CECRA 2008­221 October 2008 Regulation 1400 / 2002 is in favor of the consumers! This document presents the positive results for consumers of the European Regulation 1400/2002 on agreements between motor vehicle manufacturers and the automotive distribution and aftermarket. The regulation was the object of a provisional report in May 2008, which makes presume that the current sector­specific legislation would be abolished and integrated in a general framework ruling all kinds of manufactured products. For the sake of the consumers, it is essential that the automotive specificity should be maintained in a sector­specific regulation. A/ The specificities of motor vehicles for consumers Motor vehicles are a very particular product in the economy of households. They represent their largest investment second to housing. The sector continues to be different from the other classic consumer goods markets. Buying a motor vehicle continues to be a quite different kind of purchase with not only consequences in the field of the family budget, but also in the field of road safety and environment. To citizens, the motor car means an individual freedom of mobility which is superior to any other means of transport, a significant residual value, the fulfillment of specific training requirements, and the need for consumer­adapted financing. Maintenance, insurance, the different forms of purchase (leasing) and the costs connected with the use of motor vehicles (taxation, fuel) reinforce the specific character of motor vehicles in comparison with other consumer goods. This also causes the requirement for well­structured after­sales services. To automotive professionals, the sector means unusual financial investments by dealers and repairers, with very low profit margins, warranties applicable throughout the Union, and specific spare­parts availability. This explains the importance given by the European Commission to the protection of effective competition — for this type of goods more than for any other — so as to ensure the consumer the purchase of a vehicle at the best price, delivery, and after­sales servicing conditions. In order to make a relevant evaluation of the impact of the sector, it should be kept in mind that 200 million motor vehicles are currently circulating in the common market. The motor vehicle (private cars and commercial and industrial vehicles) is the object of more than 60 regulations from as well the European Community as national authorities, ruling their construction as well as their circulation. The Motor­Vehicle Retail and Repair Sector show the particularity to be very unbalanced as regards the relations between suppliers and dealers / repairers. Since 1985 the European Public Executive has been aware of the disadvantages to consumers of such situation of dominant position in contractual relations. To counterbalance the situation, the Commission in 1985 started the introduction of block exemption regulations (BER). The current BER is
1 CECRA ­ AISBL Boulevard de la Woluwe 42, bte 6, B­1200 Brussels ­ Belgium Tel: (+32) 2 771.96.56 ­ Fax: (+32) 2 772.65.67 ­ E­mail : [email protected] ­ http://www.CECRA.eu No. 1400 / 2002. This European piece of legislation ensures legal certainty, independence, and freedom of enterprise by regulating the sector’s contractual relations. B/ An essential Regulation The European Commission’s Evaluation Report 1 of 31 May 2008 recognizes that “the degree of competition in the relevant markets (…) improved appreciably between 2002 and 2007. On the vehicle sales markets, a significant decline in real prices for new motor vehicles, successful new entries, relatively few exists, significant fluctuations in market shares (…), increased consumer choice within the various market segments combined with shortening of model life­cycles are evidence of a generally dynamic competitive environment. Comparatively modest but fluctuating average profits and constant R&D expenditure are further supportive elements. Competitive pressure can be expected to increase further as car manufacturers from emerging countries enlarge their presence on the EU markets. (…) In the after­market, both numbers of authorized repairers and overall network density have rebounded, in large part due to the BER. (…) In particular, large chains of independent repair shops have emerged, which are broadening the range of services that they offer to consumers.” 2 Contrary to the arguments upheld by the Commission, the improvement of the competitive situation is due to the BER, not to external factors. The Commission’s approach is all the less convincing as the results have been observed for at most four years. Since the investments made by the dealers to comply with manufacturer standards have not been amortized, the achievements of the BER have not yet produced all the positive effects expected for consumers. The lack of sufficient time to correctly assess the situation, reflected in the Commission’s Evaluation Report, is accentuated by the fact that the Commission did not first evaluate the Umbrella Regulation to which it intends to subject the Automotive Sector. Moreover, in the absence of a specific regulation, it is obvious that the needs covered by the current regulation will have to be provided for by other legal texts. Is this the principle of “better regulation”? The following diagram stresses the complication caused by the abolition of an automotive­ specific regulation: 1 2 http://ec.europa.eu/comm/competition/sectors/motor_vehicles/documents/evaluation_report_fr.pdf Idem p.3&4
2 CECRA ­ AISBL Boulevard de la Woluwe 42, bte 6, B­1200 Brussels ­ Belgium Tel: (+32) 2 771.96.56 ­ Fax: (+32) 2 772.65.67 ­ E­mail : [email protected] ­ http://www.CECRA.eu C/ The current system is tailored to consumer expectations Consumer interests are a core preoccupation of automotive professionals. Indeed, should it be reminded that if the consumers, i.e. the clients of automobile dealers and repairers, are not satisfied with the products and services they are offered, the businesses will be in jeopardy. The current system makes it possible to meet the expectations of not one but of great numbers of consumers who all have different expectations because they have different tastes, resources, requirements and needs. To this end the BER enables dealers and repairers to offer a wide range of products and services. They thus are able to adapt to their clients and pay attention to their needs and provide quality advise, with access to the best products in accordance with the clients’ budgets. D/ The BER­covered areas which are beneficial to consumers: ­ ­ ­ ­ Prices Quality of service Diversity of supply Proximity service (easier access)
3 CECRA ­ AISBL Boulevard de la Woluwe 42, bte 6, B­1200 Brussels ­ Belgium Tel: (+32) 2 771.96.56 ­ Fax: (+32) 2 772.65.67 ­ E­mail : [email protected] ­ http://www.CECRA.eu The following illustrations show that the provisions of the BER affect all those areas which are essential to European consumers. Multi­branding Buying a motor vehicle is first of all a possibility of choice. To make such choice easier, automobile dealers and sub­dealers dispose of a showroom where the brand’s different models are displayed, as well as the models of other makes. Multi­branding is an evidence of competition since it enables new manufacturers to enter the market, like Korean and Japanese manufacturers, with lower volumes. Consumers therefore have more choice. Multi­branding also provides better access to consumers who can more easily compare the different brands and models offered. Such access is all the more important as the number of models is constantly increasing. The September 2008 PriceWaterhouseCoopers study “Knocking on the Future’s Doors, the Challenges of Automotive Distribution” expects “a new generation of car buyers with a different state of mind” to appear soon. Major sales outlets with different makes, the freedom to compare products, services and packages will be part of the consumer’s life, and therefore of their state of mind”. The implementation of the Umbrella Regulation would allow non­compete clauses obliging dealers to buy up to 80 % of their supplies from the same supplier (against 30 % in BER 1400/2002). This backward movement would annihilate the efforts made by dealers during the past years and revert to the pre­2002 situation in terms of choice, because of a sudden return to a form of quasi­single­branding. This negative impact on competition will inevitably be detrimental to consumers. Coexistence of different aftermarket patterns Buying a vehicle also means to be able to have it maintained and repaired safely. Consumers today can choose between authorized repairers of their vehicle’s brand and independent repairers. In fact, while many consumers deem the link to the brand to be indispensable, others prefer to go to different service providers according to the different phases of acquisition and use of the vehicle. The current system which enables the coexistence of brand networks and independent repairers fully meets those different expectations. To be able to carry out their work independent repairers however should have access to manufacturer’s technical information and spare­parts, so as to remain competitive in the aftermarket. Access to technical information Access to technical information is necessary to enable real competition between authorized networks and independent repairers in the aftermarket and thus to improve the consumer’s free choice. As a matter of fact, the greater the number of repairers will be, the more prices will decrease, and the more consumers will be offered advantages in terms of prices and access to repair.
4 CECRA ­ AISBL Boulevard de la Woluwe 42, bte 6, B­1200 Brussels ­ Belgium Tel: (+32) 2 771.96.56 ­ Fax: (+32) 2 772.65.67 ­ E­mail : [email protected] ­ http://www.CECRA.eu But if there is no sector­specific regulation, access to technical information for the already circulating car population will be impossible. The Euro V standard, providing access to technical data, only covers vehicles which have been type­approved from 1 January 2009 onwards. Renewal of the current BER is indispensable to ensure the supply of technical information as regards the vehicles which are already in circulation. The spare­parts purchase clause The limitation of non­compete clauses to 30 % as regards spare­parts is a factor favorable to the diversification of supplies to repairers, and therefore to competition profitable to consumers. If the BER clause allowing a supplier to oblige the dealer to buy 30 % of his spare­parts from the supplier were to be abolished, such share would be brought up to 80 % under the Umbrella Regulation. Spare­parts would be sold at higher prices than currently since manufacturers would be in a dominant position, with no threat from parts producers. Spare­parts delivery times might become longer. Consumers would then be prompted to buy counterfeit parts, which would entail important risks for their safety and the environment. The maintenance of the status of authorized repairer The creation by the BER of the status of authorized repairer within the manufacturers’ networks has led to consolidation of the network density for the consumers’ benefit. While thus developing the supply of services thanks to easier access to manufacturer standards, the BER has considerably increased the level of competition in the aftermarket, ensuring quality services at the same time. To maintain selective distribution The BER has prohibited the association of exclusive with selective distribution. Almost all brands have opted for selective distribution in their networks. Selective distribution is far more beneficial to consumers than exclusive distribution, because manufacturers may not forbid their dealers to make active sales (active canvassing of individual prospects). Moreover, the object and effect of a selective distribution system is to put dealers in direct competition and to enable them to open up outlets in areas where another operator of the network is already present. The Umbrella Regulation, which authorizes selective and exclusive distribution agreements, enables suppliers not only to control dealer outlets, but also the absence of any competition. To preserve intra­brand competition The Commission is of the opinion that because inter­brand competition has increased, the protection of intra­brand competition can be reduced. Betting on inter­brand competition to ensure the protection of consumer interests is tantamount to putting aside two phenomena of capital importance.
5 CECRA ­ AISBL Boulevard de la Woluwe 42, bte 6, B­1200 Brussels ­ Belgium Tel: (+32) 2 771.96.56 ­ Fax: (+32) 2 772.65.67 ­ E­mail : [email protected] ­ http://www.CECRA.eu In first instance the existence of a cumulative effect arising from the fact that all manufacturers for the distribution of their vehicles use agreements with similar competition­ restricting clauses, with consequences on the access to the market. In second instance the absence of any protection of intra­brand competition would alter the density of networks. Competition would lead automobile dealers to the surroundings of great conurbations. Proximity service would perhaps be no longer ensured, to the consumers’ detriment. When a motorist has made his choice of a model, he must be able to put several sellers of this model in competition. Dealer independence Consumer safety depends on the certainty of the contractual relations between dealers and manufacturers. Contractual certainty ensuring dealer independence is therefore a precondition for optimal competition in motor­vehicle distribution and aftermarket. Only an economically independent entrepreneur can offer his customers the best products at the best prices. Article 3 of the BER makes it possible to secure investments, to ensure training, and to assure the client that he will have the benefit of after­sales servicing. Thanks to highly qualified personnel the consumer benefits from advises tailored to his needs. The abolition of dealer protection would not serve consumer interests, as the balance vis­à­vis manufacturers would disappear. Dealers would find themselves in a weaker position against manufacturers who would then be able to reduce competition, with as a result higher prices to the consumers’ detriment. Moreover the abolition of the contractual clauses would jeopardize the dealers’ legal and financial certainty, and subsequently their ability to develop offerings in the consumers’ interests, by hampering their innovation and development capacities. For example, the respect of the period of notice in case of contract termination is necessary to secure dealer investments. If dealers would have no certainty to be maintained in the network, the virtuous cycle of investment with an aim to offer consumers the best service would not function. The same reasoning applies to the minimal duration of agreements. Short­term agreements would not make the investments possible which have been agreed to by dealers in order to improve their services to consumers. In the same way the PriceWaterhouseCoopers study states that “a tool regulating the motor industry is useful for a number of reasons. If the vertical unbalances in the chain of values are not dealt with, the consumer’s choice can be reduced, profitability threatened, and the very survival of a great many SMEs and independent actors jeopardized”. The study also observes that “in order for competition to remain fair and to enable dealer groups to develop, and to enable consumers to profit by greater freedom of choice and more balanced downstream environment, these clauses and the competitive behaviors linked to them should be attentively studied. The motor car seems to be and will continue to be a sector where the issues of independence and unbalance affecting the European consumers count.”
6 CECRA ­ AISBL Boulevard de la Woluwe 42, bte 6, B­1200 Brussels ­ Belgium Tel: (+32) 2 771.96.56 ­ Fax: (+32) 2 772.65.67 ­ E­mail : [email protected] ­ http://www.CECRA.eu The European Commission proposes a code of conduct on these points. It is sure that in the absence of any binding contractual value the consumer would be prejudiced because of the manufacturers’ domination over the distribution chain. Conclusion The provisions of the BER have increased competition in the sales and after­sales markets for the consumers’ benefit. No consumer complaint has been heard of during the application of the BER, proving that the integration of the automotive sector in the Umbrella Regulation is not justified. It is in everyone’s interest to enable European consumers to easily buy and maintain vehicles at the best costs at professionals’ which are in a position to combine choice, quality of products, and quality of services. Only a specific regulation makes it possible.
Appendix 1: Table of consumer­friendly BER provisions. 7 CECRA ­ AISBL Boulevard de la Woluwe 42, bte 6, B­1200 Brussels ­ Belgium Tel: (+32) 2 771.96.56 ­ Fax: (+32) 2 772.65.67 ­ E­mail : [email protected] ­ http://www.CECRA.eu Table of consumer­friendly BER Provisions ISSUE REDUCED PRICES MULTIBRANDING AUTHORIZED REPAIRER STATUS SELECTIVE DISTRIBUTION INTRA­BRAND COMPETITION DEALER INDEPENDENCE WIDER CHOICE Easier comparison Easier comparison New manufacturer entries New models with manufacturer entries True competition between authorized ACCESS TO and independent TECHNICAL INFORMATION repairers 30% PURCHASE CLAUSE BETTER QUALITY OF SERVICE Competition between both boosters the quality of service Diversification of supplies Increasing competition between repairers Competition boosters the quality of service Active Sales Opening of outlets in the same area Direct competition between dealers Competition inside the network Competition inside the network Securing investments Secured investments Counterbalancing manufacturers Capacity of innovation Pro­competitive behaviors Secured young people training: qualification Stability of contracts PROXIMITY SERVICE / EASIER ACCESS Choice between authorized and independent Increasing number of repairers Diversification of supplies More suppliers Higher density of outlets Active and cross­ border sales More dealers in the same territory Opening of outlets in the same area Proximity service Development of supply Well­balanced environment
Appropriate advise 8 CECRA ­ AISBL Boulevard de la Woluwe 42, bte 6, B­1200 Brussels ­ Belgium Tel: (+32) 2 771.96.56 ­ Fax: (+32) 2 772.65.67 ­ E­mail : [email protected] ­ http://www.CECRA.eu