Court hears of “combat strategy” to take 95 per cent of service customers from two former dealers
By John Mellor on 26th September 2023 Regulations, News ACCC, Honda
The ACCC said that the top management at the car company developed what it called its Dealer Exit Combat Strategy and that the aim was to get between 90 per cent and 95 per cent  of the service customers of exiting dealers, including Astoria Brighton and Tynan Motors, to leave those dealerships and get their cars serviced at Honda Centres owned by remaining Honda dealers. 
These dealers (now agents) were operating in the expanded market territories previously belonging to the exiting dealers.
Called internally Project Fresnel, the project team met weekly to monitor progress under its “Dealer Exit Combat Strategy” which included a plan to “Fight for every customer”, the court was told.
Fresnel was a French physicist who invented the wave theory of light. His invention saved countless lives at sea by extending the visibility of lighthouses.The court was told that more than 44,000 emails and SMS messages were sent out to Honda owners, including 2100 that specifically targeted those who were due to have their car serviced. 
The ACCC said in court that 20,000 emails specifically targeted Astoria Honda service customers.
The Federal Court was told that as part of the campaign to convert customers, Honda Australia briefed a supplier, Zenith Media, that: “Honda Australia needs to retain 95 per cent of its customers in the authorised Honda network and locations as part of the new operating model.  There is a risk that impacted customers will continue to service at Astoria and Tynan.”
The court heard that in the case of Astoria the emails carried the headline: “Astoria Honda has closed” and in the case of Tynan the headline said: “Tynan Honda has closed”.
The messages told these owners to contact Honda for the addresses of their nearest Honda service centre because the Astoria and Tynan service centres were “closed”. Yet the Astoria and Tynan service centres were not closed and the dealerships had every intention of continuing to service all-makes, including the Hondas belonging to their customers.
Both Astoria and Tynan contacted Honda Australia to stop sending the messages but the emails and SMS messages continued until the dealers sought an injunction in the Supreme Court of Victoria. 
When the injunction was taken to the Supreme Court, the ACCC took an interest in the case. It then instituted Federal Court proceedings against Honda Australia alleging it made false or misleading representations to consumers about Brighton Automotive Holdings (Astoria) in Victoria and Tynan Motors (Tynan) in NSW.
“The players in the industry are very large multinationals that are well resourced and the commercial imperatives that underpin the strategy of Honda in respect of customers of exiting dealers are likely to be relevant to other manufacturers, including other manufacturers who are considering restructuring their businesses.
“And obviously, in the news recently is the Mercedes restructure. And there is a need for a strong deterrent message for the industry as a whole – Dr Oren Bigos KC counsel for the ACCC
The ACCC alleged that between January 2021 and June 2021, Honda Australia represented to customers of Astoria and Tynan that the dealerships would close or had closed and would no longer service Honda vehicles.
In fact, the ACCC said, the franchise agreements with Astoria and Tynan had been terminated after Honda’s restructure but both of these businesses were continuing to trade independently and were continuing to service vehicles, including Hondas.
“While Astoria and Tynan were no longer a Honda franchisee, they remained open as independent dealerships and were able to service Honda vehicles,” the ACCC said.
The ACCC alleged that in emails, text messages and phone conversations, Honda informed Astoria and Tynan customers that these businesses had closed and directed customers to contact a Honda dealership or Honda Service Centre to book their next service.
The ACCC alleged that “Honda deprived customers of the opportunity to make an informed choice about options for servicing their car in favour of a Honda-linked dealership which may have been less convenient or more costly for them”.
It further alleged that “Honda caused harm to the Astoria and Tynan businesses by falsely claiming they had closed or would close, which may have led customers to have their Honda vehicles serviced elsewhere.”

The ACCC sought declarations, pecuniary penalties and costs.
The court heard evidence over two days and the judge, Justice Moshinsky, reserved his judgements.
Penalty discussions
In the matter of penalties, the court was told that under the formulas used within the Australian Consumer Law to calculate penalties, Honda Australia could be liable for a total fine of 10 per cent of its revenue – some $98 million.
Dr Oren Bigos KC, for the ACCC, said the penalty should be between $7 million and $9 million. Justice Moshinsky said that this was less than 10 per cent of one contravention and that there were more than 2000 contraventions.
Honda had suggested the penalty should be between $1 million and $3 million.
But Dr Bigos said that the court should take into account when assessing the penalty that Honda Australia had allowed relevant contemporaneous documents to be deleted from its cloud system under a policy where documents were only held for six months “and this is a relevant consideration for the court when determining penalty”.
“In our submission, it was incumbent on Honda to retain documents, particularly in circumstances where there were complaints by customers, by the dealers, litigation by the dealers. And so within the six-month document retention policy, there were complaints, there was litigation by the dealers, there was an ACCC investigation. 
“In all those circumstances, it’s odd that Honda didn’t retain actual documents showing precisely when and to whom communications were sent.
“The reason we don’t have the evidence is because of Honda’s document retention policy. And it is a relevant consideration in relation to the corporate culture. It’s one of the penalty factors. One of the penalty factors is the corporate culture.” 
Dr Bigos also referred to Honda’s sense of the seriousness of the complaint by the ACCC saying that, prior to the trial, Carolyn McMahon (director of Honda Australia) had written a letter to the ACCC asserting: “This matter is not so serious as to warrant consideration by the courts. An infringement notice should be sufficient in this case.”
Referring to Honda’s corporate culture, Dr Bigos said: “When Honda learned of the misleading communication to affected customers, Honda didn’t undertake a comprehensive investigation to identify all the customers who may have been affected by the conduct. It sent corrective notices to 1212 people rather than the universe of persons who received the admitted contravening communications.”
Honda said that difficulties with internal communications had prevented timely corrections of the emails it was putting out under its combat program.
Dr Bigos submitted to Justice Moshinsky that Honda’s attempts to retain customers “involved contraventions” of the Australian Consumer Law.
“In our submission, a message should be sent to Honda that increases in profitability should not come at the expense of compliance. There should be sufficient processes in place to ensure they don’t contravene the ACL and that warrants a significant penalty. 
“In relation to general deterrence more broadly, this is an industry, the automotive industry, which is important for Australian customers. 
“It’s a very large industry that impacts a very large proportion of the population and the players in the industry are very large multinationals that are well resourced and the commercial imperatives that underpin the strategy of Honda in respect of customers of exiting dealers are likely to be relevant to other manufacturers, including other manufacturers who are considering restructuring their business. 
“And obviously, in the news recently is the Mercedes restructure. And there is a need for a strong deterrent message for the whole for the industry as a whole. 
“So in our submission, the penalty of seven to nine (million dollars) is in the appropriate range. The penalty proposed by Honda, one to three million (dollars) in our submission, is unduly low and would merely represent the cost of doing business and would not send the relevant specific and general deterrent message that’s appropriate,” Dr Bigos said.
Honda Australia told GoAutoNews Premium: “Honda Australia has cooperated with the ACCC’s investigation into this matter. We are unable to comment further on specific circumstances or details regarding claims by individual dealers, or any reference to legal action.”

Footnote: The court heard that Honda Australia and Asia Honda recognised that 106,000 Honda customers would be impacted by the closure of the 36 terminated dealers as the company moved over to the agency sales model. 
By John Mellor

Road to Recovery Podcast Series

Agency retailers may struggle to retain “rare and special breed” needed to sell cars
Research rejects the need for govt regulation as 50 per cent of workshops have skills for EVs
Sponsorship plays to end of 2027 and cements a 24-year partnership
© Copyright 1979 – 2023 GoAutoMedia Pty Ltd • Terms and Conditions • Privacy Policy

source