The Department of Trade and Industry has not yet responded to the RMI’s call to exempt the automotive sector from certain Competition Act provisions - much to the frustration of the body’s chief executive, Jeff Osborne.

The Department of Trade and Industry has not yet responded to the RMI’s call to exempt the automotive sector from certain Competition Act provisions - much to the frustration of the body’s chief executive, Jeff Osborne.

In theory, if Trade and Industry Minister Alec Erwin approved the request, and the competition authorities cleared it, then dealers and fuel retailers could win better compensation in the event of their franchise agreements being terminated, reported.

CARtoday.com reported in November last year that the RMI had called on government to offer vehicle dealers protection from possible abuse by manufacturers. Erwin was asked to declare the motor industry a "designate" under the Competition Act because it believed “vehicle suppliers were dictating the power relationship between themselves and the dealers”.

The RMI said the move was to provide dealers with the same protection seen in the European Union (EU). The EU, according to the RMI, “now provides dealers with a bigger say on issues such as trading areas, brand exclusivity and services”.

In a memo to the minister, the RMI said motor dealers “were mostly small or medium sized businesses” and that the franchise agreements with manufacturers “reflected this power imbalance”. The restrictions placed on dealers in the agreements subjected the dealers to "financial hardship" and often led to a greater number of insolvencies, the RMI claimed.

Osborne said at the weekend that although the application was made months ago, he was still awaiting a decision from Erwin's department.

"We are unhappy at the lack of response from government," Osborne said. "The manufacturers have the right to unilaterally terminate the agreements on notice periods, which vary from between 30 to 180 days such termination may take place without any cause.

"The dealer has no claim for damages against the manufacturer, and no compensation whatsoever is required to be paid for the loss of a dealer's business," he added.

However, the Competition Commission said in December that it was opposed to the RMI's application. Chief commission economist Geoff Parr said at the time that for the industry to be designated as being exempt from provisions of the Competition Act it would need to be shown that its economic stability was being threatened.

"In fact, the industry is performing rather well at the manufacturing level, with exports rising fast," he said. "It is in the interest of each manufacturer to choose the most effective distribution model for its products in order to compete with other manufacturers.

He said that it was not for the competition authorities to question the tactics of firms at every step.

"It is difficult to see how an intervention by the competition authorities could prevent a manufacturer from exercising complete control over the supply chain for its products," Parr argued.

According to Parr, the Competition Commission was likely to intervene if manufacturers imposed restrictions on their distributors in markets where the manufacturers' share was greater than 30 per cent and the competition effects were outweighed by the anticompetitive effects of the restrictions.

The commission would also be concerned where several manufacturers applied restrictive practices and where these had a cumulative effect on the relevant market.