Download - The future of motor vehicle distribution in European Competition Law (BER 1400/2002)

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MRFs BilhandelsdagStockholm, 17. April 2008

The future of motor vehicle distribution in European Competition Law (BER 1400/2002)

Dr. Stephan Simon, LL.M.Deputy Head of Unit, DG Comp

2Dr. Stephan Simon, LL.M.

DG Competition

Commissioner: Neelie Kroes

Director General: Philip Lowe

Almost 800 staff

Of which more than 400 AD staff

Mostly lawyers and economists

Chief economist: Prof. Damien Neven


Kroes-Control

Commissioner Neelie Kroes

Director General Philip Lowe


Time line

2002 2003 2004 2005 2006 2007 2008 2009 2010

1 October1400/2002

entered into force

30 Septemb

erEnd of

transition period

1 OctoberLocation

clause

LE – study

31 MayEvaluation

report

31 May1400/200

2expires

1 May: Reg

1/2003entered

into force

31 May 2790/99 expires


The objectives of the BER

7 objectives:– Protecting parallel trade– Diversity of distribution formats – Multibranding– Access to network– Competition between IAM and network – Liberalisation of spare parts market– Dealers independence


BER 1400/2002

40% threshold for quantitative selective distribution

13 hardcore restrictions, 7 specific conditions, 23 definitions

Non-compete not exempted Dealer 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 process

Effectiveness Efficiency Relevance

+ Economic approach, i.e consumer-

oriented effects-based approach Pure competition focus


Market Developments

Real car prices all fell by 12.5% from 1996 to 2004 Fluctuating market shares 2002 – 2006 Successful new entries and expansion of Asian

manufacturers Moderate, slightly decreasing concentration, from

2002 to 2006: CR4 declined from 57% to 54% Increased choice of models and brands Dealer market is still fragmented: 340 annual car

sales/dealer [USA 628 cars] Dealer profitability low


Enforcement

European Commission: > 500 informal complaints

– 5 decisions– 1 prohibition decision: Peugeot NL– 4 commitment decisions on technical information

4 informal settlements 46 formal complaintsNational Competition Authorities Total number of complaints: ca. 350 Less than a dozen envisaged decisionsPrivate Actions 4 private actions before ECJ (Art. 234 preliminary rulings)


Safeguarding access for competing manufacturers

Measure: 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 forces

Only limited take-up of the same-showroom sales model

Encouraging this model may have led car manufacturers to drive up standards to protect brand image


Protecting intra-brand competition between dealers

uniformity 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 distribution

– allowing 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 trade

Measures:– allowing active and passive sales by

members of selective distribution networks – Art. 4(1)(b)

– repeal of the notice restricting activities of intermediaries

– Non-exemption of location clauses in selective distribution systems – Art. 5(2)

– Encouraging cross-border dealerships – Art. 3(3)


Protecting competition between independent and authorised repairers independent repairers provide valuable consumer choice,

particularly for owners of older cars. Their market position is vulnerable if essential inputs are withheld

– protecting 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 achieved

– Article 4(2) was helpful, though enforcement was needed – measure will be redundant in the future due to EURO5/6 Regulation 715/2007

– Specific measure allowing authorised networks to supply independent repairers not necessary in the context of selective distribution


Protecting competition between authorised repairers

Measures– No exemption for quantitative selective

distribution above 30% market share– providing 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 achieved– numbers of authorised repairers have

increased– But 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 access

definitions of “original” and “matching quality” spare parts” that allow producers to sell more effectively directly to the after market – Art. 1

Objective achieved - spare parts manufacturers have maintained their market position

Definition 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-à-vis suppliers

Reason: to reduce the likelihood of dealers being “disciplined” by car manufacturers for engaging in the pro – competitive behaviour promoted by the BER

Measures:– 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-à-vis suppliers Vast majority of dealers have indefinite contracts,

with termination possible on two years’ notice As regards dealers, not in VM’s interests to

arbitrarily terminate their contracts In 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 selection

Arbitration 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 practice

Termination and dispute resolution are not competition-related issues, but are rather a matter for commercial laws and practices

In the interest of all, for these issues to be enshrined in a code of best commercial practice, along with minimum notice periods


Overall Assessment

General competitive conditions have improved, largely independently of the BER

However, the BER has helped to adjust to that changing environment

Positive evolution of other parts of the EU regulatory framework applicable to the motor vehicles sector

General Regime would bring– benefits for consumers– reduce legal uncertainty


Next Steps

Adoption of Report in May Consultation period until 31 July Impact assessment


Further Information

DG 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 Commission

These 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 author‘s view.