Honda dealers headed back to court over accusations of dodgy accounting

UPDATE, 28/11/23 4pm AEDT – A spokesperson for Deloitte has confirmed the firm served as an auditing and tax partner for fewer than 10 Honda dealers in 2020, not hundreds as had previously been reported, and continues to do so now. We've updated this article accordingly.

The Australian Financial Review reports dealers are arguing Deloitte Motor Industry Services, a division of Deloitte Australia, had a conflict of interest when it was brought on to determine compensation for terminated franchises.

The Deloitte division had concurrently served as the auditing and tax partner for under 10 franchised Honda dealerships around Australia; it acquired around 300 dealer relationships in 2007 when it bought Sydney consultancy firm Horwath.

At a global level, Deloitte already had multi-million dollar contracts with companies like Mercedes-Benz and BMW when it took on these smaller dealer auditing agreements, reportedly worth between $50-200,000 per year.

The dealers filing suit argue the firm used confidential monthly profit and sales information obtained from auditing their franchises to help Honda reduce the payments.

"They used our own figures against us," said Mark Avis, co-owner of the Astoria Brighton dealership in Melbourne, to the AFR.

"Deloitte was working with us, but they were also working against us.

"The offers were appallingly low. They had the data from all our operational years, picked the worst year, and made an offer from that. It was a disgraceful abuse of our trust."

A Deloitte spokeswoman rejected this, telling the AFR all information obtained from dealer audits was covered by confidentiality obligations and not used for other purposes.

The AFR reports three Deloitte partners were so concerned about the conflict of interest that they subsequently resigned from the firm.

The owners of the Astoria Honda franchise previously alleged in 2020 Deloitte threatened them, telling them Honda's compensation offer "was better than we would obtain in court and if we were unsuccessful, costs would be pursued on an indemnity basis" and that any legal action would last years and cost hundreds of thousands of dollars.

"Honda Australia is unable to comment on the specific circumstances or details regarding individual dealers, claims or any reference to legal action," said a Honda Australia spokesperson.

This isn't the first time Deloitte has been alleged of helping a car brand over its dealers in the switch to an agency sales model.

The AFR reported last year Deloitte partner Lee Peters admitted under cross-examination that the firm deliberately used 2018 as a base year from which to conduct its "before and after" analysis, despite it being the worst year in recent memory.

The subsequent report created by Deloitte showed Mercedes-Benz dealers would be better off under an agency model. However, when the modelling tool was reportedly applied to any other year, it showed significant profit losses – in some cases, as much as 10 times worse.

Mercedes-Benz Australia Pacific nevertheless prevailed in court earlier this year, with Federal Court Justice Beach dismissing a request – made by a majority of its franchise dealers – to be compensated by the German carmaker for the revised terms of its franchise agreements.

The dealers had claimed appropriation of their goodwill and customer relationships without adequate consultation, and alleged Mercedes-Benz had operated in bad faith.

Honda announced its switch in 2020 to an agency sales model – where it owns its own stock, and dealers instead work as sales agents offering fixed prices – despite dealers having only recently signed new five-year agreements.

The company terminated 36 of its dealerships' franchise agreements effective from June 30, 2021 as part of its restructure and shift to the new sales model.

Honda also pared back its local model line-up and introduced sharper capped-price servicing.

Content originally sourced from: CarExpert.com.au