A parliamentary panel headed by Rajya Sabha MP K Keshava Rao has recommended that the government should enact the Franchise Protection Act for automobile dealers in the country, industry body FADA said on Friday.
It said that a "fair competition Franchise Act" will not only be a win-win for both the auto original equipment manufacturers (OEMs) and dealers, but will also be beneficial to customers in the long run, it said.
First introduced by the US in the 1980s, many developed countries such as Mexico, Brazil, Russia, China, Indonesia, Malaysia, Japan, Italy and Sweden have such rules in place to protect the franchisees, it said.
The Federation of Automobile Dealers Associations (FADA), which represents around 15,000 auto dealers across the country, in September advocated for the enactment of such a law in the country, after American cult bike manufacturer Harley Davidson announced its exit from India.
"Parliamentary standing committee (PSC) headed by K Keshava Rao has recommended that the government should come out with Franchise Protection Act for auto dealers.
"This recommendation was part of suggestions made by the standing committee in its Report Number 303 titled 'Downturn in Automobile Sector-Its Impact and Measures for Revival'," FADA said in a statement.
In its report submitted to Rajya Sabha Chairman Venkaiah Naidu last week, the Parliamentary Standing Committee on Commerce said that in the wake of the COVID-19 pandemic and subsequent lockdowns, the automotive industry suffered a loss of Rs 2,300 crore per day, and an estimated job loss in the sector was about 3.45 lakh.
It has also suggested a slew of measures for attracting investment in the automotive sector in the country, including overhauling of prevalent land and labour laws.
"I am grateful to the standing committee and specially the chairman, K Keshava Rao, for strongly recommending the Franchise Protection Act for auto dealers," said FADA President Vinkesh Gulati.
He added that the absence of such a law leads to a tussle in managing dealership operations in various ways, short-terms agreements and non-existence of a clearly defined exit policy.
There are various examples where auto manufacturers suddenly announced their exit from India, leaving auto dealers high and dry with their investments going down the drain, he said.
Citing the examples of General Motors India, Man Trucks (a VW Group Company), UM Lohia and Harley Davidson India, the FADA president said franchise laws will actually level the playing field for both large automakers and local dealers.
Currently, almost all auto dealerships are privately owned proprietorship or family-owned businesses, he added.
Large automobile manufacturers are some of the biggest corporations in India and overseas, the automobile dealers' body said.
Because of the disparity in size and power between individual dealers and manufacturers, the government needs to accept the standing committee's recommendations and bring in the Franchise Protection Act to level the playing field between auto OEMs and dealers, it added.