FADA proposes Auto Dealers Protection Act

This comes in the wake of recent exits by multinationals like Ford, GM and Harley-Davidson.

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 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 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.