The National Automotive Dealers’ Association has called for a meeting with trade and industry minister Alec Erwin to try to force manufacturers to make their franchise agreements fairer.

The National Automotive Dealers’ Association (Nada) has called for a meeting with trade and industry minister Alec Erwin to try to force manufacturers to make their franchise agreements fairer.

Nada chairman Ray Nethercott said yesterday that South African dealers got a far worse deal from manufacturers than their overseas counterparts, who were protected by legislation.

Nada’s complaints follow a move by DaimlerChrysler SA (DCSA) towards vertical integration and BMW’s limiting of the market share of any individual dealership to 10 per cent.

These decisions, taken last year, led to the sale of dealerships, termination of franchise agreements and the imposition of new terms and conditions.

Lionel October, the acting deputy director-general in charge of industry and enterprise development at the department of trade and industry, said his department “would be willing to meet with all parties in the motor industry chain”.

As CARtoday.com reported last year, the Retail Motor Industry organisation (a representative body for automotive dealers in South Africa, to which Nada is affiliated) is unhappy that manufacturers are able to cancel franchise agreements on 90 days’ notice without being required to pay compensation for specialised tooling, signage and other investments.

What Nada wants is for producers to have to give at least two years’ notice and fully compensate dealers for investments made, reported.

Nethercott said manufacturers’ strategies sometimes demanded that agreements be cancelled but it was important for ousted dealers to be treated more fairly.

Taking the cue from European legislation

According to new European Union rules, manufacturers have to give written reasons before ending agreements. Dealers are to be given notice periods of two years by manufacturers, which are required to compensate dealers that lose franchises.

Speaking at the CAR Conference at the Auto Africa motor show in October last year, Nethercott said the Block Exemption rules, which gave European dealers more security and independence in terms of their franchise agreements, would largely dictate thinking and changes in the motor industry in South Africa.

Nethercott said at the time that a quality relationship was needed between dealers and manufacturers. He said the situation where dealers could be given 30, 60 or 90 days’ notice was not acceptable. “You may have invested a huge amount in your dealership and tomorrow you could lose it,” he said.

Moira Moses, managing director of the Premier Automotive Group, agreed the agreements were not fair. “The notice period for termination clause in particular is unfair,” she said. But she felt that some dealers were not making changes. “Dealers are still very male-biased and women are finding this in the reception they receive. Dealers must address this,” she said.

Nethercott said the current situation was not acceptable and the dealers and manufacturers should work together to solve the problems and cut costs. But, he added, Nada would look at legal routes if it was necessary.

DaimlerChrysler, BMW respond

DCSA spokesperson Deon Ebersohn told this week that his company’s new dealership strategy took dealer concerns into account and was satisfied it had “full buy-in” from dealers.

BMW spokesperson Richard Carter said that except in cases where dealers were in “material breach” of their franchise agreement terms, an agreement was cancelled after “considerable consultation” and full compensation.

McCarthy counts the costs

McCarthy Motor Holdings was one of the firms affected by the BMW and DCSA decisions, but chairman Brand Pretorius said the firm had “regrouped and the relationships were back to normal”.

McCarthy has estimated the dealership reshuffles would cut its annual profit from DaimlerChrysler business by R10 million and from BMW operations by R7 million.

Pretorius said there had been tension in the past 15 months while the changes were implemented, and "not a single dealer group volunteered these changes, which were very disruptive to our staff".

He added the two manufacturers had been able to implement the changes. “Because of the one-sided nature of dealer agreements, we don't have any leverage. Either we conform or we lose the franchise".

"Unlike dealers in other parts of the world, we have an unfair dispensation," Pretorius said, echoing Nethercott’s sentiments.

However, despite the recent trying times "we are not at war" with BMW and DaimlerChrysler, Pretorius said.

"When your business is affected, you fight. When it's over, you lump it. We live in the future, not the past," he added. "We suffered, we regrouped and relations are back to normal."