MARKET WATCH: Mercedes-Benz gears up over agency model

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Mercedes-Benz gears up over agency model

 

The best-laid plans of mice and men – and now potentially Mercedes-Benz Australia (Mercedes-Benz) – often go awry. The car importer and wholesaler was aiming to shift its dealers into agents on 1 January but legal action launched in response looks likely to stall plans moving forward.

 

The agency model

Mercedes-Benz currently operates as a franchise but the company first raised the concept of introducing an agency model three years ago on the basis that it believed it provides better price transparency, and more choice and availability for customers.

Essentially, if running under an agency model, Mercedes-Benz would maintain ownership of its stock rather than the existing wholesaling arrangement with dealers. Dealers would become agents who will be paid a fixed sum for each sale. There would also be a fixed pricing model in place for customers. Mercedes-Benz already uses the agency model in South Africa, Sweden, and Austria.

In 2020, Mercedes-Benz officially announced that it would move to an agency sales model in Australia. Dealers were requested to agree to the agency sales model by the end of August, 2021. Mercedes-Benz said that any dealers who failed to sign documentation during this date would no longer represent the brand in Australia.

Why are dealers not willing to test drive the agency model?

Since first floating the idea, Mercedes-Benz says that it has consulted with dealers on what an agency model may look like for the company.

Whilst all dealers in the network have apparently signed the paperwork, they claim that it was under duress – the option was to sign or to walk away from years of hard work and investment in the business. James Voortman, CEO, Australian Automotive Dealers Association, has said that “It essentially means that an OEM [Original Equipment Manufacturer] can acquire the goodwill in a Dealership for no cost whatsoever.”

Many are unhappy with conditions in the agreements they have signed including that the fact that the commission paid per sale is dependent on meeting various targets, despite the fact that many factors previously under the control of the dealer will now sit with Mercedes-Benz. The four-year agreements also have no renewal clause.

Dealers shift into legal action

Dealers have raced to launch legal action, commencing a $650 million compensation case in the Federal Court. The dealers, over 80 per cent of whom are involved in the action, allege that Mercedes-Benz has breached its good faith obligations under the Franchising Code of Conduct.

In a hearing on 11 November, 2021, it was agreed that the issue required urgent resolution. As such, the first hearing dates have been fast tracked and will now start in February, 2022, with a trial date scheduled for August.

What are the implications for Mercedes-Benz of a fast-tracked case?

Given the timing of the introduction of the agency model and the first hearing date, as well as the fact that the majority of the brand’s franchise dealers are engaging in legal action against it, any implementation of the agency model may very well need to be delayed. It certainly seems likely that the dealers and their legal team will push for a delay to the implementation, until a decision has been reached through the Court.

The outcome of this dispute will have wider implications for franchises Australia wide, not just those in the automotive industry, as it will test both the revamped Franchising Code and Australian Consumer Law. Should Mercedes-Benz win, it may set a precedent for other franchisors to garner the goodwill generated by franchisees, without compensating them for the time and effort involved in building up the business.

As stated by Mr Voortman, “The world is watching, and many see this as a landmark case for the industry not only in Australia, but at a global level.”

For more information on the implications of this case, or to learn more about the franchising and agency sales models, please contact the expert franchising team at Baybridge Lawyers.

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