On Wednesday, October 27, the Federation of Automobile Dealers Associations (FADA) said that the Union government should consider introducing an Automobile Dealers Protection Act.
This demand comes in light of Original Equipment Manufacturers (OEM) exiting the country over the years. According to FADA, after GM (2017), MAN Trucks (2018), UM Lohia (2019), and Harley Davidson (2020), Ford is the fifth auto OEM to stop domestic sales, thus leaving a large and untapped India market.
“Such exits adversely impact the interests of auto dealers,” FADA said. Further adding that in India, auto dealers are predominantly small and medium enterprises (SMEs) which are either family-owned businesses or partnerships firms and have significantly lower bargaining power in comparison to their OEMs which are large corporations.
"The entrenched unethical and imbalanced power structures with OEMs have caused a great deal of anguish to automobile dealers as the existing laws are not adequate to protect their interests," said the FADA, which recently instituted a comparative analysis study of foreign dealership agreements and legal protections in different countries such as the US, Australia and South Africa.
The analysis, FADA said, showed that unlike the imbalance in Indian agreements, foreign ones often have more balanced and comprehensive clauses on termination, indemnification, repurchase obligations and afford more flexibility to the dealers.
"Many countries in the world recognise the inherent power imbalance between OEMs and dealers within the automobile sector and have enacted legislation to level the playing field. Unfortunately, the existing legal regime in India is inadequate to address these specific concerns of dealers," FADA President Vinkesh Gulati said.
"While OEM-dealer agreements are governed under the Indian Contract Act, the law does not contain any clear solutions for us. India should also urgently consider the introduction of an Automobile Dealers Protection Act to make contracts more balanced and equitable,” he further added.