BER - Future Competition Law Framework for Motor Vehicles
Publication date: 29 September 2009
The Eurocouncil of the Fédération Internationale de l’Automobile (FIA) is the leading organisation for mobile consumers in the EU. Our member clubs gather some 35 million citizens, who own approximately 20% of passengers’ cars in Europe. It is part of clubs’ daily business to deal with mobile consumers’ queries on where and how to purchase their vehicles but also after sales servicing issues. It is via this longstanding experience and valuable expertise of motoring issues,that FIA clubs are well placed to bring the consumers’ voice into this debate. Our comments on Commission’s evaluation and in this consultation stem from our aim to defend their interests.
Clubs’ roadside assistance patrols answer in excess of 10 million rescue calls each year. In most cases, cars are put back on the road to complete their journeys on the day of the breakdown. Comprehensive access to technical information and spare parts– a secured by the Regulation 1400/2002 – is crucial for our clubs if they are to go on providing consumers with quality service. Mobile consumers broadly rely on personal vehicles for their mobility. Their cars represent on average, the second biggest expense of a European household in terms of purchase and maintenance. The current regulation 1400/2002 addresses issues linked to consumers’ right to affordable mobility, which are essential to restore their confidence in times of economic turbulences.
The FIA Eurocouncil notes with satisfaction that the European Commission, in its Communication, puts consumer welfare at the core of its reflection. We also welcome the fact that, in the course of the debate, the European Commission recognized the role of automobiles clubs in representing the interests of mobile consumers. In the issues considered in this context, the Commission’s understanding of consumers’ problems in the automotive sector has significantly evolved since the publication of its evaluation in 2008.
FIA clubs do not believe however, that any of the individual options as currently proposed will satisfactorily achieve this goal for consumers within the motor vehicle market. The current regulation 1400/2002 in its various provisions underlines consumers’ rights to affordable mobility. In the current unstable economic climate, preserving affordable mobility and consumer confidence is more essential than ever. As such, the current regulation is in urgent need of modification and modernisation to respond to this challenge.
FIA clubs remain convinced that the motor vehicle sector still requires a sector specific regulation that effectively addresses problematic competition issues in both the primary market (sales) and the automotive aftermarket. In our view, this is the only way to ensure that consumers get the best deal possible for the purchase and the maintenance of their car. Reliance on the general rules of the vertical restraints block exemption regulation (VRBER) to regulate the primary and/or the automotive aftermarket entails significant drawbacks for the consumers.
The separation of provisions regulating the primary and aftersales markets is also considered detrimental to consumers’ interests. Reliance on one clear, robust sector-specific instrument is the key to ensure competition to the benefit of the European motorist consumers.
I) More competition to guarantee consumer’ choice
The FIA Eurocouncil challenges the Commission’s statement according to which there are no “indications of significant competition shortcomings” in the sales of new vehicles as justification for bringing the automotive primary sector under the regime of the VRBER following a three prolongation of the existing MVBER. FIA disagrees with the Commission’s gamble that competition in the automotive will function correctly without a sector specific regulation. Indeed, in the motorcycle (powered two-wheeler) sector where competition is regulated by the VRBER, aspects criticised by the Commission with respect to the car sector also prevail here. Servicing activities have not been outsourced to subcontractors, nor is there any tendency to split distribution and servicing activities. Rather, manufacturers exploit the less restrictive VRBER provisions to oblige authorised dealers to abstain from selling multiple brands for a period of five years and in making dealer agreements cancellable at short notice. Arguably, there is less competition in the two-wheel segment than there is in the segments covered by the motor vehicle BER.
Breaking the links between distribution and the after-sales market – Warranties
In its Communication , the European Commission recognizes the challenge posed by “the possible misuse of legal and extended warranties granted by vehicle manufacturers, which are sometimes honoured only on condition that all repair and maintenance works (…) are carried out by a member of the authorised network” .
FIA clubs strongly oppose car manufacturers’ strategy aimed at binding consumers to their authorised garages by means of using restrictive warrantee terms. of all-inclusive servicing, very extensive/ specific guarantees terms. The growing tendency to bundle a car sale together with an additional “bonus” guarantee also ties consumers to franchised networks for all repair and maintenance jobs. National courts sometimes brought unexpected support to vehicle manufacturers, confirming that extended guarantee clauses - a thirty years rust-guarantee in the case under consideration – can keep certain categories of repair captive, even after the expiry of the normal guarantee . These practices are incompatible with competition law and should be strictly prevented to the benefit of consumers.
Consumers are currently bearing additional costs due to these anti-competitive measures. The price of this additional service packages is usually included into the sales price of a vehicle in the first place.
Furthermore, such packages normally comprise only the inspection cost and not the actual cost for the repair and the spare parts, which are more lucrative both for the manufacturer and the garage.
At relatively little expense, manufacturers persuade the consumers “of their own accord” to have all repair work performed in authorised garages. Unlike other highly complex products, motor vehicles must be maintained during their lifetime to meet stringent safety and environment standards. No other class of commercial goods is subject to so many requirements to ensure its expected minimum life-time of 10 years (or minimum mileage of 150 000 km). Over the life of a vehicle, the repair and maintenance will cost as much as the purchase price if not more.
Given the strong link between sales and after sales in the vehicle sector and the importance of motor related costs, consumers deserve the full benefits of fair competition for the repair and servicing of their cars.
Guarantees and all-inclusive packages are part of the distribution process, and they have a clear impact on competition in the after-sales. We therefore call on the Commission to include a much needed hard-core restriction on warranties in a future motor specific block exemption regulation.
Although FIA European clubs acknowledge that the potential of the Regulation n°1400/2002 has not been fully explored by the distribution networks, we believe that it is of highest importance for consumers to maintain specific rules preventing manufacturers from blocking multi-brand sales.
The limited amount of time granted to stakeholders to grasp the opportunities provided for by the Regulation n°1400/2002 may explain why some of the objectives set were not met. Multi-branding is much needed, in order to stimulate inter brand competition.
The regulation of the distribution by the VRBER would allow for clauses obliging dealers to buy up to 80% of their supplies from the same manufacturer (versus 30% according to the current MVBER). It has a potential impairing effect on the distributors which invested in multi-branding schemes and could lead to the closing of smaller dealerships. This would in turn have a negative impact on consumers. The conservation of the current dispositions concerning the primary market until 2013 does not provide for the legal certainty needed by consumers and dealers. Furthermore, jeopardizing their mere existence at such an early stage makes it impossible to make a real assessment of the potential success of art 1.1(b) and 5.1(a) in increasing multi-branding opportunities for consumers.
II) Aftermarket issues
In its Communication on the MVBER Impact Assessment, the European Commission acknowledges that “competition is less intense (in the markets for repair and maintenance services and/or for spare parts) due to their brand specific nature ”. A phase-out of the motor specific BER and transition to the Vertical Restraints BER would not improve competition situation in the aftermarket. The sector needs a modernised and improved Automotive Specific Block Exemption Regulation to allow consumers to benefit from competitive market prices for the repair and servicing of their vehicles.
Access to technical information
The current motor specific BER is the only piece of legislation which regulates access to technical information for the entire vehicle park . This access is an essential work tool for independent repairers and road side patrols. Without strictly enforceable and clearly codified hard-core provisions on access to technical information on necessary technical information these key market players would not be able to provide motorists with much needed and affordable services. This notably concerns independent tool manufacturers who should have access to all the information needed for the creation of multi-brand generic tools notably for the roadside rescue patrols.
In its assessment report, the European Commission considered the access to technical information was ensured by the Euro 5/6 Regulation 715/2007 and its technical implementation within Regulation 692/2008. These pieces of legislation indeed oblige vehicle manufacturers to release all such information for vehicle type-approved from 1st September 2009. However, the Commission failed to appreciate the fact that technical information on older vehicles needs to be updated and adapted continuously. Without a motor vehicle BER, there would at least be the risk of an information gap for many years for such vehicles. As such, it is of the utmost importance that a new sector specific Block Exemption Regulation would echo the provisions on access to technical information contained in the Euro 5/6 Regulations.
Access to spare parts
The present MVBER requires all vehicle manufacturers to freely provide affordable standardized access to spare parts needed for the repair of vehicles and putting them back on the road. In other words, it protects the ability of independent operators to access to the information and spare parts/ OEM spare parts they need for repairs. The VRBER would not provide aftermarket stakeholders with these market specific dispositions they need to provide affordable repairs.
III) European clubs’ stand
We currently have a MVBER which though not optimal, has established a regime according to which all stakeholders play and it should not be allowed to simply lapse.
The sector requires hard sector specific regulation and efficiently enforceable sanctions with a strong deterrent effect. Without the benefit of seeing the legislative provisions that will replace the MVBER, it is difficult to judge concretely how a move away from such a regime will improve competition.
None of the four options identified and analysed in the European Commission Impact assessment fully responds to consumers’ needs. FIA would support an option drawing lessons from the 10 years of implementation of the current MVBER and acknowledging technology’s developments. A consumer-friendly and future proof option should have the following characteristics:
1. Standards and obligations must be laid down in a single Motor Specific Block Exemption Regulation. Such a binding piece of legislation would safeguard legal certainty and ensure the enforceability of consumers’ and independent operators’ with hard-core provisions on access to technical information.
2. This piece of legislation should contain hard core provisions enabling independent operators to access all technical information and spare parts needed for repair and maintenance, taking into account the significant evolution in vehicle technologies of the last 10 years..
3. It should ensure that roadside patrols are set on equal footing with authorised repairers in terms of accessing information and spare parts thus allowing for efficient competition. This will in turn, have a positive effect on prices and will benefit consumers.
4. FIA calls for the inclusion of hard core restrictions on warranties to be included in an improved Motor Vehicle Block Exemption Regulation. Only such stringent legislation will prevent vehicle manufacturers from resorting to the use of warranties to tie consumers to their brands for servicing and repair. The rapid widespread development of this anti-competitive practice makes it necessary to lay rules down in a binding and directly enforceable regulation.
5. Multi-branding possibilities should be preserved, as the MVBER dispositions have not yet deployed their full potential.
Comments on the four proposed options
The mere prolongation of the current Motor Specific BER (Option 1) is not suitable to regulate the automotive sector of the future. Prolongation would not solve some of the problems still characterizing the markets for spare parts, servicing and repair. Furthermore, the Commission attention has been drawn on other issues –such as warranties- which would need specific provisions. Provided that a significant modernization is carried out, this piece of legislation could provide the robust, sector-specific and future-proof piece of legislation needed in the automotive sector.
The Option relying on reviewed General Vertical Restrains Block Exemption Regulation (VRBER) cannot be considered as viable alternatives to the current MVBER (Option 2). The VRBER is very general by nature, as it regulates the distribution of a broad variety of markets. The specificity of automotive primary and aftermarket cannot be satisfactorily encompassed in such a general regulation. In our view, reliance on the sole VRBER would jeopardize the legal certainty enjoyed by the consumers up to now and endanger the potential further improvements of the competition situation in the aftermarket.
Option 3 foresees the adoption of specific guidelines to complement the very general VRBER. Whilst taking the specificities of the motor vehicle sector into account, this option would still represent a significant step backward compared to the implementation of an up to date MVBER. In this scenario, the enforcement of the specific rights attached to the motor vehicle sector would depend on long and hazardous court proceedings .
Option 4 recognizes that clear regulations are needed to boost competition in the after-sales market in particular, notably in view of the manufacturers’ redoubled efforts towards binding customers to their own service networks. Since this “mini BER” would not contain any regulations affecting the primary market, it would not be inclusive enough given the close linkage between the two segments.
The FIA therefore urge the Commission to create a new sector specific Block Exemption Regulation based on the current provisions contained in the MV-BER 1400/2002, as updated in light of technical progress, new anti-competitive practices and changes in the primary and after-sales market since 2002.
As at 25/09/2009
1 EC Communication on the Impact Assessment, COM 2009 (388) FIN, page 4.
2 Communication on Impact Assessment on the Future Competition law Framework applicable to the Motor Vehicle Sector
3 EC Communication on the future competition Law Framework applicable to the motor vehicle sector, COMM 2009(388), page 8 (paragraph 32).
4 Disregarding the BER and national competition rules (for formal reasons), the German supreme court upheld the validity of clauses making a 30-years rust guarantee dependant on the exclusive servicing of the vehicle in the manufacturer’s network (BGH reference no. VIII ZR 187/06). The Court explained that the vehicle manufacturer’s interest of binding the customer to its network of authorised repairers in the long term was legitimate. The customer therefore had the choice whether to use the more expensive authorised repair garages and claim the guarantee rights or the less expensive independent service garages and waive the guarantee rights.
5 EC Communication on the Impact Assessment, COM 2009 (388) FIN, page 4 (point 14).
6 The Regulation 715/2007 only encompasses vehicles type-approved after September 1st 2009
7 European Commission Evaluation Report published on 31st May 2008
8 As guidelines would solely be binding on the Commission itself