boss said his company received prior notice from GMAC, Australia’s oldest finance house and General Motors’ finance arm in the US, that it would cease to operate in Australia from January 1.

“We had a little bit of advance warning in terms of GMAC’s queasiness of floor plans here. I don’t know, it was maybe four months ahead of the public announcement but we’re not sure we want to be … they did a very good job of telling everybody that they were looking at this okay, so it’s something they were having problems with.

“But as soon as GMAC publicly announced they wanted to exit the business, GE, which was very unexpected, announced right over the top they were going to exit as well. So we had sort of a double whammy here and what happens when that happens is that all the banks get nervous because it’s not a high-margin business but it’s a profitable business typically, for both those companies.” Mr Reuss said the age and profitability of Holden’s retail network made it more immune to the global finance squeeze than many of its rivals’, and predicted that some imported brands may not remain in Australia as a result.

“Some of them won’t survive,” he told GoAuto when asked if the credit crisis would affect importers/distributors as well as dealers and suppliers.

“In Holden’s case our dealers were in a lucky position because we’re one of the oldest groups in the nation and we have dealers that are typically second- and third- and fourth-generation.

“They have made a lot of money on our success. They have assets and they can borrow against those assets to get the financing. I can’t say that for the rest of the industry and some of the other brands.”

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