The head of the peak body for car dealers in Australia has slammed a Federal Court appeal decision that found in favour of Mercedes-Benz over dealers unhappy with its move to an agency sales model.
The Federal Court has dismissed an appeal, filed in 2024, against a judgement it handed down in 2023.
In that ruling, where it found in favour of Mercedes-Benz Australia Pacific over a majority (38 of 50) of its franchised dealers, the Court found dealers hadn’t been misled about the agency move and that Mercedes-Benz hadn’t engaged in unconscionable conduct.
The Australian Automotive Dealer Association (AADA) said it’s “bitterly disappointed” by today’s decision, particularly as it follows the Supreme Court of Victoria’s ruling earlier this year which found General Motors didn’t breach its agreement with Australian dealers when it axed the Holden brand in 2020.
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It’s pushing for the Federal Government to introduce additional protections for automotive franchisees “so that the blueprint created by this court decision is not used by others”.
“We welcome the decision of the Full Court of the Federal Court in this matter. Our focus continues to be on delivering luxury products and services for our valued customers around Australia,” said a spokesperson for Mercedes-Benz.
At the heart of the original case, which commenced in October 2021, was the compensation Mercedes-Benz offered to dealers, although Justice Beach indicated Australian franchise law may once again need to be revisited and potentially modified.
“Australian dealers have been fighting to stop Mercedes-Benz using their power over franchised dealers to force them into one-sided business relationships. Today’s decision is a significant blow to that fight which will have detrimental effects on Australia’s franchising sector,” said AADA CEO James Voortman.
“In handing down today’s decision, there is now a clear need to protect Australian franchisees against unfair treatment from franchisors to arbitrarily change business models with no compensation.
“The presiding Judge in the original court decision clearly articulated the need for further amendments to the Franchising Code to protect the investments dealers make in their businesses.
“Today’s decision confirms that current laws in Australia do not adequately protect new car dealers against unfair conduct and particularly are not being supported against unfair decisions being made in head office overseas.
“It is imperative that the Federal Government moves at speed to implement the commitments it made in the election to protect franchisees against unfair contract terms and unfair trading practices.”
The move to an agency retail model resulted in Mercedes-Benz taking ownership of dealership stock, and removing the ability for customers and dealership staff to negotiate on prices – a change which dealers claimed would drive up prices of new models.
At the time of the initial court action, the 38 dealers were pursuing approximately $650 million in compensation.
The Federal Chamber of Automotive Industries (FCAI), the peak body for car brands in Australia, has said it “welcomes” today’s court decision.
“This decision is a clear recognition from the courts that businesses have the right to choose how they go to market,” said FCAI chief executive Tony Weber in a statement.
“The agency model is one of many approaches being explored internationally. Preserving the freedom to adopt such models ensures Australian consumers are not left behind as the global automotive market evolves.
“Calls for increased red tape and compensation schemes tied to traditional distribution models ignore the fact that many dealerships today are part of multi-billion-dollar enterprises on the Australian Securities Exchange.
“Automotive brands and multi-site, publicly listed dealership groups have a sophisticated commercial relationship. This is no longer a sector defined by small family operations. Dealerships are highly capitalised businesses that should not be shielded from commercial evolution.”
It said it rejected claims the agency model diminishes competition or results in higher prices, arguing it “delivers greater price transparency and consistency for all buyers” and that government intervention is “a recipe for higher costs and fewer choices for consumers”.
Mercedes-Benz isn’t the only auto brand to switch to an agency model in Australia, with Honda also doing the same – also resulting in legal action from some of its dealers.
Like Honda, Mercedes-Benz experienced a sales downturn after the switch in January 2022.
Deliveries of vehicles from its Cars division fell from 28,348 in 2021 to 26,801 in 2022, before dropping again in 2023 to 24,315 and then 19,989 in 2024.
But there’s light at the end of the tunnel, it would appear, with deliveries in the first half of 2025 up 15.9 per cent on the same period last year to 11,146 in total – its best first-half of a year since 2023.
MORE: Everything Mercedes-Benz