Motor vehicle dealerships

I rarely like to give the Australian Labor Party any credit as its economic policies would be disastrous for Australia, and they'll do many things in government that as of today they're claiming are 'off the agenda', such as removing franking credits for retirees.

However the respected Robert Gottliebsen writes in today's 'The Australian':

It’s time for the global head of the Mercedes-Benz Group, Ola Källenius, to take a direct role in the company’s reputational shambles developing in Australia.

Senior Australian Mercedes executives are being accused in the Senate of misleading the Australian parliament and are likely to face a trial. The Mercedes attack on local dealers threatens franchising in Australia and if the dealers lose their court case against the car manufacturer, the government will need to change the act.

Not surprisingly, BMW in February regained market leadership over the beleaguered Mercedes.

When Ola Källenius was rising through the management ranks of Mercedes, he used the achievements in Australia as an example for operations in other countries to follow. It is now possible the global chief will be called to give evidence before the Australian parliament.

Franchising in Australia is a $155bn industry that employs more than 500,000 Australians and Mercedes franchises were among the most valuable in the land. Like many other franchises, the Mercedes arrangement usually expired annually but practice saw it roll over. But on December 31, 2021 Mercedes took control of the dealers distribution without compensation, sending shockwaves through franchising in Australia.

A year earlier, in November 2020 the Senate Education and Employment References Committee was inquiring into motor dealership and a number of Mercedes executives gave sworn evidence.

The ALP’s Senator Deborah O’Neill last month said in the Senate said that the Mercedes executives made seven statements to the Parliamentary Committee that were wrong and she stated what she believed was the truth. Using the Hansard records of O’Neill’s speech, I have matched her allegations as to what the executives said against what she believes is the truth.

Mercedes Executives: “The dealers are happy with the proposed changes to the agency model”

O’Neill: “The dealers were not happy with the proposed changes and in multiple meetings they voted overwhelmingly not to proceed with the agency model.”

Mercedes Executives: “We consulted widely with the dealers regarding the changes.”

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O’Neill: “Mercedes-Benz did not consult widely with dealers. In fact, when dealers tried to negotiate some of the terms of the model, Mercedes-Benz issued a dispute notice under the franchising code.”

Mercedes Executives: “The agency model would be a win for dealers.”

O’Neill: “The agency model is not a win for dealers. If instituted, the agency model will cut the profitability of some dealerships by over 50 per cent, and the experience, now that the model has been introduced, has sadly lived up to the dire predictions.”

Mercedes Executives: “The reason Mercedes-Benz was shifting to the agency model was driven by consumer benefits.”

O’Neill: “The agency model is not about consumer benefits. It merely is about ensuring greater profits in Stuttgart instead of main streets in suburban and regional Australia.”

Mercedes Executives: “Dealer profits would not be impacted.”

O’Neill: “Dealer profits will be impacted. Deloitte analysis said that the profitability under the new model would decline by more than 50 per cent.”

Mercedes Executives: “Mercedes- Benz was committed to the dealers for the long term.”

O’Neill: “Mercedes-Benz were not committed to dealers long term; dealers were issued non-renewal notices as a means of terminating their agreements.”

Mercedes Executives: “Mercedes-Benz would not profit from the shift to an agency model.”

O’Neill: “Mercedes-Benz will profit from the shift to the agency model. This will take profits out of dealerships and straight into the pockets of Mercedes-Benz.”

O’Neill says that “the weight of current evidence is that Mercedes-Benz appear to have misled the Senate committee”.

“Given the seriousness of my concerns, I intend to take this matter to the Senate Education and Employment References Committee to request that it be raised with the President of the Senate as a matter of privilege”.

In a Privileges hearing the executives and perhaps Källenius are entitled to challenge all the statements made by O’Neill to the Senate. But the affair is a warning to the many Australian executives who now appear regularly before Parliamentary Committees.

While it is extremely rare for a Parliamentary Privileges inquiry to use its powers to jail people who mislead, any such hearing is extremely damaging to the corporate and executive images.

Meanwhile O’Neill is signalling that the Mercedes affair will be a trigger for action on much wider multinational issues if the ALP wins power.

“If Mercedes-Benz are willing to perpetuate untruth to the members of the Australian Senate, who else are they willing to lie to? These untruths must be called out in the public interest — in the interests of Australian businesses and Australian dealer networks. The Australian Senate must not be treated with contempt by large multinationals who are only concerned with extracting profit and shipping it offshore.”