Automotive Blog

A French Farce?

Farce

In the theatrical tradition of the farce, so well-exploited by French playwrights over the centuries, the audience is led through a bewildering series of plot twists and turns, each more exaggerated and improbable than the last, with tension building to the culminating dénouement, where a crisis is averted, a relationship saved, and a lesson learnt.

Those who had been following the blow by blow story of one particular area of French government policy earlier in the year must have left for their summer holidays wondering if they would miss the final cliff-hanger whilst they were on the beach; it turns out that they needn’t have worried, as we are still waiting …

The story itself relates to a package of regulatory reforms, named the ‘Loi Macron’ after the Economy Minister Emmanuel Macron who came up with them, which are aimed collectively at liberalising the French economy and at boosting growth, welcome targets in the eyes of many.  One particular section of the reforms took aim at a type of business held in suspicion in more than one European country, the grands distributeurs or large-scale retail chains, typically those involved in food and general goods retailing, often accused of abusing their size to squeeze every last centime of margin from their small suppliers.

What has this to do with the automotive sector?  This is where the law of unintended consequences, such a feature of the farce, comes into play.  The reforms that Macron proposed were not written explicitly for the large retail chains, but instead in general terms, applicable to all franchise networks.  And so, they would affect the automotive sector too…

In order to protect the franchisee against the powerful brand, Macron proposed that if a brand has multiple contracts with one distributor (or vice-versa, one retailer-distributor has multiple contacts with the same supplier, say, for different food products), then these contracts should be able to be terminated separately – so if you terminate one of them, you must terminate all of them.  Translated into our sector, if a dealer group had contracts with one manufacturer brand for a number of different dealership locations, then being terminated at one location would mean being terminated at the others as well.  Furthermore, Macron proposed that all franchise contracts between the brand and its distributors should end on the same date.  Translated into our sector, this would mean that the rolling-term dealer contracts used by the vast majority of brands in France, would effectively be impossible to maintain, and would need to be replaced by fixed-term ones that would start and finish in synchronised fashion.  Finally, he proposed that fixed-term contracts should not simply ‘expire’ at the end of their term, with both parties free to go their separate ways, but instead should be negotiated ahead of time.

Faced with the prospect of having to terminate and replace nearly every dealer contract in France from 2016, the sector lobbied the Senate, and with some success.  How would the upheaval (and not to mention cost) of a mass termination serve the interests of small dealer franchisees?  How would effectively ‘fixing’ network structures for the 5 years of fixed-term contracts serve the needs of greater efficiency in the sector?  Twice during the Spring, the Senate struck the offending clauses out of the proposals … and twice the Assemblée Nationale reinstated them.  As the government retired for its Summer break, the package, including the offending clauses, was passed into law.

Now, the Constitutional Court, which determines how the package of reforms should be interpreted on the ground, is conducting its reading, and has suggested that, whilst it does apply to franchisees of Intermarché or Leclerc, it might not, after all, apply to automotive sector franchises …

Meanwhile, the CNPA, the French dealers’ association, is in no mood to leave things to chance, and has already suggested that it may file a formal complaint with the EU Commission, for what it sees as clear incompatibility between the French package and the European competition law to which it should conform.

So, as of today, the risk of brands in France being driven into termination and creation of fixed-term dealer contracts from 2016 still lurks in the background.  In the best traditions of French farce, there are probably plenty more twists and turns still to come before the final dénouement.

 

Written by Andrew Tongue
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