Ford Motor Company of Australia Limited A.B.N. 30 004 116 223
9 November 2020
Mr Alan Raine Committee Secretary Senate Education and Employment References Committee Parliament House CANBERRA ACT 2600
Submission: Senate Committee Inquiry into GMH’s Operations (expanded Terms of Reference, 7 October 2020) We welcome the chance to contribute to the Senate Education and Employment References Committee Inquiry into General Motors Holden Operations in Australia and its recent extension to consider the relationship between car manufacturers and car dealerships in Australia. Ford Australia is a subsidiary of Ford Motor Company, founded in Geelong, Victoria, in 1925. The company designs, engineers, and imports cars, SUVs and trucks. Australia is a key product development hub for Ford, with the company investing more than $1.9 billion in R&D in Australia between 2016-19 and a further $500 million in investment planned for 2020. Ford is Australia’s largest automotive employer, with over 2,500 engineers, designers, technical, automotive and other specialists working at four locations across Victoria. Australia-based engineers and designers lead the development of award-winning vehicles sold around the world, such as the Ford Ranger pickup and Everest SUV. With Australia’s new motor vehicle industry one of the most competitive in the world, a significant part of Ford Australia’s success is the strong, positive and respectful relationship we have developed with the Ford Australia dealer network. This is a timely inquiry for our industry. We believe Australia has struck the right balance with a regulatory framework for car manufacturers and dealers that sets out clear and appropriate checks and balances that support fair and sustainable relationships. We worked with the Federal Government as a member of the Federal Chamber of Automotive Industries (FCAI) on changes to the Franchise Code of Conduct, which were introduced in June 2020. We believe it is critical to assess the effectiveness of these changes, together with any outstanding issues, before looking at further reforms.
Ford Australia has built, and fostered, constructive relationships with our dealers Ford Australia’s dealer network is our crucial and respected partner through which we connect with Australians who purchase our vehicles. They are a high-performing and successful dealer network and essential to our company’s performance. As a result, the nature of how we form relationships, engage, communicate, and solve issues has, and continues to be, critical. Across the Ford Australia dealer network:
• 90 per cent of Ford dealership owners, or 159 dealers, operate a dealership of more than one brand (multi-franchise operations). Ninety-one per cent of Ford dealership owners in metro areas and 89 per cent in rural areas are multi-franchise. • Within this number, 65 dealerships are part of dealership groups with 17 dealerships owned by public companies. • Only 18 Ford dealers are standalone Ford franchise only dealers. Five of these operate in metro areas and 13 in rural areas. From our oldest dealer relationships, which are 95 years and counting, to our newest relationships, which were signed in October 2020, we aim to develop strong and respectful relationships from the beginning with clear and open lines of communication to support the success of ongoing operations.
Level 1, 600 Victoria Street Richmond, Victoria, 3121 ford.com.au 1
Ford Motor Company of Australia Limited A.B.N. 30 004 116 223
At the core of our relationship with our dealership network, is established mechanisms to keep communication lines open From the very beginning of a relationship with prospective dealers, we have mechanisms in place to underpin the way we work together and support a company-dealer relationship that is open and responsive to feedback. The National Dealer Council (‘NDC’) brings together a representative selection of thirteen dealers from metro, regional and rural dealerships (plus the Ford Dealer Advertising Fund Chairman) to provide feedback to Ford Australia on proposed actions and policies that impact them. Ford Australia meets with the NDC three times per year. We recently met in October 2020. Additionally, Ford Australia meets regularly with the National Parts Managers’ Association, the National Service Managers’ Association and the Ford Dealer Advertising Fund to provide feedback on proposed actions by Ford Australia. Further, conversations are regularly had, and feedback sought, through dedicated dealer-facing staff that exist to support dealers in their operations, and regional business meetings. These forums are important to us. They allow us to understand how our dealers are operating, issues they are experiencing, and opportunities to collaborate and effect change. Some examples include:
• The NDC raised concerns about the impact of COVID-19 on dealer profitability and cashflow. As a result, Ford Australia, implemented several measures including increasing the frequency of payments to improve the cashflow of dealers.
• Ford Australia is currently pursuing a facility upgrade program of its dealer network, but due to the impact of COVID-19, we’ve deferred the requirement for many dealers to undertake those facility upgrade works during 2020 in recognition of the difficult trading conditions. We will be having discussions shortly with dealers on commencing this investment in 2021.
We recognise the importance of starting the relationship well with informed and balanced discussions We are aware of suggestions outlined in the ACCC’s Market Study into the New Car Retailing Industry – “Balance of power between manufacturers and dealers” that dealers may be concerned about entering into, or renewing dealer agreements, because the agreements are one-sided in nature and lack an opportunity to negotiate. This is not our experience. Ford Australia has worked hand in hand with dealers through the NDC to create a balanced standard Ford Australia Dealer Agreement, which complies with the Franchising Code of Conduct. This agreement is reviewed and updated in consultation with the NDC.
We have the balance right between companies and dealers We believe Australia has the right regulatory balance in place that empowers and supports relationships between car manufacturers and their dealers. There are several areas we wanted to draw the Committee’s attention to that align with the expanded Terms of Reference. Tenure We know the importance of certainty for any business large or small. Our initial term for new Ford dealers is a two-year period, which allows both parties to assess whether the relationship is a right fit. We believe this is adequate for new dealers, who are typically experienced automotive dealers, to carefully consider the opportunity.
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Ford Motor Company of Australia Limited A.B.N. 30 004 116 223
The standard term is five years although it may be less where a dealer has not met the performance metrics during the prior term. Amongst our current network, 93 per cent of dealers are operating on a five-year term or more. We would not support any increase to the minimum tenure driven as a result of the need for dealers to obtain a return on capital investment. Any extension would restrict Ford Australia’s ability to manage underperforming dealers within our dealer network. A strong performing dealer network is essential. It allows us to strengthen the Ford brand and create new and loyal customers, which benefits all our dealers. It also allows us to achieve an acceptable return on the significant investment we make in the Australian market. Investment To remain competitive, Ford Australia must upgrade our facilities, information technology and service workshop equipment from time-to-time to meet the expectation of our customers, and evolving market conditions. We acknowledge these investments are often one of the more significant investments we ask dealers to undertake, however, this work ensures we remain competitive in Australia; strengthening the Ford brand. Ford Australia has an investment cycle plan that has been communicated to all dealers, and is a core element of discussions with new dealers. This plan outlines that facilities will not be required to be upgraded more frequently than every seven to ten years. As a result of COVID-19, we have delayed the agreed capital expenditure on facilities planned for 2020 for dealers. A number of dealers undertook this work at their discretion. We clearly outline, and discuss, any planned expenditure required with proposed dealers before an agreement is signed. The outcomes are then outlined in the dealer agreement. As a result, dealers have all the information they need to make an informed choice to enter an arrangement or not if they should choose. Furthermore, we work closely with dealers on various aspects of any facilities upgrade, including:
• Ford contributing financially to the cost of the upgrade; • Looking for ways to create efficiencies and reduce costs to the dealer, for example, ensuring suppliers and offerings are competitive; and • Offering a five-year extension to the dealer agreement for many dealers who agreed to undertake facility upgrades under Ford Australia’s latest facility upgrade program. We do not believe further regulation is necessary as dealers are currently able to make an informed choice with clear and comprehensive information available on which to sign an agreement. Termination and Compensation It is in our interest to strive for dealer continuity. It is good for our customers, it is good for our dealers and it is good for the Ford brand. We rarely terminate a dealer agreement. We do have the ability to terminate a dealer under certain defined circumstances including fraud, significant breach of the dealer agreement, and insolvency, however, that right can only be exercised within the existing legislative and regulatory framework that protects dealers from wrongful termination. When it comes to matters of ongoing and substantial underperformance, we would only terminate or non-renew a dealer agreement once we have exhausted all other options as outlined in the process below:
• We provide the dealer with notice of their underperformance and provide them with support and assist them in putting improvements in place. • Ford Australia will continue to monitor performance and after a sustained period, if the dealer fails to adequately improve its performance, Ford Australia provides substantial and
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Ford Motor Company of Australia Limited A.B.N. 30 004 116 223
reasonable period of notice that the dealer’s agreement will not be renewed or will be terminated. • Ford Australia will then work with the dealer to achieve a sale of the dealership business and, if requested by the outgoing dealer, Ford Australia will introduce interested parties to the dealer for this purpose. This action would be exercised within the existing legislative and regulatory framework that protects dealers from wrongful termination. Where a dealer agreement is terminated, or ultimately not renewed and therefore expires, Ford Australia would purchase vehicles, parts and special service tools back from the dealer as outlined in the dealer agreement.
The Federal Government has strengthened the playing field; we must assess the impact before introducing new measures into the mix We are committed to a strong playing field for dealers and companies like ours and believe this submission demonstrates the balance and respect that exists in the current environment between Ford Australia and our dealer network. We appreciate that governments work hard to identify, understand and quantify a problem before introducing measures to solve it. From June 2020, the Federal Government introduced measures to provide greater security for car dealers, which we have implemented, where they weren’t already part of our standard practice. These changes must be given a reasonable opportunity to deliver before further changes are introduced. We thank you for the Committee’s consideration of this submission.
Yours faithfully,
Mr Andrew Birkic President & CEO, Ford Motor Company of Australia Limited
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