Fada pushes automakers to give dealers more contractual certainty

Dealers being asked to invest crores on short-term letters of intent, says FADA president Sai Giridhar

The Federation of Automobile Dealers Associations (Fada) is pushing automobile manufacturers to adopt a model dealer agreement to provide greater contractual certainty to dealers making substantial investments in setting up and running dealerships.

 

Fada President Sai Giridhar said dealers are sometimes being asked to invest crores of rupees on the basis of letters of intent (LoIs) that may be valid for only a few months, leaving them with limited certainty over their long-term relationship with the automobile manufacturer.

 

“You make a dealer invest crores of rupees with only a letter. It is only on trust and faith that dealers do that,” Giridhar said in an interaction with Business Standard.

 

Fada has already shared its model dealer agreement with automobile manufacturers and is seeking wider adoption of the framework, Giridhar said. While some original equipment manufacturers (OEMs) have been reluctant to accept the agreement in its entirety, discussions have resulted in movement on some provisions, he said.

 

The proposed agreement is aimed at creating a more balanced framework governing the relationship between OEMs and dealers. Fada said the agreement has been prepared after studying international dealer agreements and is intended to protect the interests of both sides.

 

The issue assumes significance given the capital-intensive nature of the automobile retail business. Dealers typically have to invest in showrooms, workshops, equipment, manpower, and other infrastructure before they begin to recover their investment. Fada has previously said it can take several years for a dealership to break even.

 

“Some OEMs offer letters of intent valid for only two to three months, while dealers are expected to make substantial investments to set up the business. A fair agreement that provides dealers with a contractual safety net would put many of them at ease, as there is currently no uniform structure governing the relationship,” a two-wheeler dealer said requesting anonymity.

 

An auto manufacturing executive, on the condition of anonymity, said a more formal and well-defined contractual framework between automakers and dealers could help address concerns arising from changing managements, informal commitments, and rising dealership costs. Dealer financial viability remained central to the relationship, the executive said, as a profitable dealer would be better placed to continue investing in the brand.

 

The executive also noted that the dealership model is changing globally, with multi-brand retail becoming more prevalent, particularly in two-wheelers. He added that any framework would need to account for the responsibilities and economics of both dealers and manufacturers. A formal agreement could also provide clarity, protecting dealers from sudden policy shifts when OEM management changes, the executive said.

 

Fada's push for a model agreement also comes against the backdrop of abrupt exits by global automakers from the Indian market in recent years. The federation has previously pointed to the exits of General Motors, Ford and Harley-Davidson as examples of the risks dealers can face when manufacturers discontinue operations in a market.

 

The federation first introduced its Model Dealer Agreement in 2022, seeking to create a more level-playing field between OEMs and dealers. MG Motor India became the first automaker to adopt the agreement in 2023.

 

Fada is now seeking wider adoption of the framework across the industry. Its website lists implementation of the Model Dealer Agreement among the federation’s current priorities.

 

Giridhar said the framework is not limited to just passenger vehicles. It can be applied across the automobile retail industry, including two-wheelers, passenger vehicles, commercial vehicles, and tractors, he added.

 

The push is part of Fada's broader effort to improve dealer viability and strengthen the OEM-dealer relationship. Giridhar said the federation's dealer satisfaction survey has shown significant improvement, while the pace of change at the OEM level needs to accelerate. 

Call for fair dealing

 

• Fada urges OEMs to adopt model dealer agreement
• Dealers asked to invest crores on short-term LoIs, says president
• Some OEMs reluctant to adopt agreement fully, but talks progressing
• Framework seeks dealer protection on OEM exits and terminations
• Model agreement covers all segments: 2W, PV, CVs and tractors