Mercedes-Benz dealers seek $650 million in damages from German automaker in ‘fight for their lives’

Australian Mercedes-Benz dealers are fighting a $650 million “battle of their lives” against the German luxury car maker in a test case described as one of the most important cases in franchise law history.

Bob Craig sold his 48-year dealership last year out of frustration with Mercedes-Benz’s decision to move to a fixed-price dealership sales model.

“I wish I had spent 50 years with Mercedes,” said Craig.

“In the past five years, there has been a deterioration in the relationship between the dealer and the manufacturer.”

Previously, dealers would buy Mercedes cars and could set their own selling price.

But under the agency model, which took effect in January, the manufacturer retains ownership of the cars while dealers become agents who sell cars at a fixed price for a set commission.

38 of the 55 Mercedes-Benz dealerships have launched a lawsuit against the company in federal court seeking compensation.

Dealers argue that they were forced to sign new dealership model deals with Mercedes that would drastically reduce their profits and wipe out years of goodwill with customers.

Mr. Craig is involved in legal proceedings despite selling his Orange business last year.

He also speaks on behalf of his former teammates who are reluctant to openly criticize Mercedes.

“They are all wrecked, their livelihoods shattered,” said Mr. Craig.

Bob Craig Agency photo of a Mercedes-Benz in Orange from the 1970s.(ABC News: Hamish Cole )

Dealers allege that Mercedes hatched a secret plan in 2016 to switch to an agency model, conducted a mock consultation process, and went ahead with a decision even though the majority of Australian dealers opposed it.

They claim that in an effort to profit from the dealers, Mercedes violated Australian consumer law by engaging in unreasonable behaviour, as well as violating the provisions of the good faith franchise law.

“This is a very important issue for the auto industry,” said James Furtman, chief executive of the Australian Automobile Dealers Association.

“In fact, it is probably one of the most important cases of franchise in Australian history.”

James Furtman
James Furtman says dealers argue that Mercedes-Benz engaged in unreasonable behavior and breached its good faith obligations.(ABC News: Matt Roberts )

The dealers involved in the case are seeking $650 million in damages from the car brand.

“That takes into account all the millions of dollars of investment that went into the facilities, but also the equipment and goodwill that they created,” Furtman said.

“It’s a big claim, but it’s more than fair.”

“These are regional merchants, these are city merchants, and they are Australian companies, and they are in the struggle of their lives against a large multinational.”

In March 2019, Deloitte designed the effect of the agency model for dealers.

It found, for example, that under the agency model, a particular dealer’s profits would be reduced by more than 50 percent compared to the selling model.

The case against Mercedes, which saw federal court hearings begin this week, was funded by dealers involved in the legal battle, including billionaire businessman Nick Politis, the PR firm working for AADA confirmed.

“A lot of these merchants have liked the brand for decades, and they’ve invested a lot of money in the brand, and they put in a lot of work to get customers into the brand,” Furtman said.

“And now all that hard work is being taken away with the change to a new business model.

“They need compensation for this change, and we hope the court will agree to that.”

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