Australia: ACCC new car market study: What does it mean?

Last Updated: 22 August 2017
Article by Adrian Kuti and Simon Ellis

Most Read Contributor in Australia, October 2017

The ACCC draft report highlights Australian Consumer Law compliance concerns, putting vehicle manufacturers on notice of potential further enforcement actions and a perceived need for reform.

The ACCC has released its draft report into the new car retail industry, with Chairman Rod Sims commenting that a much tougher regulatory approach was required to "stamp out poor behaviour".

Overview of the ACCC's findings

The draft report highlights significant concerns held by the ACCC about:

  • vehicle manufacturers' compliance with the Australian Consumer Law generally, most notably in respect of misleading and deceptive sales and aftersales practices and compliance with the consumer guarantees regime;
  • the effect of limited access to information and data required to repair and service new cars; and
  • consumers not receiving accurate information about the fuel consumption or emissions performance of new cars.

The ACCC makes a number of recommendations for reform of the consumer law regime to address these concerns and, consistent with the recent court proceedings commenced against Ford and the undertakings accepted from Holden, puts manufacturers on notice that the ACCC will continue to investigate and, where appropriate, take enforcement action to ensure that manufacturers' complaints handling systems, policies and practices comply with, and do not mislead consumers about, the consumer guarantee regime under the Australian Consumer Law.

The ACCC has invited written submissions in response to its draft report by 7 September and will host a roundtable with invited key stakeholders on 25 September. The ACCC's final report is scheduled for release in late 2017.

Background to the ACCC's market study

In June 2016, the ACCC announced that it had initiated a market study into the new car retailing industry under section 28(1)(c) of the Competition and Consumer Act 2010, which gives the ACCC the power to conduct research in relation to matters affecting the interests of consumers, being matters with respect to which the Parliament has power to make laws.

The ACCC generally undertakes a market study where a number of concerns about market conduct have been raised, and a detailed examination of the market characteristics could help determine whether intervention is warranted. Those interventions may include policy change, regulatory solutions or enforcement action.

According to the draft report, the ACCC's market study into the new car retailing industry is in response to a number of concerns raised with the ACCC and other fair trading agencies about how new car retail markets are operating, in particular in relation to defects with vehicles, misrepresentations to consumers, and issues in post-sale service markets. On releasing the draft report, the ACCC said that complaints to the ACCC about new car manufacturers have risen to more than 10,000 over the past two years, highlighting the need to address widespread issues in the industry.

The ACCC's recommendations for reform of the new car market

The ACCC's draft recommendations based on its market observations include:

Support for CAANZ's proposed amendments to enhance the ACL to (amongst other things):

  • provide consumers with additional clarity about when they are entitled to a refund or replacement under consumer guarantees, including:
    • where a good fails to meet a consumer guarantee within a short specified period of time, a consumer is entitled to a replacement or refund without needing to prove a "major failure";
    • multiple non-major failures can amount to a major failure (entitling the customer to choose the remedy); and
  • require specific forms of disclosure in relation to extended warranties.

Support for more realistic laboratory tests for fuel consumption and emissions performance, testing for vehicle emissions under real world conditions and introduction of clearer fuel consumption labels (these are already under consideration by the Ministerial Forum into Vehicle Emissions).

A new mandatory scheme that sets out the rules for car manufacturers to share technical information with independent repairers. This would:

  • cover all car manufacturers operating in Australia
  • include real time access for independent repairers to the same technical information car manufacturers make available to dealers
  • provide a process for independent repairers to access security-related technical information.

Greater scrutiny of manufacturers' complaints handling systems, policies and practices that do not comply with the consumer guarantee requirements of the ACL.

Recent consumer guarantee enforcement activities

The ACCC's draft report follows recent enforcement activity over ACL compliance in the new car retailing sector.

In July 2017, the ACCC initiated proceedings against Ford Australia, alleging that it engaged in unconscionable and misleading and deceptive conduct, and made false or misleading representations in its response to consumer complaints. The ACCC alleges that Ford refused to provide a refund or replacement vehicle to consumers who complained of transmissions issues, claiming that the problem was a result of driver handling, in the face of known systemic problems.

In August 2017, the ACCC accepted court enforceable undertakings from Holden to address concerns raised by the ACCC about Holden's compliance with the ACL, in particular that Holden had represented to some consumers that it had discretion to decide whether the vehicle owner would be offered a repair, replacement or refund of a car with a manufacturing fault, and that any remedy was a goodwill gesture.

Implications for vehicle manufacturers

It is clear from the ACCC's draft report and recent enforcement actions that the ACCC is actively investigating activities undertaken in the industry before sale, at the time of sale and post-sale and will take enforcement action where it considers that competition in the market is being hindered or consumers' rights are not being upheld.

In this context, it is important for manufacturers to review their practices and, in particular, consider:

  • whether current practices risk misleading consumers about their rights under the consumer guarantees and how those rights interact with contractual warranty and extended warranty rights, particularly having regard to any representations made about whether services can be performed by repairers other than authorised dealers and what remedies are available to a consumer if there is a fault with the vehicle;
  • whether non-disclosure agreements are used when resolving complaints, which the ACCC considers is a practice that may itself raise concerns;
  • whether the terms of their agreements with dealers restrict a dealer from dealing with a complaint in compliance with the ACL (eg. limitations on the ability of dealers to recover from manufacturers any costs of providing consumers with ACL remedies);
  • whether current complaints handling and warranty claim assessment practices could create confusion about the interaction between ACL rights and contractual warranty rights;
  • how fuel consumption and vehicle emissions ratings are conveyed to consumers (eg. the ACCC is concerned that comparative figures of fuel and emissions are not understood by consumers to be comparative, which is why the ACCC is pushing for greater clarity in how these figures are communicated through the introductions of a star rating system or annual operating costs to be included in promotional or advertising material and point of sale material).

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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