Automotive Dealers Demand A Franchise Protection Act

Parliamentary Standing Committee proposes the idea to the government

In the wake of the Harley-Davidson fiasco, the Federation of Automotive Dealers Association (FADA) has announced that the Parliamentary Standing Committee headed by Dr K Keshava Rao has recommended the introduction of a Franchise Protection Act to safeguard the interest of dealership owners.

Many countries, including the United States of America, have rules to protect franchisees. Currently, India does not have a franchise law due to which the OEM-dealer agreements are skewed towards the manufacturers, claims FADA president, Vinkesh Gulati.

Furthermore, having a set of rules in place will not just be beneficial for the dealers but for the customers as well, ensuring reliable service. A franchise act will also give the dealership and associated employees stable employment.

Many companies such as General Motors India, Man Truck and UM Lohia exited the country overnight, leaving the investors to fend for themselves. More recently, Harley-Davidson too caused a stir and is facing backlash from its dealerships. You can read about it here.

Read the full statement from the FADA president, Vinkesh Gulati here:

I am grateful to the Standing Committee and specially the Chairman, Dr. K Keshava Rao, for strongly recommending Franchisee Protection Act for Auto Dealers.

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 USA introducing the same in 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 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.

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 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.