FADA Seeks Government Intervention To Protect Automobile Dealerships

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Ford is the fifth large OEM to exit India’s auto market following Harley Davidson and UM Lohia and MAN Trucks, and GM prior to that. This leaves the consumers with no avenues for after-sales services and with a serious plunge in the resale value of their vehicles.

Consequently, this ends in affecting the dealerships that are burdened to step in to save their relationships with their customers. This also includes the innumerable complaints and queries which resulted from nothing but the OEMs’ unilateral decisions.

In India, automobile dealerships are predominantly family-owned or partnership firms that are simply put, small or medium enterprises. Such firms do not have any bargaining power with automobile giants of the world.

Without adequate laws to support and protect such small and medium enterprises, automobile dealerships are facing troubles more than ever now.

On the matter at hand, FADA President Mr. Vinkesh Gulati said, “Many countries in the world recognize the inherent power imbalance between OEMs and dealers within the automobile sector and have enacted legislation to level the playing field. Unfortunately, the existing legal regime in India is inadequate to address these specific concerns of dealers. While OEM-Dealer agreements are governed under the Indian Contract Act, the law does not contain any clear solutions for us.

India should also urgently consider the introduction of an Automobile Dealers Protection Act to make contracts more balanced and equitable. Such legislation should introduce robust contract enforcement and dispute settlement measures by incorporating a special authority with adequate representation from the Government of India, FADA and SIAM.”

This is in light of the Policy Brief issued by FADA on its official website. The Brief outlines the differences in dealings between a dealership and OEM in foreign countries as to that in India. This was done following an in-depth study and analysis of various dealership agreements.

The summary of the comparative analysis is as given here:

  • 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 affects 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 party to consumer complaints even though the liability may lie with the OEM, due to 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.

With this, FADA requests the Indian Government to step in and even the field between global OEM giants and smaller automobile dealers. This move by FADA has come in the wake of Ford exiting the country and leaving the Ford dealers in hot waters.

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