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BMW and GM respond to dealer complaints

The European Commission has closed its investigation into BMW’s and General Motors’ distribution and servicing agreements following changes to bring them into line with block exemption laws.

The EC said it was confident the changes each manufacturer had introduced would ensure both marques dealers and repairers are not restricted in selling or servicing cars of competing brands (multi-branding) and that all repair-shops who fulfil the necessary quality standards can become members of the authorised network.

Competition Commissioner Neelie Kroes said: “I welcome the constructive steps taken by BMW and GM which will allow opportunities for innovative car retailing and more competitive after-sales services, thereby benefiting consumers across the EU.”

The changes relate to two main areas: restrictions on multi-brand selling and servicing, and barriers to access to the authorised repairer network. The commission action, it said, will contribute to proper implementation and correct interpretation of the block exemption regulation.

What the EC said in each case:

BMW

The EC said various provisions in the contracts were hindering BMW dealers and repairers from using their existing facilities to sell or service cars of competing brands, without having to unnecessarily duplicate investments. BMW has now accepted that its dealers and repairers use their premises for multi-brand distribution and servicing. BMW has also clarified that dealers and repairers can use generic (multi-brand) IT infrastructure and management systems, including accounting methodology and accounting framework and that they are not required to disclose to BMW commercially-sensitive information on their business with other brands. This provides dealers with the opportunity to be innovative and more efficient, so that consumers can benefit from better commercial conditions.

BMW’s servicing contracts contained a range of requirements going beyond what is exempted by the car block exemption Regulation. BMW has now reduced the minimum capacity requirements to what is objectively necessary for ensuring high quality repair and maintenance services, and has abandoned all quantitative requirements that had the effect of directly limiting the number of authorised repairers in a given area. In addition, a new ‘opening clause’ states that repairers are free to source all workshop equipment, tools and IT hardware and software from alternative suppliers provided that equivalent functionality and quality is assured. BMW now also allows co-operation by authorised repairers to jointly warehouse and purchase spare parts. These adjustments and clarifications ensure that local demand can determine where repair outlets open, so that consumers can benefit from qualified after-sales services in their proximity and competition between authorised BMW repairers.

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The Commission also took note that certain discriminatory practices against stand-alone repairers (i.e. garages who do not sell new BMW cars) were abandoned by BMW during the proceedings. This included, in some member states, the omission of stand-alone authorised repairers from the directory of official BMW repairers on BMW’s website, the on-board service booklets and from the navigation systems installed in BMW cars.

The complaint

In June 2003, the European BMW Dealers’ Association lodged a complaint with the commission against several aspects of BMW’s distribution and servicing agreements concluded in the EU following the adoption of the block exemption regulation in 2002. The commission investigated the complaint and raised a number of issues with BMW, after which BMW implemented a set of adjustments to, and clarifications of, its distribution and servicing agreements. These were communicated, at the end of January 2006, to over 2500 BMW and Mini dealers and repairers in the EU.

The complaint by the European BMW dealer association was not founded in all aspects. In particular, arguments relating to a perceived lack of contractual fairness of certain contract provisions and practices did not raise concerns under the relevant competition rules. Such practices may, however, raise issues under applicable national law, including rules on the protection of weaker contract parties.

Following the Commission action, the European BMW Dealers’ Association has withdrawn its complaint.

GM

As regards multi-brand sales, the key issue was the method for determining sales targets and evaluating the performance of GM dealers. The commission was concerned that GM’s contracts deterred dealers who wished to diversify their portfolio of brands. In particular, dealer performance was measured in terms of so-called ‘registration effectiveness’ (a proxy for market share), and dealers were assessed against GM brands’ national market share.

GM has now removed the penalty for non-fulfilment of these performance targets and clarified that the setting of sales targets will, in all circumstances, require dealers’ agreement, and will take account of their local business circumstances including the decision to sell competing brands. GM has also confirmed that dealers have the right to seek arbitration in case of a dispute regarding sales targets and performance.

#AM_ART_SPLIT# Other contract provisions were hindering GM dealers and repairers from using existing facilities to sell or service cars of competing brands. To remedy this, GM has in particular clarified that the dealer management system can be generic, provided that it has the same quality and functionality as the GM-recommended product, and that the compatibility of its interfaces with key GM software is approved by a third party. GM has also clarified that dealers are not required to reveal commercially sensitive information on other brands through its reporting systems.

These changes provide dealers with the opportunity to be innovative and more efficient, so that consumers can benefit from better commercial conditions. Access to the repairer network should be open to all who fulfill the minimum qualitative criteria, so that local market forces can determine the density and location of repair outlets to the benefit of consumers.

To this end, GM has clarified that new entrants will only have minimum capacity requirements for personnel and work bays as are required to provide a good quality service, taking into account the actual work order history of each individual repairer. Moreover, work bays and other facilities, as well as personnel, may be used to service cars of competing brands, and staff not working on GM vehicles will not be required to undergo GM-specific training. Furthermore, a new “opening clause” states that repairers are free to source all workshop equipment, tools and IT hardware and software from non GM-designated suppliers provided that equivalent functionality and quality is assured.

The use of available generic tools will avoid duplication of investment. Finally, repairers can group together to buy and warehouse spare parts. GM has also reduced the core list of tools which have to be kept on site, while allowing all other tools to be shared between authorised repairers.

The complaint

Between September 2003 and March 2004, the commission received complaints from the French, Italian, Spanish and German Opel dealers’ associations, following changes made by GM to its distributor and repairer agreements when the car block exemption regulation was adopted. The commission investigated the complaints and raised a number of issues with GM, after which GM implemented a number of adjustments to, and clarifications of, its distribution and servicing agreements. These were communicated to all the Opel, Vauxhall, Saab and Chevrolet dealers and repairers in the EU in December 2005 and January 2006.

Following the Commission action, the four Opel dealers’ associations have withdrawn their complaints. Certain aspects of the complaints were not founded in terms of the relevant competition rules, such as those arguments relating to a perceived lack of contractual fairness. These may, however, raise issues under applicable national law, including rules on the protection of weaker contract parties.



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