Parliamentary Standing Committee for Industry recommends Franchise Protection Act for Auto Dealers

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The Federation of Automobile Dealers Associations (FADA) today said that the 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 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”.

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The Federation of Automobile Dealers Associations (FADA) is the apex body in India for Automobile Retail Industry in India engaged in the sale, service and spares of 2/3 Wheelers, Passenger Cars, UVs, Commercial Vehicles (including buses and trucks) and Tractors.

Car warehouse

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 term 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 as early as the 1980s.

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 more recently, Harley Davidson India.

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. 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.

Also read: Harley-Davidson Dealers Might Take Legal Action Against the Parent Company

Due to such law not being in place, we have witnessed something like the Harley Davidson fiasco wherein the parent company kept their dealers in the dark about shutting down and received very inadequate compensation. The dealers had also hired a law firm to suggest a legal remedy. 

Therefore, 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 the 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.”

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

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