Auto dealers seek law to protect against OEM exits

Contract law not enough, says FADA

The Federation of Automobile Dealers Associations (FADA) on Wednesday has urged the government to introduce a law to protect the interests of automobile dealers.

This comes in the backdrop of many foreign vehicle makers, such as General Motors and Ford, exiting India over the last four years.

“Most dealerships in India are MSMEs and their contractual arrangements with OEMs that are large corporations have historically been tilted in favour of OEMs due to dealers’ lack of bargaining power. What is surprising is that the same OEMs offer much better contracts to their dealers in many international jurisdictions,” FADA president Vinkesh Gulati told reporters.

Compared to Indian agreements, pacts abroad often have more balanced and comprehensive clauses on termination, indemnification and repurchase obligations, while affording more flexibility to dealers.

“The existing legal regime in India is inadequate to address these specific concerns of dealers. While OEM-Dealer agreements are governed under the Indian Contract Act, the law does not contain any clear solutions for us,” he said.

He added that such legislation should introduce robust contract enforcement and dispute settlement measures by incorporating a special authority with adequate representation from the Government of India, FADA and vehicle manufacturers’ body SIAM.

“The prevailing OEM practices are extremely problematic and against the principles of equity, justice, and good conscience. FADA hereby requests the intervention of Government of India to level the playing field between financially strong OEMs and the smaller automobile dealers,” he said.

Over the last four years, foreign original equipment manufacturers who have exited the market include General Motors, MAN Trucks, United Motorcycles, Harley Davidson and Ford.

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