New car industry in the ACCC’s headlights

Published On 08/01/2018 | By Rob Hirst | Uncategorized

Just before Christmas, the ACCC released the final report from its market study into the new car retailing industry in Australia following an 18 month investigation.

The ACCC found that while the market for the supply of new cars is generally competitive, the level of competition in the markets for aftermarket services could be improved. While consumers have a wide range of new cars to choose from, they find it much harder to shop around for repairs and services once they have become locked into a particular model. This dynamic leads dealers and manufacturers to aggressively discount new cars, but maintain high profit margins on aftermarket services.

ACL guarantees

The ACCC found that consumers find it difficult to enforce their ACL rights following the purchase of a new car. This is due to inadequate complaint handling systems which focus on commercial arrangements between manufacturers and dealers without adequately taking into account the ACL guarantees. For example, the ACCC found that there is a ‘culture of repair’ in the car manufacturing industry which leads to consumers not always being offered refunds or replacements when they are entitled to them due to major failures.

The ACCC also expressed concern that some consumers are purchasing extended warranty products which offer little value because they overlap with the consumer guarantees. This is being caused by a general lack of consumer awareness and understanding of the ACL guarantees, as well as the strong commercial incentive that dealers have to push these products onto consumers due to commissions and high profit margins. Read more about extended warranty concerns here.

These findings serve as a warning to dealers to ensure that their sales staff have a good understanding of the ACL guarantees so that they don’t mislead consumers as to the benefit of extended warranties. Financial institutions who finance extended warranty products should also be careful as in certain situations they can be held jointly liable with the warranty issuer under the ACL’s linked credit provider regime.

Sharing technical information

The ACCC is concerned that independent retailers do not have access to all of the technical information that they need to service and repair new cars. This limits competition in the market for new car repairs and servicing, and contributes to the widespread misunderstanding that new cars must be serviced at an authorised dealer in order for their warranty to remain valid.

In response, the ACCC has recommended that regulations be implemented to compel manufacturers to share this technical information with dealers on commercial terms and with appropriate safety and security protections.

Inaccurate information on fuel consumption and emissions

Concerningly, the laboratory tests that manufacturers rely on to market the fuel consumption and emissions of their cars produce significantly lower results than real world driving. For example, the ACCC found that real-world fuel consumption is, on average, 23 per cent higher than laboratory consumption. This difference has increased over time and has the potential to mislead consumers given the importance many of them place on fuel consumption when making a new car purchase. The ACCC has recommended that more realistic testing be introduced throughout Australia.

Next steps

The ACCC has said that will now work to implement its recommendations and continue to actively monitor this industry and take enforcement action where necessary.

Picture: Courtesy Pexels / Mike (image resized and changed to greyscale)

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About The Author

is a solicitor in the competition team in the Sydney office of King & Wood Mallesons.

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