Mercedes-Benz wins landmark court case, dealers say law needs to change

Mercedes-Benz dealers lose a multimillion-dollar Federal Court case scrutinising a radical change to the car-dealer business model which led to non-negotiable fixed prices.

German car giant Mercedes-Benz has won a landmark Federal Court case brought against it by 38 of its approximately 50 dealers, after the judge found the automaker acted within the law when it changed its dealer agreements, which led to the introduction of non-negotiable fixed prices for its new cars.

However, Justice Jonathan Beach indicated Australia’s franchising laws may need to be reviewed in light of the revelations made during the court case, which could have ramifications for an increasing number of new-car buyers across Australia if other auto giants make the same changes.

The group of Mercedes-Benz dealers who launched the legal action claimed they were entitled to compensation for the “goodwill” they had built-up in their businesses over several years, and in some cases over decades.

His Honour said Mercedes-Benz dealers argued a good case regarding the radical changes to their contracts with the car company, however analysts said “they lost on the law”.

As previously reported, 38 of the approximately 50 Mercedes-Benz dealers in Australia took legal action after the company wrote new contract terms which would see dealers no longer own showroom stock – and no longer be able to negotiate with customers on prices.

The dealers expressed concern that such a move would dent the viability of their businesses – and that Mercedes-Benz was, in effect, helping itself to each showroom’s network of customers.

According to documents released overnight, Justice Beach told the court the group of Mercedes-Benz dealers who launched legal action “ran a powerful and very thorough forensic case” and their legal team “presented a very skilled case on their behalf.”

“All that could be said or should have been said on their behalf was said,” Justice Beach noted in his findings.

“It will be apparent from the reasons that I’m publishing, that the applicants were successful on many issues of fact, but lost on the law, essentially.”

However, Justice Beach noted: “Given the facts of this case, leading to an adverse result for the applicants, it may be that further consideration needs to be given to the terms of the Franchising Code and possible modification. And that is a matter for another day. And obviously, in another forum.”

Mercedes-Benz Australia issued a brief statement welcoming the ruling: “We welcome the court’s decision. Our focus continues to be on delivering luxury, high-performance cars for our valued customers around Australia.”

However, the peak body representing dealers across most automotive brands said the finding was “a kick in the guts” and will take time to assess the outcome in detail.

“Automotive dealers across Australia will be very disappointed with this judgement,” James Voortman, the CEO of the Australian Automotive Dealers Association (AADA), said in a media statement.

“This will feel like a kick in the guts not only to the Mercedes dealers but to all franchised new-car dealers and, for that matter, all of Australia’s franchisees.

“I do note the judge said while the dealers were successful on matters of fact, they failed on matters of law. He also stated that further consideration needs to be given to the terms of the Franchising Code and possible modification.

“The AADA will use the learnings from this case in our input to the Federal Government’s review of franchising to call for stronger protections.”

Mr Voortman also noted: “Dealers are weighing up their options and as an industry we will carefully consider this judgement as more detail comes to hand. The AADA will review the judgement in greater detail and provide further comments on the case in the coming days.”

Japanese car-maker Honda switched to non-negotiable fixed prices for new cars in Australia from 1 July 2021, and Mercedes-Benz followed suit from 1 January 2022.

Other brands – such as Hyundai and Volvo – have tried a mix of the traditional dealer business model (in which prices are negotiable), while also setting fixed prices for certain models such as electric cars.

However, while Hyundai continues to make this distinction, Volvo has recently reverted to the traditional business model for its electric cars, to match the rest of its showroom line-up.

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