A profound power imbalance persists between car dealers and manufacturers and must be addressed in tougher regulations, a Senate inquiry has been told.
Australian Automobile Dealer Association chief executive James Voortman told the inquiry the problem was highlighted by the decision of US-based car giant General Motors to close down the Holden brand.
Despite most dealers eventually agreeing on terms, a number were upset at the level of compensation offered by GM.
"The Franchising Code of Conduct and its weak dispute resolution mechanisms were no match for the Detroit-based Fortune 500 Company," Mr Voortman said.
"Unfortunately, this issue goes beyond the actions of one brand.
"The relationship between manufacturers and dealers is characterised by a profound imbalance in power.
"Not all manufacturers use the power imbalance to exploit their dealers.
"However, significant abuses occur far too regularly."
The Senate inquiry was established to review the circumstances in which GM decided to retire the Holden brand, effectively ending 185 dealer agreements.
It has since expanded its investigation to more broadly explore the relationship between car manufacturers and dealers.
Mr Voortman told the committee that the ease with which manufacturers could terminate or not renew their dealership agreements in Australia was of great concern.
He said some companies had also placed dealers on agreements lasting as little as one year and could terminate or change those arrangements without providing sufficient compensation.
"There are a number of dealers who are currently engaged in legal action against manufacturers on the issue of compensation," he said.
"Sadly this will be an incredibly time consuming and expensive process, pitting those dealers against massive organisations which are well placed to drag out proceedings."
But he said the biggest failing of the current regulations was the lack of a dispute resolution mechanism, with mediation under the Franchising Code rarely successful.
"This industry, more than most, is in need of dispute resolution which is cost-effective, timely and provides a determinative outcome," Mr Voortman said.
"We believe compulsory binding arbitration should be introduced."
Federal Chamber of Automotive Industries chief executive Tony Weber told the inquiry there remained a clear distinction between manufacturers not renewing dealership agreement and terminating an agreement.
He said the level of dealer terminations had been running at just 0.3 per cent each year over the past four and a half years, and dealers were protected by extensive regulations and consumer laws.
However, he said times were tough in the auto sector with the tightening of lending, COVID-19, natural disasters and supply constraints all impacting on sales.
"The world is changing rapidly, consumers are changing and the regulations that govern OEM (manufacturer) and dealer relations need to have the flexibility to provide vehicles to the market, and service those vehicles, in the manners that consumers desire," Mr Weber said.