Mercedes-Benz Australia's agency-model switch drew a $650m dealer lawsuit

In August 2022, 38 of Australia's 55 Mercedes-Benz dealerships took the car maker to the Federal Court seeking $650 million in compensation, in what industry figures called one of the most significant franchise-law cases in Australian history. Under the agency model, which took effect in January 2022, Mercedes keeps ownership of its cars while dealers become agents selling at a fixed price for a set commission — a switch dealers say will dramatically cut their profits and wipe out years of goodwill.

The dealers allege Mercedes hatched a secret plan in 2016 to move to the agency model, ran a sham consultation, and pressed ahead despite most Australian dealers opposing it, breaching Australian Consumer Law's unconscionable-conduct provisions and the franchising code's good-faith obligations. Deloitte modelling from March 2019, cited in the article, found one dealer's profits would fall by more than 50 per cent under the new model. Bob Craig, who ran an Orange dealership for 48 years, sold up in frustration rather than sign.

The case is a test of Australia's updated franchising code, strengthened after a Senate inquiry sparked by GM's exit from Holden found an inherent power imbalance between dealers and makers; fines for code breaches had just been doubled and new compensation rights added. Mercedes defended the switch, saying Australian customers had 'embraced the new and transparent sales model', pointing to transparent pricing, lower delivery fees and national vehicle-pool access. Analysts noted agency models are spreading — Jaguar, BMW, Land Rover, VW and Honda are all moving that way.

A manufacturer unilaterally converted its dealers' businesses into commission agencies, capturing the retail margin they had invested decades building.

The dealers allege the 2016 plan was secret and the consultation sham — process, not just outcome, is what put the model in court.

Deloitte had already modelled profit falls above 50 per cent for dealers two years before the switch took effect.

It is the test case for Australia's new dealer-protection laws, so the outcome will shape every car maker's agency rollout.

In franchising, the transition is the product: a model that works for customers can still be unlawful and ruinous if the people who built the network are run over on the way there.

Hearings began in the Federal Court in early August 2022, with the case funded by the dealers themselves, including billionaire Nick Politis. No judgment is reported in the article; Mercedes says it is defending its position and remains committed to the agency model.