Introduction
The ACCC’s recent New
Car Retailing Industry market report is in many respects a watershed moment
for the Australian new car industry. The report lays bare many of the
questionable practices which have been occurring in the new car industry for
many years, including the refusal of many new car retailers to honour consumer
guarantees for defective vehicles, inaccurate fuel consumption information
being provided to consumers and restrictions on access to technical information
for the repair and service of new cars. In this article I will outline the main
findings and recommendations of the ACCC’s Report and consider the likely
future regulatory landscape which will be facing new car retailers in
Australia.
Structure of ACCC Report
The ACCC’s report begins with a summary of the
characteristics of the new car retailing industry. It then identifies four main areas of
concern:
- Consumer guarantees and warranties;
- Accessing technical information to repair and service new cars;
- Parts needed to repair and service new cars; and
- Fuel consumption and emissions.
The ACCC also makes three key findings in its report as
follows:
- The law offers protections for consumers when purchasing new cars, but there are material deficiencies in the way that consumers are able to enforce their rights, and the way these rights are represented to them by manufacturers and dealers.
- Concerns remain about the effect of limited access to information and data required to repair and service new cars.
- Consumers are not receiving accurate information about the fuel consumption or emissions performance of new cars.
New Car Industry
The ACCC summarised the size and characteristics of
the Australian new car industry by reference to the following figure:
One of the most notable features of the above diagram
is the control which car manufacturers maintain over new car retailing through
their ownership of various distributors as well as the process of authorising
dealers to sell their vehicles.
The ACCC also estimates the sources of profit for car
dealers as follows:
As is clear, new cars comprise the largest share
of total revenue for new car dealers, as well as the largest contrinution to
gross profits at 38%. The next largest
contributor to the dealer’s gross profits are service fees.
Consumer guarantees and warranties
The ACCC made a number of quite surprising findings
about the way in which new car dealers have responded to attempts by consumers
to enforce their consumer guarantee rights. The ACCC found that many consumers were
having difficulty enforcing consumer guarantees due
to a dominant “culture of repair” underpinning manufacturers’ systems and
policies for dealing with defects and failures.
Even in situations where the new car has
systemic mechanical failures, which constituted a major failure, car
manufacturers and dealers would routinely offer a repair rather than a full
refund. From my own experience in
advising consumers in relation to disputes with car dealers it is quite
apparent that the many dealers hold the incorrect view that consumer guarantees
did not apply to a new car purchase.
The ACCC concluded that the primary reason
for car dealers and manufacturers failure to honour consumer guarantees were
the manufacturers’ complaints handling systems which failed to “adequately take
consumer guarantees into account”.
A further problem related to the failure of
new car dealers to provide consumers with information about their consumer
guarantees at point of sale. As anybody who has bought a new car will know, the
whole focus of the new car sale process is directed to the manufacturers’
warranty and the opportunity to upgrade that warranty at an additional cost.
The ACCC also draws attention to the lack
of an effective independent dispute resolution option for consumers. Indeed, the only option for most consumers
when faced with repeated refusals from a car dealer to provide a refund for a
defective new car is to lodge a claim with a consumer claims tribunal, such as
the NSW Civil and Administrative Tribunal (NCAT).
The ACCC identified the following action
points which it will be focusing on in order to address the deficiencies which
it identified in relation to consumer guarantee rights in the new car industry:
ACCC action 3.1
The ACCC will work with manufacturers and dealers to
develop a concise and simple explanation of consumer guarantees and their
interaction with warranties, which should, as industry best practice, be
provided to consumers at the point of sale of a new car.
ACCC action 3.2
To assist consumers better understand their rights
when it comes to new car defects and failures, the ACCC will work with other
ACL regulators to publish an updated version of Motor vehicle sales & repairs – an industry guide to the
Australian Consumer Law (August 2013) to ensure that this publication addresses the issues
identified in this study, including specific guidance on criteria for
determining a ‘major failure’. Guidance may also be designed for use by
businesses, including dealers, regarding their rights and obligations under the ACL.
ACCC action 3.3
Instances of misleading or deceptive conduct, or
misrepresentations, in relation to the use of independent repairers or non-OE spare
parts will be targeted through action by the ACCC, including enforcement action
where appropriate.
It is clear that consumers need greater
education about their consumer rights in relation to new cars. There is a common perception amongst many consumers
that consumer guarantees do not apply to new cars due to the value of purchase
in dollar terms. Most consumers see consumer guarantees as being limited to
lower value purchases of products, such as appliances and consumer electronics.
The ACCC made the following recommendation
in relation to the consumer guarantee issue:
Draft recommendation 3.1
The ACCC supports the amendments proposed by CAANZ in
the recent ACL Review to enhance the ACL and address any uncertainties about
the application of consumer guarantees. Of particular relevance to issues arising
in this study, the ACCC supports proposals 1, 2 and 3 in the final report on the ACL
Review:
Proposal 1: Where a good fails to meet the consumer
guarantees within a short specified period of time, a consumer is entitled to
a refund or replacement without needing to prove a ‘major failure’.
Proposal 2: Clarify that multiple non-major failures
can amount to a major failure.
Proposal 3: Enhance disclosure in relation to
extended warranties by requiring:
· agreements for extended
warranties to be clear and in writing
·
additional information in writing about what the ACL
offers in comparison to the extended warranties
· a cooling-off period of ten
working days (or an unlimited time if the supplier has not met their disclosure obligations)
that must be disclosed and in writing.
As is apparent, the above recommendation,
if implemented, will have a profound effect on the new car industry. The first proposal would effectively create
an automatic right to a refund or replacement where the new car fails in a
short period of time.
Accessing technical information to repair and service new cars
A key finding of the ACCC in relation to the question
of access to technical information for repairs and service was a lack of understanding
amongst consumers that they could in fact use an independent mechanic rather
than the dealer for their repairs and service needs. A further problem was the
inability of many independent mechanics to access the necessary technical
information and diagnostic tools required to carry out repair and service work.
The ACCC noted the new car industry
association agreement implemented in
2014 which was aimed at creating ‘a fair and reasonable competitive market within the car service and repair
industry.’ The agreement, which was entitled
the Agreement on Access to Service and Repair Information for Motor Vehicles (Heads of Agreement,
was a voluntary scheme by which manufacturers would provide independent repairers with access to technical
information on commercially fair and reasonable terms.
Despite the existence of this agreement,
the ACCC also found that many independent repairers “remained unable to readily access technical information and
diagnostic tools from car manufacturers to repair and service new cars.”
In an interested aside the ACCC commented on the
increased complexity of modern cars in terms of the lines of computer code
required to operate the vehicle. In this respect, the ACCC compared the lines
of computer code required to operate a new car with a number of high-tech
products, including a F-35 Joint Strike Fighter and a F-22 Raptor Jet. Somewhat
surprisingly the ACCC found that the average Ford motor vehicle was well in the
lead with 10 million lines of computer code compared to the F-35 which only
required 5.7 million lines of code and the F-22 Raptor which only required a
paltry 1.7 million lines of code.
A significant finding made by the ACCC was that the
voluntary industry agreement has failed to bring about real change in terms of
access to technical information. Accordingly, the ACCC concluded that it was
now necessary to introduce a mandatory scheme:
Draft recommendation 4.1
A mandatory scheme should be introduced for car
manufacturers to share with independent repairers technical information, on
commercially fair and reasonable terms. The mandatory scheme should provide
independent repairers with access to the same technical information which car manufacturers make
available to their authorised dealers and preferred repairer networks.
The mandatory scheme should place an obligation on
car manufacturers and other industry participants to achieve the aims and
principles set out in the Heads of Agreement (including those in relation to training
and reinforcing existing statutory obligations on independent repairers to ensure repairs
and servicing are carried out correctly to car manufacturers’ specifications to assure the
safety of consumers).
The ACCC then listed the operational
matters which would have to be covered by the new mandatory scheme:
Real time access
·
Car manufacturers should make available to independent
repairers, in real time, the same digital files and codes, such as software
updates and re-initialisation codes, made available to dealers to
repair or service new cars.
Coverage
·
Obligations on sharing technical information should
apply to all car manufacturers in Australia.
·
Consideration should be given to including options
for relevant intermediaries to access technical information from car
manufacturers on commercially fair and reasonable terms.
Definitions
·
All relevant terms, conditions and exclusions should
be defined in the regulation, for instance, defining diagnostic tools and their
relevance to facilitating access to technical information, as well as defining
security-related information.
Dispute resolution
·
Any dispute resolution processes should be timely and
accessible by all relevant stakeholders.
·
Any dispute resolution processes should be subject to
compulsory mediation and binding arbitration by an independent external party.
Governance/consultation
·
Key stakeholders should meet regularly to discuss the
rapidly changing nature of repair and service information.
Security-related information
and data
·
Similar to the EU or US models, a process for the
secure release of security-related technical information should be
established or authorised under the mandatory scheme.
Enforcement
·
Appropriate options to enforce the terms of any
regulation, if appropriate, should be included (e.g. penalties).
The ACCC’s proposed mandatory scheme will
have profound effects for the new car repair and service industry by putting
independent repairers on a level playing field with dealer repairers.
However, for the mandatory scheme to be a success, the
ACCC will also have to undertake an extensive education campaign to alert
consumers to the fact that they can use independent repairers for their repair
and service work without fear of voiding their standard manufacturers’ warranties.
Parts needed to repair and service new cars
In relation to the parts required to repair and
service new cars the ACCC found that car manufacturer’s sometimes have
legitimate reasons for restricting access, for example where access may
compromise security or encourage theft.
However, the ACCC also found that there was a
possibility that car manufacturers may be restricting access to parts for the
purpose of preventing or hindering competition between authorised repairers and
independent repairers. The ACCC also noted a lack of transparency about car
manufacturer’s decision about providing access to parts.
The ACCC also found some evidence to suggest that
Australian consumers are paying significantly higher prices for parts than
consumers in other countries. For
example, the ACCC noted that based on a basket of common crash repair parts it
appeared that Australian consumers were paying as much as 3.5 times more than
the same parts would cost in the US.
The ACCC’s proposal to remedy this issue was again to
create a type of access regime whereby independent repairers would be able to
get access to parts on fair and reasonable terms:
Draft recommendation 5.1
OE manufacturer-branded parts and accessories should
be generally available to
independent repairers on commercially fair and
reasonable terms.
Car manufacturers should develop policies which
clearly outline any parts subject to restricted access on security-related
grounds. These policies should be publicly available.
The FCAI is well-placed to work with manufacturers to
examine whether there is benefit in agreeing a standard definition and
detailed classification system for ‘security-related’ parts to provide certainty to parts customers.
Fuel consumption and emissions.
The ACCC’s final significant findings were
that:
- manufacturers are not always appropriately qualifying fuel consumption and emissions claims, and
- many consumers believed that advertised fuel consumption and emissions figures were likely to be attained in real-world driving conditions, when this is not the case.
The ACCC highlighted the discrepancies between test
results and real-world driving results by reference to testing currently being
conducted by the Australian Automobile Association (AAA).
The AAA’s interim report showed
the following alarming results based on tests of 17 motor vehicles:
- CO exceeded statutory limits in 20 per cent of petrol vehicles tested (two out of ten vehicles) – these cars emitted more than three times the laboratory limit for CO;
- NOx exceeded statutory limits in 83 per cent of diesel vehicles tested (five out of six vehicles). The highest of these emitted almost nine times the limit for NOx;
- particulate matter exceeded statutory limits in one out of six vehicles - this car emitted 40 per cent more CO than the laboratory limit;
- 16 out of 17 cars tested had fuel consumption levels that exceeded official laboratory results; and
- fuel consumption was on average 25 per cent higher than the NEDC results.
While the above AAA investigation is not yet complete,
the results to date raise many serious concerns about the validity of both fuel
consumption and emissions information, as well as basic compliance with
statutory limits. It is apparent that
additional regulatory control of both fuel consumption and emissions representations
and standards is needed urgently.
The ACCC has made the following two recommendations about
this issue.
Draft recommendation 6.1
Changes to the fuel consumption label affixed to new cars
should be considered to improve the comparative use of the information supplied.
Introducing a star-rating system or annual operating costs may minimise the extent
to which consumers interpret an ‘absolute’ fuel consumption/emissions value as equivalent
to what they would achieve in real-world driving conditions.
Draft recommendation 6.2
The ACCC supports measures to enhance the quality of
information supplied to consumers currently being considered by the Ministerial Forum
into Vehicle Emissions, including the replacement of the current fuel
consumption and emissions testing regime with the new Worldwide Harmonised Light
Vehicles Test Procedure, a more realistic laboratory test, and the introduction of an
on-road ‘real driving emissions’ test.
While the ACCC’s approach to this issue is reasonable
– namely deferring consideration and resolution of the issues to the
Ministerial Forum into Vehicle Emissions – the other key question is which
agency will have responsibility for enforcing any new standards. It is one thing to set a particular standard
which car manufacturers must follow, but it is quite a different thing to
ensure that these new rules are being monitored and enforced by a competent and
well-resourced regulator.
Conclusions
As stated in the introduction, the ACCC’s market study
into new car retailing is a watershed moment for the industry. The new car industry has been much too slow in
adapting its business models to new legislative obligations, changing economic
conditions and increasing consumer expectations.
It appears highly likely that many of the ACCC’s
recommendations will be taken up by government, particularly the recommendation
for a mandatory scheme in relation to accessing technical information to repair
and service new cars. This recommendation
alone has the potential to significantly impact dealers profit levels, to the
extent it facilitates greater competition from independent repairers. The ACCC’s recommendations in relation to
spare parts also threatens to significantly impact car manufacturers profit
levels.
Finally, the new car industry’s ability to defeat or forestall
any of the ACCC’s recommendations has been significantly diminished since the
announcement of their decision to cease local new car manufacturing. Gone are the days of the new car industry shakedown
when they could gain favourable financial treatment from successive governments
on the promise of jobs and growth. The
industry must now brace itself for a rapid and dramatic shake-up which will significantly
impact the industry’s bottom line.
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