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Block exemption: the uncertain road ahead

As AM went to press, the European Commission was due, after several years of soul-searching, to decide the future block exemption framework for the distribution, servicing and repair of new vehicles in Europe.

Unusually, the outcome will be implemented within a matter of days, as the current motor vehicle block exemption (“MVBE”) is due to expire on Monday.

However, even now, only days from original expiry date of this regulation, the outcome is somewhat uncertain.

Indeed, sharing some of the traits of our own General Election, the debate over the best solution for the automotive sector has been hotly contested between several different factions:

  • vehicle manufacturers (and, for the most part, the commission’s Competition Directorate – “DG COMP”) which has argued for a relaxation of sector-specific rules and a move towards general, more permissive regulation;
  • independent repairers and parts producers who, quite naturally and with some endorsement from the commission, have lobbied for narrower sector-specific regulation for the after-market in terms of improved access to parts and technical information; and
  • authorised distributors and repairers (with support from the commission’s Business Directorate and, more recently, the consumer lobby) who believe that sector-specific regulation supports consumer choice and retail investment and limits the danger of market abuses by manufacturers.

Put simply, the debate boils down to issues of control and market access, combined with DG COMP’s desire for standardised regulation.

The aftermarket aside, general regulation suits DG COMP because, in theory, it’s simpler and because there is already considerable choice in the marketplace for consumers.

It also suits manufacturers because it gives them even greater control over their distribution networks (with unfettered rights of termination, the ability to block dealership sales and, importantly, the right to insist on showroom exclusivity for their brand/s).

The commission’s proposals (as largely formulated by DG COMP) are:

  • that on May 31 the current MVBE should expire insofar as it applies to the supply and distribution of spare parts and the provision of repair and maintenance services;
  • thereafter, these sub-sectors would be regulated, from a competition law perspective, under a new aftermarket-specific exemption (and, to a more limited extent, under the recent EC type approval regulation) as well as associated guidelines – to address the competition problems that are perceived to persist in aftermarkets;
  • on May 31, 2013, the MVBE should lapse altogether, thereby ceasing to apply to the supply and distribution of new motor vehicles (and in its place, general block exemption rules – which are relevant to most other industries - will apply together with guidelines), to allow the sector some time to adapt;
  • the industry should adopt a code of practice – to be incorporated into each agreement, which may preserve certain rights for dealers and repairers, such as the right to minimum notice periods or fixed terms.

However, many are concerned about the commission’s proposals.

They believe the benefits of sector-specific regulation (for new vehicle sales as well as aftersales) have been down-played and the dangers of general regulation glossed over.

The RMI Franchised Dealers Association has actively lobbied for sector-specific regulation on the basis that the MVBE has, over the last few years, helped improve competition in the motor industry.

Moreover, the RMI considers that there is a real risk that general regulation could result in:

  • less legal certainty for businesses (particularly SMEs);
  • higher compliance and assessment costs;
  • a weakening of the deterrent effect of EC competition rules;
  • less investment;
  • less choice and higher prices for consumers.

The RMI makes the point that, under the MVBE, dealers are delivering ever-more competitive services and lower prices to consumers; furthermore, increasing numbers are investing in multi-franchising in order to deliver greater consumer choice.

The RMI feels the removal of the MVBE would, in many respects, negate these positive developments and undermine confidence on the part of many SMEs and larger groups in fair and predictable regulation.

Several weeks ago, it seemed that the commission’s proposal – of general regulation for new vehicle sales (with a mini-aftermarket regulation), which would grant vehicle manufacturers greater control over their networks – would prevail in the long term.

In this way, the commission’s policy objective of simpler regulation broadly favoured the vehicle manufacturers’ case in respect of new car sales.

That said, following intensive lobbying by dealer representative organisations such as the RMI, the commission had provisionally conceded a stay of execution in respect of MVBE until May 31, 2013 for new vehicle sales.

However, in what may prompt a significant swing in favour of the dealer and consumer lobby, the European Parliament has recently adopted a resolution which, to all intents, asks the commission to justify and/or revisit certain conclusions which led it to favour a general regulatory outcome over continued sector-specific regulation; put simply, DG COMP has, to date, failed to convince the European Parliament that its proposals represent the best solution for the preservation and development of competition in the automotive sector.

In particular it:

  • underlined the importance of preserving legal certainty for businesses in the sector;
  • voiced concerns over the disparity in bargaining power between manufacturers and dealers/repairers;
  • recognised the importance of SMEs as job providers and the need to limit the risk of future market abuses by manufacturers;
  • specifically refused to endorse the removal of certain conditions currently set out in the MVBE (such as those which allow dealers to multi-brand and sell their franchises);
  • recommended that any industry code of conduct should be mandatory and accompanied by a proper enforcement mechanism;
  • raised concerns that a very open system of regulation could, in reality, lead to less harmonious regulation across member states;
  • rejected the commission’s view that its proposals would not harm consumer choice or new market access;
  • proposed that any guidelines should be more detailed than those currently outlined by the commission; and
  • urged the commission not to close the door on sector specific regulation (including the possibility of extending the MVBE for vehicle sales after May 2013) pending a further review of current developments in the sector.

While this resolution represents an important step forward for dealers and their representative bodies and a thorny political issue for DG COMP, it is important to remember that the commission has a lot invested in its recommendations. 

Moreover, the commission is not obliged to follow the European Parliament’s recommendations.

However, in this age of coalitions and political compromise, an amended deal may be the order of the day and the commission may well consider offering concessions to ease the path of any new regulatory framework.

The format these concessions take, if any, may be quite diverse – ranging from additional detail added to the commission’s guidelines (to limit manufacturers’ ability to curtail multi-branding) to a commitment to an early review of competition in the sector before any final decision is taken to remove the MVBE in 2013 in relation to new vehicle sales.

Either way, it seems clear that certain manufacturers will have to wait a while before making too many adjustments to their network agreements.

 

 

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