Parliamentary Committee recommends Franchise Protection Act for auto dealers

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Parliamentary Standing Committee (PSC) headed by Dr K Keshava Rao has recommended that the Government of India should come out with Franchise Protection Act for Auto Dealers.

This has been stated by the Federation of Automobile Dealers Associations (FADA). The
recommendation was part of suggestions made by the Standing Committee in its Report Number 303 titled “Downturn in Automobile Sector-Its Impact and Measures for Revival”.

Talking about this, FADA President, Mr. Vinkesh Gulati said, “I am grateful to the Standing Committee and specially the Chairman, Dr. K Keshava Rao, for strongly recommending Franchisee Protection Act for Auto Dealers.”

At present, India does not have a Franchisee Law due to which the OEM – Dealer agreements are highly skewed towards manufacturers.

Managing dealership operations

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.

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

Franchise laws will actually level the playing field between large automakers and local dealers. Currently, almost all auto dealerships are privately owned proprietorship or family owned businesses.

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. Few examples of such exits since 2017 are General Motors India, Man Trucks (a VW Group Company), UM Lohia and Harley Davidson India.

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 need to accept the Standing Committee Recommendation and bring in Franchise Protection Act to level the playing field between Auto OEMs and Auto Dealers.

(With inputs from Automotive Lead Research Team)

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Also read: Vehicles registrations grow in November: FADA