ACCC New Car Retailing Report: What Next for Manufacturers and Dealers?
The ACCC has recently published a final report summarising its review of the new car retailing industry. In the study the ACCC identified three primary areas of concern as giving rise to potential non-compliance with competition and consumer laws by manufacturers and dealers. Those areas are:
- Consumer guarantees: the ACCC found that consumers are generally not being provided with sufficient information about the availability of consumer guarantees. These guarantees (which include, for example, that goods will be of an acceptable quality, will match any description provided and will be fit for any disclosed purpose) are mandated by law and cannot be excluded or displaced. The ACCC also identified a significant number of examples where manufacturers/ dealers had failed to adequately take consumer guarantees into consideration when dealing with complaints about vehicle defects after a sale had taken place.
- Sharing of information with independent repairers: the ACCC found that in a number of cases, manufacturers were found to have limited or withheld independent repairers' access to the technical information required to repair and service new cars (whilst providing full access to their authorised dealers and preferred repair networks). The types of technical information withheld varied, but included re-initialisation codes, technical service bulletins, software updates and electronic logbooks. The ACCC considered that such conduct had the effect of hindering competition in the aftermarkets for the repair and servicing of new cars, which in turn has led to increased prices and reduced convenience for consumers.
- Misleading information about fuel consumption/ emissions: the ACCC’s enquiries suggested that in a number of cases, manufacturers are making representations about fuel consumption and/ or emissions but are not qualifying these claims appropriately. Specifically, the ACCC raised concerns that the figures provided to customers are typically based on laboratory testing and cannot be achieved in real-world driving conditions, thereby having the potential to be misleading.
Implications for manufacturers and dealers
Overall, the ACCC’s report signals that further investigations and enforcement activity will be a focus in the new car retailing industry going forward. At a minimum, we suggest that car manufacturers and dealers take the following steps to address the issues raised in the study:
- Review all complaints-handling procedures and policies to ensure that consumers are being effectively and accurately informed of their rights under the ACL at each relevant stage, over and above any rights that they have pursuant to a manufacturer or dealer/ third party warranty.
- Review dealership agreements to ensure that they adequately enable dealers to be indemnified by manufacturers for any consumer guarantee related claims, and also to ensure that they do not contain terms which may restrict a dealer’s ability to comply with the ACL.
- Review statements made regarding fuel consumption/ emissions both in promotional material and at the point of sale, to ensure that any information provided is accurate and qualified if necessary.
- Enhance competition/ consumer compliance programs so that senior executives, sales personnel and those involved in complaints handling (amongst others) are fully aware of their obligations under the competition/ consumer laws and any changes to protocols that may be required to address the ACCC’s concerns.
There is also the potential for regulatory reform in each of the above areas to affect car manufacturers and dealers in the next couple of years. Specifically, potential changes to both the consumer guarantees provisions (put forward as part of the recent ACL review) and fuel consumption/ emissions testing rules will, if passed, create additional compliance requirements.
A more detailed outline of the most significant issues addressed in the report, including the nature of possible regulatory reform in each area, is set out below.
The ACCC noted its concern that consumers are not receiving sufficient information about the existence and applicability of consumer guarantees. This lack of information was found to adversely affect consumers both at the point of sale and when making complaints about potentially defective vehicles.
A key theme that arose from the study was that consumers were often unsure of the interaction between consumer guarantees and other rights that are available under either ‘new car warranties’ (usually offered by the manufacturer) or extended warranties (usually offered by either the manufacturer or dealer). The ACCC’s investigations suggested that this was in large part because both at the point of sale and upon receiving a complaint after purchase, manufacturers and dealers tended to focus upon the terms of their own new car and extended warranties.
The ACCC considered that such an approach was disadvantageous to consumers because:
- at the point of sale, confusion about the scope of consumer guarantees (as compared to manufacturer or dealer warranties) meant that consumers were not in a good position to assess the value of the warranty products offered to them;
- upon lodging a complaint about a defect, consumers were often not informed about or aware of the possibility of obtaining a remedy under the ACL, which in some instances could be more favourable to the customer than obtaining a remedy under the terms of a manufacturer or dealer warranty; and
- after the conclusion of the warranty period, consumers were in some instances told that they must pay for the repair of any defects, even though (under the relevant circumstances) the dealer would have been obliged to provide a repair at no cost under the ACL.
In addition, the ACCC raised concerns that:
- a number of manufacturers made either express or implied representations in logbooks and/or service manuals to the effect that only authorised dealers were entitled to carry out services and repairs, or that original equipment parts must be used. The ACCC considered that such representations have the potential to be misleading;
- their enquiries suggested that a ‘culture of repair’ existed in the motor vehicle industry, whereby manufacturers often did not offer replacements or refunds for cars which had the sort of systemic and ongoing failures ('major failures') that entitle a consumer to a replacement or refund under the ACL; and
- the nature of agreements between manufacturers and dealers were in some cases compromising dealers’ compliance with the ACL. The dealership agreements reviewed by the ACCC were generally heavily weighted in favour of the manufacturer, causing a power imbalance whereby dealers felt pressured to follow manufacturer instructions when resolving customer complaints. The ACCC considered that this created a tension whereby dealers:
- did not always inform consumers of the full range of remedies available under the law if the manufacturer had instructed them to resolve complaints according to the terms of a warranty; and
- in some cases were reluctant, despite their right to do so under the ACL, to claim reimbursement for consumer guarantee remedies offered to the customer which were the fault of the manufacturer.
A number of amendments to the ACL have been proposed by Consumer Affairs Australia and New Zealand in a recent review of the consumer law regime. The ACCC expressed support for the proposed changes and noted that the following proposals are of particular relevance to the new car retailing industry:
- the introduction of a new provision whereby if a good fails to meet the legislated consumer guarantees within a short specified time period after purchase, the customer is entitled to a refund or replacement without needing to prove a ‘major failure’;
- clarification that multiple non-major failures can amount to a major failure; and
- enhanced disclosure in relation to extended warranties including that agreements must be clear and in writing, must offer information about what the ACL offers in comparison to the extended warranty and must disclose in writing a cooling-off period of ten working days.
Sharing of information with independent repairers
The study found that many car manufacturers do not (either in part or in full) share technical information required to repair or service cars with independent repairers, whilst providing unrestricted access to such information to their aligned dealers and preferred repair networks. The ACCC noted that:
- as the complexity of the computer systems which underpin modern cars has increased, so too has the amount of information required to repair and service these vehicles;
- the types of information that a repairer may require to repair or service a car is extensive but can include: re-initialisation codes (to reset a car’s system after certain repairs are performed), technical service bulletins, software updates and electronic logbooks;
- independent repairers and their associated industry representatives made a number of submissions to the ACCC suggesting that they were not provided access by manufacturers to the full range of information required to repair and service cars, or in some instances experienced significant delays in obtaining the required information;
- despite there being a Heads of Agreement between key automotive industry associations which places voluntary obligations on car manufacturers to share such information with independent repairers, those voluntary obligations have generally been ineffective in improving access to information; and
- manufacturers may have legitimate security and safety concerns about sharing certain information with independent repairers, but the experience in overseas jurisdictions suggests there are measures which can be put in place to address such concerns.
The ACCC’s view was that the failure to provide access to such information has hindered competition in the aftermarkets for the repair and servicing of cars. Its investigations suggested that this has led to increased servicing and repair costs for consumers, along with other detriments (such as the inconvenience of a consumer's repairer of choice not being able to provide a full suite of services).
There is currently no legal framework in Australia regulating the sharing of such information outside of the general prohibitions in the Competition and Consumer Act 2010 (Cth) and the ACL. The ACCC has recommended regulatory intervention to mandate the sharing of technical information with independent repairers on ‘commercially fair and reasonable’ terms, similar to the approach adopted in the US and EU. We will need to watch this space to see whether such regulation is ultimately progressed.
Misleading information about fuel consumption/emissions
The ACCC noted that the fuel consumption and emissions information provided to consumers is ordinarily based on laboratory testing rather than real-world driving conditions. The study found that the figures provided to consumers frequently remain unqualified by manufacturers/ dealers and that consumers often believe such figures reflect what is possible in real world driving conditions.
The ACCC considered that the failure to qualify such statements could be misleading, especially given research (by a key industry association and consulting engineers) which has suggested that real world fuel consumption is on average 23 per cent higher than laboratory test results.
There are currently a number of new measures being considered by the Australian government’s Ministerial Forum on Vehicle Emissions, including the introduction of a more realistic laboratory test (such as the Worldwide Harmonised Light Vehicles Test Procedure, which has been introduced in the European Union) or an on-road real driving emissions testing program. The ACCC indicated that it supports such measures and considers that they would improve the quality of information provided to consumers.