Parliamentary panel calls for Franchise Protection Act for auto dealers

The recommendation is significant after US cult bike manufacturer Harley-Davidson announced an abrupt exit from India in September 2020, leaving the dealers in a lurch.

Business Desk, ETV Bharat:In order to provide financial protection to auto dealers in India, the Parliamentary Standing Committee (PSC) headed by Dr. K Keshava Rao has recommended the central government to bring them under the ambit of the Franchise Protection Act.

A strong Franchise Protection Act will help in laying out clear compensation terms for auto dealers if an auto manufacturer decides to exit the Indian market.

The recommendation comes after US cult bike manufacturer Harley-Davidson announced an abrupt exit from India in September, leaving the dealers in a lurch.

In November, the dealers announced that they were looking at taking legal action against the company as they were unhappy with the “measly” compensation being offered to them.

Welcoming the Parliamentary committee’s decision, Federation of Automobile Dealers Associations (FADA) president Vinkesh Gulati said: “India does not have a Franchisee Law at present due to which the OEM (original equipment manufacturer)-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.”

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.

Gulati said 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 the Franchise Protection Act to level the playing field between Auto OEMs and auto dealers.

Notably, many developed countries like the US, Mexico, Brazil, Spain, Albania, Russia, China, Indonesia, Malaysia, Japan, Australia, Italy, Sweden, and Belgium already have such rules to protect the franchisees.

FADA said a fair competition Franchisee Act will not be just a win-win for both the Auto OEMs and Auto Dealers, it will also be beneficial to customers in long run.

“It will also provide continuing and necessary reliable services to the consuming public and also provide stable employment to the people the dealership employs and skills in the community without displacing them from their home locations,” Gulati said.