Parliamentary panel recommends Franchise Protection Act for auto dealers

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Times Now News, December 23, 2020

The Indian automobile industry has witnessed several companies winding up their operations here over the last few years. Brands like Chevrolet, Man Trucks, UM motorcycles, Harley-Davidson, etc. decided to wrap up India operations without communicating the same to the automobile dealerships, thereby leaving the dealers high and dry with their investments down the drain. To protect auto dealers from under such scenarios, the Parliamentary Standing Committee has recommended the government to formulate a new Franchise Protection Act. Headed the Dr K Keshava Rao, this recommendation was made by the Standing Committee in its report titled “Downturn in Automobile Sector-Its Impact and Measures for Revival”.

Currently, India doesn’t have a Franchise Law as a result of which the OEM (original equipment manufacturer) and dealership agreements are skewed towards the former. This often leads to a tussle in managing dealerships because of a lack of clearly-defined exit policy. The Federation of Automobile Dealers Associations (FADA) noted that a new Franchise Protection Act will create a level playing field between auto companies and dealerships. It added that most automobile dealerships in the country are privately owned proprietorship or family-owned businesses while automakers are one of the biggest corporations. This disparity in size and power between the two often tilts the balance in OEMs’ favour. A new act to protect dealerships will not only be a win-win for automakers and dealerships but even the customers stand to benefit from it because of reliable services.

Vinkesh Gulati, President, FADA, said, “India does not have a Franchisee Law at present due to which the OEM – Dealer agreements are highly skewed towards manufacturers. This leads to a tussle in managing dealership operations in various ways, very short terms agreements and non-existence of a clearly defined exit policy. Many developed 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.”

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