DG Competition

Commissioner: Neelie KroesDirector General: Philip LoweAlmost 800 staffOf which more than 400 AD staffMostly lawyers and economistsChief economist: Prof. Damien Neven

Kroes-ControlCommissioner Neelie KroesDirector General Philip Lowe

Time line

2002200320042005200620072008200920101 October1400/2002entered into force30 SeptemberEnd of transition period1 OctoberLocation clauseLE study31 MayEvaluation report31 May1400/2002expires1 May: Reg1/2003entered into force31 May 2790/99 expires

The objectives of the BER7 objectives:Protecting parallel tradeDiversity of distribution formats MultibrandingAccess to networkCompetition between IAM and network Liberalisation of spare parts marketDealers independence

BER 1400/200240% threshold for quantitative selective distribution13 hardcore restrictions, 7 specific conditions, 23 definitionsNon-compete not exemptedDealer protection

Success or failure?The objectives of the BER have been achieved. The industry's main difficulties are not caused by the regulation or questions relating to competition rights but rather by contractual rights.The versions of the BER, in particular the last one of 2002, have resulted in situations of more subordination and abuse for the members of the authorised networks by the VM.(Quotes from national dealer associations)

The review processEffectivenessEfficiencyRelevance+Economic approach, i.e consumer-oriented effects-based approachPure competition focus

Market DevelopmentsReal car prices all fell by 12.5% from 1996 to 2004Fluctuating market shares 2002 2006Successful new entries and expansion of Asian manufacturersModerate, slightly decreasing concentration, from 2002 to 2006: CR4 declined from 57% to 54% Increased choice of models and brandsDealer market is still fragmented: 340 annual car sales/dealer [USA 628 cars]Dealer profitability low

EnforcementEuropean Commission:> 500 informal complaints5 decisions1 prohibition decision: Peugeot NL4 commitment decisions on technical information4 informal settlements46 formal complaintsNational Competition Authorities Total number of complaints: ca. 350Less than a dozen envisaged decisionsPrivate Actions4 private actions before ECJ (Art. 234 preliminary rulings)

Safeguarding access for competing manufacturersMeasure: allowing for sales of competing brands Arts. 5(1)(a) and (b) + Art. 1(1)(b)A modest increase in multi-branding has been driven by market forcesOnly limited take-up of the same-showroom sales modelEncouraging this model may have led car manufacturers to drive up standards to protect brand image

Protecting intra-brand competition between dealersuniformity in distribution models may stifle intra-brand competition the exemption of all types of distribution agreement Art. 2(1), up to 30% market share, but 40% for quantitative selective distributionallowing for stand-alone sales facilities Art. 4(1)(g)allowing dealers to open secondary sales outlets Art. 5(2)(b)Objective not reached, although in the light of strong inter-brand competition, protecting intra-brand competition less important

Facilitating cross-border tradeMeasures:allowing active and passive sales by members of selective distribution networks Art. 4(1)(b)repeal of the notice restricting activities of intermediariesNon-exemption of location clauses in selective distribution systems Art. 5(2)Encouraging cross-border dealerships Art. 3(3)

Protecting competition between independent and authorised repairersindependent repairers provide valuable consumer choice, particularly for owners of older cars. Their market position is vulnerable if essential inputs are withheldprotecting access to technical information Art 4(2)Protecting the supply of spare parts by authorised dealers Art. 4(1)(i)Protecting the supply of spare parts by original equipment suppliers Art. 4(1)(j) Objective achievedArticle 4(2) was helpful, though enforcement was needed measure will be redundant in the future due to EURO5/6 Regulation 715/2007Specific measure allowing authorised networks to supply independent repairers not necessary in the context of selective distribution

Protecting competition between authorised repairersMeasuresNo exemption for quantitative selective distribution above 30% market shareproviding for stand-alone repairers, which may not be obliged to sell cars Art. 4(1)(h)Protecting authorised repairers ability to offer alternative spare parts brands Art. 5(1)(b), 4(1)(k)Objective achievednumbers of authorised repairers have increasedBut Article 4(1)(h) is redundant: due to high market shares, qualitative selection has to be applied, and a stipulation that a repairer has to sell cars is not a valid qualitative criterion

Facilitating spare part producers aftermarket accessdefinitions of original and matching quality spare parts that allow producers to sell more effectively directly to the after market Art. 1Objective achieved - spare parts manufacturers have maintained their market positionDefinition of original and matching quality parts will be redundant in the future due to equivalent provision in Type approval Directive 46/2007, and to a certification procedure for safety-critical parts

Protecting dealer independence vis--vis suppliersReason: to reduce the likelihood of dealers being disciplined by car manufacturers for engaging in the pro competitive behaviour promoted by the BERMeasures:minimum contract durations and notice periods Art. 3(5)Reasons for contract termination Art. 3(4)Contractual arbitration right Art. 3(6)

Protecting dealer independence vis--vis suppliersVast majority of dealers have indefinite contracts, with termination possible on two years noticeAs regards dealers, not in VMs interests to arbitrarily terminate their contractsIn reality, dealers are disciplined using more subtle tools than threats of termination (high purchase targets, auditing)Rules on termination for authorised repairers unnecessary, since such networks are based on qualitative selectionArbitration appears to be useful for both dealers and suppliers as an expedient means of resolving disputes, although it is scarcely used in practice

Code of best practiceTermination and dispute resolution are not competition-related issues, but are rather a matter for commercial laws and practicesIn the interest of all, for these issues to be enshrined in a code of best commercial practice, along with minimum notice periods

Overall AssessmentGeneral competitive conditions have improved, largely independently of the BERHowever, the BER has helped to adjust to that changing environmentPositive evolution of other parts of the EU regulatory framework applicable to the motor vehicles sectorGeneral Regime would bringbenefits for consumersreduce legal uncertainty

Next StepsAdoption of Report in MayConsultation period until 31 JulyImpact assessment

Further InformationDG COMP Webseite: http://ec.europa.eu/comm/competition/sectors/motor_vehicles/overview_en.html

Disclaimer The views expressed are those of the author and cannot be regarded as stating an official position of the European CommissionThese slides are part of a presentation and cannot be fully understood separately from that presentation. Ideas presented here are intended to promote further discussion and analysis. They may not represent a complete or well articulated picture of the authors view.

The BER has somewhat over-regulated ARs spare parts sourcing, because:Some spare parts are only available from the VMsSourcing the others from elsewhere would increase transaction costs andCase where target and bonus schemes may enhance fidelity should be dealt with under Article 5(1)(b) as an indirect form of non-compete obligation

The BER has somewhat over-regulated ARs spare parts sourcing, because:Some spare parts are only available from the VMsSourcing the others from elsewhere would increase transaction costs andCase where target and bonus schemes may enhance fidelity should be dealt with under Article 5(1)(b) as an indirect form of non-compete obligation