Franchises snub Holden compo offer across ditch
Australia’s federal government has announced a senate inquiry into Holden’s departure from Australia with key franchises rejecting General Motors’ initial compensation offer.
The inquiry, which has the backing of both sides of politics, was announced 24 hours after a delegation of Holden dealers met with Prime Minister Scott Morrison in Canberra on February 26.
They were lobbying the government to use its powers to ensure GM pays due compensation to the network of affected Holden dealers and their staff.
In addition to the loss of 600 jobs at Holden head office, there are likely a further 9,000 positions at Holden’s 203 showrooms across Australia.
One major Holden dealer has estimated his redundancy payments to staff alone will cost more than AU$800,000 (NZ$835,000), while another dealer has told CarAdvice he will need to sell his house to cover his shutdown costs.
The senate inquiry announcement comes as Holden dealers are mounting a campaign seeking more compensation than what has initially been offered by GM CarAdvice understands the initial offers range from AU$100,000 to AU$2 million per dealer.
Holden says it has so far only made formal compensation offers to 13 per cent of its showroom owners, however high-ranking dealer sources claim the payments will be “roundly rejected” by the rest of the network as being insufficient to cover closure costs.
GM says it will retain a presence in Australia for at least 10 years to support servicing, parts, warranty claims and recalls for the 1.6 million Holdens still on the road, but dealers are saying that won’t be enough to make up for their lost income.
The Australian Automotive Dealer Association (AADA), which represents 1,500 dealer groups across all brands – covering 3,500 new-car showrooms and about 60,000 employees nationally, has renewed calls for an overhaul of current franchise laws so dealers aren’t left high and dry when a marque terminates contracts early.
James Voortman, chief executive officer of the AADA, says: “As an industry, we were shocked by GM’s decision and the way it was communicated. However, we have been even more shocked by reports from our members on the grossly inadequate compensation on offer. The withdrawal from the Australian market leaves around 200 dealerships in the lurch and up to 9,000 workers out of a job.”
The AADA says Holden dealers invested “significant capital in facilities, stock and equipment”, and many signed up to “long-term leases” for their showrooms. It adds that the senate inquiry into the Holden shutdown is important because it will “set the benchmark for other … manufacturers considering an exit from the country, a rationalisation of their network or a change in their distribution model”.
Compensation calculations
Meanwhile, a statement issued by Holden on February 27 shed some light on its calculations for each dealer’s compensation package – offers that the marque believes go well-beyond its minimum obligations.
The Holden statement to CarAdvice states: “Holden is doing the right thing by its dealers during this difficult time. We believe the offer is fair. In most cases, Holden dealers will receive compensation a factor of four times the average Holden new car profit per unit of all dealerships over the 2017-2019 fiscal years. This number includes the sale of highly profitable domestically produced Commodore units in 2017 and 2018.”
The statement continues: “The compensation formula Holden is using is applied consistently for all dealers and covers reasonable earning expectations from the new Holden sales department over the remaining portion of the dealer agreement. All dealers also have the opportunity to continue as Holden authorised service outlets, maintaining their current service and repair client base.
This is a consistently very profitable part of their businesses.”
Holden says the compensation package will also include a provision to “reimburse dealers for a portion of their unamortised investments in their new-car showroom, as well as full reimbursement of unamortised investments in Holden dealer signage”.
Holden offer a ‘kick in the guts’
On February 26, Prime Minister Scott Morrison met with members of Holden’s dealer council in Canberra with all 200 showrooms nationally expected to unanimously reject GM’s initial compensation offer.
CarAdvice understands Holden dealers are halfway through current five-year franchise agreements, but GM has terminated the contracts well-ahead of the renewal date of December 31, 2022, because it is exiting right-hand-drive markets globally by the end of 2020 because they have been deemed unprofitable.
A veteran Holden dealer told CarAdvice on condition of anonymity: “The initial offer from GM was quite frankly a real kick in the guts, an insult and well-short of where they need to be. Dealers of every size right across the country have rejected this offer and we will be challenging it.”
GM is expected to roll out its remaining compensation offers in Australia this week. However, the Holden dealer group claims the rejection will be unanimous because they now know how the US car giant is forming its calculations. “Our estimations are the offer covers just 16 per cent of the dealer’s liability,” says the Holden dealer council representative. “No one is going to accept that.”
Holden NZ has declined to comment on whether its network has been made the same offer. Franchises on this side of the ditch have done comparatively better in recent years compared to those in Australia. It finished fifth on the ladder for new-vehicles sales in this country with a market share of 7.8 per cent.
