SMEs call for Auto Dealers Protection Act

Hyderabad, 28 Oct (KNN) As per the policy brief released by the Federation of Automobile Dealers Associations (FADA) on Auto Dealers Protection Act in India, it has called the prevailing Original Equipment Manufacturer (OEM) practices as problematic, disadvantageous for SMEs and against the principles of equity, justice, and good conscience.

FADA has requested the intervention of Government of India to level the playing field between financially strong OEMs and the smaller automobile dealers by introducing the Auto Dealers Protection Act.

After top Auto OEMs such as After GM (2017), MAN Trucks (2018), UM Lohia (2019), Harley Davidson (2020), Ford stopped domestic sales, a large untapped Indian Market is created.

“Such exits adversely impact the interests of consumers who are often left with no avenues for after-sales services and with resale value of their vehicles nose-diving. Ultimately, this casts an unfair burden on the Dealers who have to step in to ensure that their relationships with consumers are not ruined, while also facing the endless barrage of consumer complaints due to the OEM’s unilateral actions,” states the report.

As automobile 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 their OEMs which in-turn are large corporations.

“The entrenched unethical and imbalanced power structures with OEMs have caused a great deal of anguish to Automobile Dealers as the existing laws are not adequate to protect their interests,” claimed FADA.

To examine this further, FADA commissioned an in-depth analysis of the relationship between OEMs and Dealers in India, through a detailed study of various dealership agreements.

They derived on a comparative analysis of foreign dealership agreements and legal protections available to Automobile Dealers in different countries such as the USA, Australia and South Africa was also undertaken.

The analysis shows that unlike the imbalanced Indian agreements, foreign agreements often have more balanced and comprehensive clauses on termination, indemnification, repurchase obligations and afford more flexibility to the dealers.

Based on the research and analysis FADA states that, it is clear that OEM-Dealer contracts in India are not balanced or equitable.
FADA President 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,” added Gulati.

The findings of study examined the Dealership agreements in India, which does 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. Short term of agreement is detrimental to the dealers as they do not give adequate opportunity to the dealers to recover the heavy investments made by them.

Moreover, 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 affect consumers who are left with no recourse with respect to after-sales services.