The Federation of Automobile Dealers Associations (FADA) is actively 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. According to reports from Business Standard, FADA President Sai Giridhar stated that 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.
The proposed agreement aims to create a more balanced framework governing the relationship between OEMs and dealers, as reported by Business Standard. FADA President Sai Giridhar noted that dealers typically have to invest in showrooms, workshops, equipment, manpower, and other infrastructure before they begin to recover their investment, with several years required for a dealership to break even. A two-wheeler dealer, speaking anonymously to Business Standard, highlighted that 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. An auto manufacturing executive noted that a more formal and well-defined contractual framework could help address concerns arising from changing managements, informal commitments, and rising dealership costs.
According to Business Standard reports, FADA has already shared its model dealer agreement with automobile manufacturers and is seeking wider adoption of the framework. While some original equipment manufacturers (OEMs) have been reluctant to accept the agreement in its entirety, discussions have resulted in movement on some provisions. MG Motor India became the first automaker to adopt the agreement in 2023, with the federation now seeking wider adoption across the industry. The proposed agreement is aimed at creating a more balanced framework governing the relationship between OEMs and dealers, with the agreement having been prepared after studying international dealer agreements and intended to protect the interests of both sides.
As reported by Business Standard, the push for a model agreement comes against the backdrop of abrupt exits by global automakers from the Indian market in recent years, with FADA pointing to the exits of General Motors, Ford and Harley-Davidson as examples of risks dealers face when manufacturers discontinue operations. An auto manufacturing executive noted that a more formal and well-defined contractual framework could help address concerns arising from changing managements, informal commitments, and rising dealership costs. The executive also highlighted that the dealership model is changing globally, with multi-brand retail becoming more prevalent, particularly in two-wheelers. Any framework would need to account for the responsibilities and economics of both dealers and manufacturers, with a formal agreement providing clarity and protecting dealers from sudden policy shifts when OEM management changes.
According to Business Standard, FADA's push for a model agreement is not limited to just passenger vehicles and can be applied across the automobile retail industry, including two-wheelers, passenger vehicles, commercial vehicles, and tractors. The federation's dealer satisfaction survey has shown significant improvement, while the pace of change at the OEM level needs to accelerate. FADA has previously said it can take several years for a dealership to break even, with the push being part of FADA's broader effort to improve dealer viability and strengthen the OEM-dealer relationship. FADA's website lists implementation of the Model Dealer Agreement among the federation's current priorities.
