FADA seeks legislation to safeguard interests of automotive dealers

Automobile dealers' body FADA on Wednesday sought legislation to specifically look into the OEM-dealer issues in the wake of several foreign companies shutting operations in the country, leaving their customers and dealers in the lurch.

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The sudden 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.

Stating their case for the Auto Dealers Protection Act in India, Federation of Automobile Dealers Associations of India (FADA) noted that automobile dealers in the country were 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 original equipment manufacturer (OEMs) have caused a great deal of anguish to automobile dealers as the existing laws are not adequate to protect their interests.

After General Motors (2017), MAN Trucks (2018), UM Lohia (2019), Harley Davidson (2020), Ford is the fifth major auto OEM to stop domestic sales thus exiting a large and untapped India market.

Based on comprehensive research on how the aforementioned issues are dealt with under foreign jurisdictions, it is clear that OEM-dealer contracts in India are not balanced or equitable, FADA noted.

"Many countries in the world recognise 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,"

FADA President Vinkesh Gulati stated.

India should also urgently consider the introduction of an Automobile Dealers Protection Act to make contracts more balanced and equitable, he added.

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, Gulati said.

The prevailing OEM practices are extremely problematic and against the principles of equity, justice, and good conscience, he added.

FADA hereby requests the intervention of Government of India to level the playing field between financially strong OEMs and the smaller automobile dealers, Gulati said.

FADA has commissioned an in-depth analysis of the relationship between OEMs and dealers in India, through a detailed study of various dealership agreements.

Through this work, 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.

This analysis clearly 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, FADA noted.

The industry body, which represents over 15,000 dealers having 26,500 dealerships across the country, has been voicing concern over the recent exit by US automaker Ford from the country.

Ford dealers are staring at huge losses with the automaker deciding to shut production in the country.