PSC recommends formation of franchise protection law for auto dealers

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The government should come out with the Franchise Protection Act for auto dealers, the Parliamentary Standing Committee headed by K Keshava Rao has recommended.

This recommendation comes just weeks after Harley-Davidson exited the India market, leaving its 33 dealership partners in the lurch. It was a part of suggestions made by the Standing Committee in its report titled “Downturn in Automobile Sector-Its Impact and Measures for Revival”.

The original recommendation came from the Federation of Automobile Dealers Association (FADA), whose members protested against the alleged unfair treatment meted out by Harley-Davidson over compensation and the subsequent adoption of just 10 dealerships by Hero MotoCorp. Hero MotoCorp has agreed to continue sell and service Harley's bikes in India under an agreement signed a few months ago.

Also Read: Harley Davidson dealers in India consider legal action over US company's exit

“India does not have a franchisee law at present due to which the vehicle maker - Dealer agreements are highly skewed towards manufacturers. This leads to a tussle in managing dealership operations in various ways, very short term agreements and non-existence of a clearly defined exit policy,” said a statement from FADA.

Countries like Mexico, Brazil, Spain, Albania, Russia, China, Indonesia, Malaysia, Japan, Australia, Italy, Sweden and Belgium now have such rules to protect the franchisee’s which started with the USA introducing the same in the 1980s.

There are various examples where auto manufacturers suddenly announced their exit from India leaving auto dealers high and dry with their investments going down the drain. A few examples of such exits since 2017 are General Motors India, Man Trucks (a VW Group Company), UM Lohia and Harley Davidson India.

Also Read: Bicycles are suddenly selling like hot cakes - here is why

“Currently, almost all auto dealerships are privately owned proprietorship or family owned businesses. Meanwhile, large automobile manufacturers are some of the biggest corporations in India and overseas. Because of the disparity in size and power between individual dealers and manufacturers, the government needs to accept the Standing Committee Recommendation and bring in Franchise Protection Act to level the playing field between Auto OEMs and Auto Dealers,” FADA added.

Franchise laws will actually level the playing field between large automakers and local dealers.

- Federation of Automobile Dealers Association

FADA also recommended foreign direct investment (FDI) in the auto dealerships segment which could lead to collaboration with dealership groups internationally without compromising on their ownership.