01 June 2010

Manufacturers will feel they can live with new rules … what about dealers?

The European Commission adopted new rules on Thursday intended to lower the price which motorists pay for repairing their cars. The commission feels it has brought more competition into agreements between car manufacturers, their dealers, repairers and spare parts distributors.

The previous rules, brought-in in 2002, didn’t work based on the evidence that the average repair and maintenance costs have risen in that period. With the new rules set to come into place tomorrow, 1 June, independent garages should be able to gain better access to alternative spare parts and technical information from car manufacturers.

The changes are far from revolutionary. The ones introduced eight years ago were then, more far reaching. Car manufacturers, I suspect, will take the view that the tougher rules applicable to the aftermarket will be acceptable given the more lenient approach on the sales side.

On this topic, the commission feels that when it comes to dealers which sell competing brands, the old rules have had little impact on favouring multi-dealerships, which continue to be determined by the size of the dealers and their geographical location. Multi dealerships are more likely to happen in remote areas and within large dealer groups that have buyer power.

Moreover, carmakers reacted to the threat that generalised multi-branding might pose for brand identity and corporate image by increasing the level of investments required from the dealers in terms of separating the brands. Manufacturers also started to contribute less to dealers’ investment costs.

The old rules required manufacturers (wishing to benefit from the exemption) to allow their dealers to sell the brands of at least two competing manufacturers within the same showroom. The result was an overall increase in distribution costs, which are estimated to have gone up by 20% to the disadvantage of car dealers and consumers.

Under the new rules, vehicle manufacturers have more leeway to organise their networks as they see fit and, in particular, to strike the right balance between single and multi brand dealerships. The commission has introduced a number of safeguards to ensure the distribution of smaller brands.

Now, only manufacturers with a national market share of maximum 30% that impose single-branding obligations may benefit from the block exemption. Manufacturers that impose single branding for more than five years cannot benefit from the block exemption. Dealers must be free to terminate the tie after five years.

Another safeguard, says the commission, is that single-branding obligations which are specifically designed to exclude newcomers or smaller brands that are currently sold in existing multi-brand outlets will not be exempted.

If the widespread use of single-branding obligations leads to competing brands being shut-out from the market, the competition authorities may withdraw the benefit of the block exemption for individual manufacturers. The final safeguard is that if single-branding obligations cover more than 50% of a given market, the commission may adopt a regulation declaring the block exemption inapplicable to agreements containing such clauses.

On the whole, I would say manufacturers will feel they can live with the new rules. The key question is whether dealers will feel the same.
 

Tags: Block Exemption