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Antitrust: Commission proposes future competition law regime for motor vehicle sector – frequently asked questions

European Commission - MEMO/09/348   22/07/2009

Other available languages: none

MEMO/09/348

Brussels, 22 nd July 2009

Antitrust: Commission proposes future competition law regime for motor vehicle sector – frequently asked questions

(see also IP/09/1168)

Why is the Commission carrying out a review of the motor vehicle block exemption?

The current Motor Vehicle Block Exemption Regulation (1400/2002), which was adopted by the European Commission in July 2002, will expire on the 31 st of May 2010. Block exemption regulations allow agreements that comply with their provisions to benefit from an exemption from the EC Treaty's ban on restrictive business practices (Article 81(1) of the Treaty.

What is the situation of the market, now that the block exemption is about to expire?

The markets for new vehicle sales are highly competitive. Consumers are benefiting from prices that have been falling by more than 1% a year in real terms. Concentration levels have been declining, and Asian brands are increasingly present on the EU markets, with Chinese and Indian manufacturers looking to add to an already diverse mix. Moreover, expanding product ranges mean that consumers have more choice within each vehicle segment.

On the other hand, competition on the repair markets is by nature limited, because there is a specific market for each brand of vehicle. Car repair is important to consumers, for safety reasons, but also because repair services account for around 40% of the lifetime cost of owning and running a car. Repair prices have risen rather than fallen, and prices are very high for certain types of spare part.

Would the motor vehicle sector continue to benefit from its own specific rules?

The Commission has not found indications of significant competition shortcomings in the EU such as would distinguish the motor vehicle sales markets from those for other goods. Therefore, it considers that, motor vehicle distribution agreements should benefit from the safe harbour from the EC Treaty's ban on restrictive business practices (Article 81(1) granted by the general block exemption on supply and distribution agreements (so-called vertical agreements - Commission Block Exemption Regulation N° 2790/1999).

As to the markets for repair and maintenance services and for spare parts distribution, where competition is less intense, and where there are potential problems particular to the sector, the Commission intends to complement the general block exemption on vertical agreements either with guidelines, or with a more focussed block exemption, or with a combination of both.

How would the Commission ensure that consumers benefit from effective competition in car repair and spare parts?

There are three kinds of competition issues that the Commission keeps an eye on.

Firstly, the rules must make sure that independent repairers operate on a level playing field with the authorised networks, and in particular that they can access the technical information they need to repair today's complex vehicles. It is for this reason that the Commission adopted four decisions against carmakers in 2007 (DaimlerChrysler, Toyota, General Motors and Fiat – see IP/07/1332 ). It is also important that warranty terms are not misused to prevent the owners of newer vehicles from using independent workshops for repairs and maintenance that are not covered by warranty.

Secondly, the rules need to ensure that access to the authorised repair networks remains open to all firms that meet the relevant quality criteria. This is one of the more successful elements of Regulation 1400/2002, and its objective needs to be maintained. Competition between authorised repairers is particularly important for the owners of newer vehicles, who tend to use the authorised networks rather than independent repair shops.

Finally, channels for the distribution of spare parts to both independent and authorised repairers must remain open. Independent repairers must have access to the full range of parts, including those that are only available from the vehicle manufacturer. Authorised workshops must be entitled to purchase and use alternative brands of parts.

Does the Commission have any concerns as regards the vehicle sales markets?

The Commission has always been vigilant to ensure that the market for the sale of new motor vehicles, as for any other good, remains competitive in the common market. That is why the general principles on vertical agreements include safeguards to ensure that market entry is not restricted, and that carmakers do not interfere with dealers' freedom to set prices, or sell to consumers from other Member States.

Would vehicle manufacturers be able to prevent dealers from selling other vehicle brands?

Multi-branding in the broader sense always existed where it made economic sense, for instance within dealer groups, or within the same dealership at remote locations.

The current Motor Vehicle Block Exemption Regulation (1400/2002) attempts to encourage newcomers to enter the EU markets by promoting the sale of different manufacturers' brands within the same showroom. However, in practice, the block exemption has had no significant impact in this area, and this format accounts for less than 1% of all sales.

On the downside, same-showroom multi-branding can dilute brand image, and cause manufacturers to take steps to preserve it by adjusting dealership standards. They may also refrain from investing in their dealerships, for instance through training, in order to avoid free-riding risks. In practice, these factors have led to a general increase in the distribution costs borne by dealers, and ultimately by the consumer.

The Commission therefore thinks that rather than trying to regulate the way in which all dealers can sell vehicles, risks of one manufacturer keeping another manufacturer's brands off the market may be tackled more efficiently through the use of a more focussed safety valve – namely, the possibility for the Commission and national authorities to withdraw the block exemption if entry to the EU or to a national market is problematic.

Under the general regime for distribution agreements, manufacturers cannot set the prices at which dealers sell vehicles and cannot prevent dealers from selling to consumers from other Member States. How will the Commission ensure that manufacturers do not put indirect pressure on dealers in order to get round these rules?

The general block exemption on supply and distribution agreements already today features safeguards to ensure that forms of indirect pressure aimed at anticompetitive behaviour will also be sanctioned by the Commission. Examples of such indirect measures can include the refusal or reduction of bonuses or discounts, refusal to supply, reduction of supplied volumes or limitation of supplied volumes to the demand within the allocated territory or customer group, threat of contract termination or profit pass-over obligations. The Commission intends to give guidance clarifying that where relationships between contracting parties are transparent, this would normally reduce the risk that manufacturers may be sanctioned for using indirect forms of pressure aimed at achieving anticompetitive outcomes.

How would the Commission ensure that all stakeholders had enough time to adapt to the changes?

The Commission's Communication sets out the broad policy orientations for the competition law framework that would apply to the sector from June 2010, thus enabling market players to anticipate the general nature of the change.

The Commission has also decided to give car dealers additional time to adapt to the general regime. The provisions of the existing block exemption that apply to agreements for motor vehicle distribution would therefore remain in force for a further three years, until 31 May 2013.

The Commission has identified a number of potential competition problems in the repair and maintenance markets and the markets for the supply and distribution of spare parts. Given the benefits that a reformed competition law framework may bring to consumers, the Commission suggests that the new provisions addressing these markets would apply as from 1 June 2010.

What are the next steps in the review process?

All interested parties are invited to submit comments on the Communication before 25 September 2009. Observations can be sent, preferable by electronic mail, to the following address:

comp-car-sector@ec.europa.eu

The Commission will fully take into account these observations and then take appropriate legislative steps to establish a competition law framework applying to the motor vehicle sector that ensures that the level of protection of competition is not only maintained but improved, while providing for a high level of legal certainty and predictability.


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