Future of Australia’s automotive industry
Submission 33 - Attachment 1
vAcc·
You're In good h.mds
Victorian Automobile
Chamber of Commerce
ABN 63 009 478 209
26 March 2015
VACCHouse
464 St Kild a Road
MELBO URNE VIC 3004
P: 03 9829 1111
F: 03 9820 3401
vacc.com.au
The Hon Bruce Billson
Minister for Small Business
PO Box 6022
House of Representatives
Parliament House
CANBERRA ACT 2600
Email: sbminister@treasury.gov.au
Dear Minister,
Re: Automotive Repair Industry and Australian Consumer Law
VACC represents the interests of over 5000 small business owners who interact daily with
tens of thousands of consumers. It is inevitable that during these business transactions some
matters of guarantee, product warranty and consumer protection under the Australian
Consumer Law (ACL) arise.
Since the introduction of the Australian Consumer Law (ACL), VACC has had many
opportunities to study the manner in which the ACL operates and as a result we have
identified several small business owner concerns which, we would like to address with you
and the ACCC.
The area of most concern which confronts our small business vehicle repairer and
reconditioner members occurs when they purchase replacement parts for a vehicle from
a parts importer or manufacturer. It is common for a repairer to rely on the quality of
replacement part or to expect that the parts are made to an appropriate standard that will
fit correctly and not fail prematurely.
Here is a description of a common auto repair and ACL guarantee scenario :
1. An engine reconditioner orders a new replacement part for a customer's truck
engine. The relevant part is ordered locally but sourced from overseas. It is not
an OEM part, however, it is claimed by the auto parts supplier that they have sold
several of these parts - even using them in their own reconditioned engines with no
adverse outcomes - and it is of acceptable quality.
2 . Our repairer undertakes the purchase and sells the replacement part to his customer
along with other components that were required to repair the engine. The customer
Future of Australia’s automotive industry
Submission 33 - Attachment 1
-2who runs a fleet of trucks, servicing a large poultry business, has trained diesel
technicians to carry out the work. The cost of parts and repairs is approximately
$4000.
3. Shortly after the work is completed by customer's diesel technician, the customer
rings the repairer, reporting poor engine performance and seeking assistance
under the guarantees provided by the ACL. Upon further testing and ultimately
dismantling, the repairer discovers that the replacement part was not manufactured
correctly and the poor performance which resulted, was caused by the faulty part
which also caused further damage to the engine.
4. Our repairer protects the best interests of the consumer, seeks and finds a different
replacement part available from the original supplier. This new part along with all
others parts required to do the rework are supplied to the customer with no charge,
therefore meeting the ACL consumer guarantees under sections 54, 60 and 61 of
Schedule 2 of the Competition and Consumer Act 2010.
5. Now the fun starts.
Our repairer requests the parts supplier/manufacturer/importer to reimburse the cost
of the resupply of a replacement part, rework, damage and consequential losses
caused by the faulty part that was not of acceptable quality.
6. The parts supplier denies the full claim but offers to resupply the same part or
reimburse the cost of the part and some labour, but will not accept the full cost of
work required to rework the job or any consequential losses for the customer or the
repairer. For example loss of profits and time carrying out diagnostic work
7. Fortunately the customer has not been required to pay for anything more than the
original repair. The customer may have been inconvenienced but costs to reinstate
the engine to running condition were covered under guarantee or warranty by the
repairer, as it should be under the ACL.
8. But the news is not so good for our repairer, she or he is unable to recover costs
incurred because the parts supplier/ manufacturer limits liability at the time of
supply using terms and conditions of supply. An example follows:
WARRANTY LIM/TA T/ONS:
If any goods and/or services supplied by xxx are defective or unsatisfactory in
any way, total liability to the Customer and any other party claiming through the
Customer will be limited to the reasonable cost of replacement or repair of the parts.
Further, xxx will in no circumstances be liable for any cansequential lass or damage
the Customer may suffer.
The Customer will ensure that any of its terms of trade with any other party likewise
limit xxx liability. No warranty is given or taken that the parts supplied are as
described in the relevant supplier's catalogue. if deemed claimable, Jabour costs
Future of Australia’s automotive industry
Submission 33 - Attachment 1
-3-
will be limited to those required to restore the engine to the functional condition
existing immediately prior to the failure. This will be calculated based on recognised
Australian industry repair times as stated by O.E., the VACC Times Guide or a similar
recognised publication.
Warranty repair labour rates will be at the current xxx warranty rate which is
available on request. The liability for water pumps, glow plugs and filters is limited to
supplying of replacement parts only. The claimant shall cease to operate the engine
after the first sign of abnormal operating conditions or malfunction. No warranty is
given or taken as to the date for delivery of orders unless xxx has specifically agreed in
writing to the contrary.
9. The repairer has become the meat in an ACL sandwich caught between her or his
obligation to the consumer under sections 54, 60 and 61 and the permission
given to manufacturers in section 64A (1) & (2) that allows limitation of liability.
Manufacturers often limit liability to the replacement or replacement cost of the
goods.
It is clause 64 that creates issues for our exampled engine reconditioner/repairer, she or he
has purchased the goods with a limitation as to guarantee or warranty which exposes the
repairer to costs in the event of a warranty claim caused by problems with the part that are
not of their own making. Clauses 64A (3) & (4) might apply.
The difference in size and power in this business transaction is often dominated by the
supplier. In some cases particular automotive parts required may be available only from that
supplier and no other.
The question is whether it is fair and reasonable in the circumstances exampled above for
a small business repairer to be denied reimbursement of costs which are directly related to
the failure of the purchased part?
Another question also arises, how does the consumer obtain satisfaction from the
manufacturer/ importer without a direct contractual connection?
. Section 274 appears to allow indemnification of suppliers by manufacturers however 275,
276 and 276A appear contradictory to this point.
It is very difficult for small business owners to fully understand these clauses and to fight for
compensation if the supplier incurs costs because the supplier is liable for a failure to comply
with a guarantee under the ACL.
In our scenario above the manufacturer is not prepared to pay for more than a replacement
part and some labour. The customer has been satisfied by the rework undertaken by the
repairer; however the repairer remains out of pocket because the first part was faulty and
the second part which does fit correctly was more expensive and the difference in cost was
paid for by the repairer.
Future of Australia’s automotive industry
Submission 33 - Attachment 1
-4It is difficult to see how a small business owner would be able to use section 274 without
going to Court or another form of dispute resolution. It is unreasonable to expect that when
suppliers limit their liability it should be up to the man in the middle (the repairer) to take
action to recover losses caused by the supply of defective goods when the repairer must
under the ACL guarantees fully make good or reimburse the consumer.
In a recent published article quoting the ACCC's Dr Michael Schaper he described an ACL
issue with a diving watch as an example. He said:
"Whether the product fault is minor or major, will determine if you have to provide a
replacement, repair or refund.
A classic example of a major failure would be o diving watch described as 'water proof to
200m' that stops working when wet. In this situation, the customer could request a repair,
refund or replacement. If the clasp on the watch became loose that would likely be a minor
failure. In this case, it is the seller who can choose to offer a free repair or provide a refund or
replacement"
In our view when it comes to automotive parts and repairs the ACL is unfortunately not that
simple. Cars or trucks are far from the simple item that can be replaced with another from
stock or returned and refunded in full.
Automotive warranty issues are complicated; they involve complex manufactured goods
within which even a small defect can cause failure.
A car or truck engine or transmission is not a simple device and should not be compared to a
toaster or even the watch in the example given by Dr Schaper. A vehicle built with modern
integrated systems is a difficult to understand complex manufactured good designed for
longevity, safety and sustainability.
We should not compare cars to toasters-toasters don't last long these days. Cars and trucks
are long lived but complex which sadly is unacknowledged in the ACL.
The overall result is that the repairer is actually taking on the risk of ACL guarantee costs
which should be borne by the replacement part manufacturer/importer. Often the repairer
does not contribute in any way to the failure of the part yet bears much of the consequences
and costs to rework the job and ensure that the ACL protects the consumer.
There is something not quite right about the manufacturer forcing these costs down the line
and onto the repairer. This ACL scenario described above is a problem for small businesses
operating in engine reconditioning and automotive repairs where a defect in a small part can
cause major rework and damage to expensive engines.
Recently a VACC member approached the ACCC seeking assistance and guidance with this
issue. It was not easy for him to explain how and why the ACL is actually harming him in the
scenario described above and there may be an unintended consequence in the legislation.
Our member was not satisfied with the response received and requested VACC to follow up.
Future of Australia’s automotive industry
Submission 33 - Attachment 1
-5Hence this letter is written to you as Minister for Small Business.
Therefore VACC is requesting that you host a round table meeting which includes VACC
and ACCC representatives so we may fully explore the issue described in our scenario
and investigate a solution to the capture by the ACL of the repairer as the "meat in the
sandwich" between consumer and manufacturer.
We would appreciate your consideration of this matter and, welcome the opportunity for
our members to discuss this matter with you in person pending your agreement.
Kind Regards
Senior Manager Industry Policy