Auto companies force unfair contracts, say dealers

NEW DELHI: Automobile dealers have raised voice against the “disbalanced nature of contracts” being forced upon by vehicle manufacturers, as they seek freedom to buy parts and components from the open market. They have asked for share and ownership of customer data, and opposed censures put on expansion beyond one brand by certain companies.
The Federation of Automobile Dealers Association (FADA), which represents over 15,000 automobile dealers spread across the country, said dealers were often at a disadvantage when signing up for brands, as the contracts were generally “one-sided” in nature, and failed to offer protection when companies abruptly terminated the contracts or decided to shut business (as had happened with General Motors, Harley-Davidson, and Ford).
“While manufacturer-dealer agreements are governed under the Indian Contract Act, 1872, the current legal regime does not contain any clear solutions to the issues faced by the dealers due to the disbalanced nature of existing contracts,” FADA’s new president Manish Raj Singhania said.
He said much of the terms favoured the companies, even though dealers are the ones who carry out the final sale and also service the products. “The tenure of dealership agreements in India is not standardised, and terms of renewal are often couched in uncertainty in many contracts, which increases the risk for dealers.”
Giving an example, he said that while dealers are expected to invest around Rs 10 crore to set up a passenger vehicle outlet and further invest Rs 15-20 crore for inventory, there are companies who insist on handing out tenures for only six months to one year.

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