The Australian Mercedes-Benz dealers involved in a $650 million legal action against the brand have formally begun the process by filing a detailed statement of claim in the Victorian Federal Court.
The dealers legal action is challenging the decision by Mercedes-Benz head office in Stuttgart to force through major changes to the way the industry operates
Australian Automotive Dealers Association (AADA) chief executive James Voortman says for a number of years Mercedes-Benz repeatedly told the Australian dealers they were committed to them in the long-term but the entire time it had a secret plan to crash through with the introduction of the agency model.
“When dealers questioned the local Mercedes-Benz CEO on the rationale for the switch to the new business model they were simply told we are doing it ‘because we can’,” Voortman says.
The AADA says on more than eight occasions, Australian dealers were assured that no changes to the business model would proceed unless they agreed. The strong opposition of dealers to the model was clear from the outset with more than 90% voting to oppose the change.
The case is a major test case for Australia’s Franchising Code according to the AADA. It says one of the key requirements written into the Franchise Code is that Franchisors should behave in good faith. Good faith requires a contracting party to act in good faith, not only in relation to the performance of the franchise contract, but also in the power conferred by the contract.
“Mercedes-Benz head office confected public arguments to justify the introduction of the Agency model, issuing press releases and giving interviews touting consumer benefits and trends,” Voortman says.
“However, the naked truth has finally emerged demonstrating that the real agenda has been about appropriating the goodwill of the dealers for the benefit of Mercedes-Benz without paying them any compensation.”
The mechanism by which this is achieved is the substantial reduction in payments to Dealers as a result of the switch to the agency model, thereby significantly reducing the costs to Mercedes-Benz while at the same time requiring the dealers to bear the financial risk according to the AADA.
On 22 July 2021, Daimler AG CFO and board member Harald Wilhelm, stated in public comments in a Mercedes-Benz Strategy Update Call that the “switch to the direct sales model is the most important change in how we manage sales” because, inter alia, “it takes cost out”.
“In spite of the existence of a plan to introduce Agency and strip the Dealers of their livelihood, Dealers were repeatedly encouraged to continue to make significant investments in their businesses,” Voortman says.
“In some cases, this amounted to multiple millions of dollars.
“In spite of having to resort to legal action to halt the imposition of a business model resoundingly rejected by Australian dealers, Mercedes-Benz head office has proceeded to ram through the introduction of the agency model in January this year.
“The implementation has been shambolic, and the very early indications demonstrate real reasons for concern about the impacts of the Agency Model.
“Some dealers have reported a more than 50% decline in sales for the month with repeated failures of key operating systems, lack of technical support and a complete lack of communication to the customer base regarding the new model.
“We accept that Mercedes-Benz is perfectly entitled to change its business model, however we do not accept the appropriation of hundreds of millions of dollars in value built up by the local industry over many years without the payment of compensation,” Voortman says.
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