Guenter Bauer, of Austrian firm Wolf Theiss, discussed the relationship between manufacturers and distributors, which will change dramatically next June. There are also important competition issues surrounding the exchange of information between VMs and dealers, and the obligation on the VM to enforce selectivity criteria and control sales within the network.
He suggested that the abolition of the non-exemption of the location clause (can you cope with all those negatives?) wil have little effect, Few dealers invoke it and the de minimis rule limits its impact. The 30 per cent threshold will have little impact in vehicle distribution. Dealer protection provisions will of course be done away with: the Commission found them to rigid, ineffective and at times counterproductive. This assessment was supported by the Commission's findings in its consultation on unfair byb pcommercial practices, which showed a great deal of concern in the auto sector. The code of conduct, which is in the hands of the representative associations, will deal with dealer protection - and having said that he moved swiftly on ...
What about obligations for dealers to share information with the VM? The VMs clearly have an interest in sales-related information - and to know how the dealer is performing, whether it is doing enough promotional work. However,k the exchange of information carries with it potential legal problems. In a vertical agreement (the food industry has been particularly under the microscope) an information exchange might be indicative of RPM, customer allocation, territories? There are also problems where vertically-integrated importers are competitors of their independent distributors.
He reviewed the decisions on agency set-ups, identifying what factors tend to show that there is an agency relationship and those that suggest otherwise - it remains a tricky matter to set up an agent, certainly not as simple as at first sight it might appear.
If a selective distribution agreement is not enforced, it will create bad will because members of the network will lose sales to suppliers who simply should not have cars to sell. It's a problem that has been going on for years - ever since parallel imports first became an issue.
Andrzej Kmiecik of van Bael and Bellis then spoke about multibranding, which chairman Frank hoped woud be the final word on this topic (though I don't believe he really meant that - and it surely won't be: this one will run and run). To start with he ran through the changes that have taken plpace since Regulation 1400 came into force in 2002. Direct and indirect non-competes were a complete no-no under 1400, but now they are exempted for five years (with the proviso that if the site is owned by the supplier the exemption will carry on for ever). The previous 30 per cent loyalty requirement has chnged to 80 per cent, effectively knocking multifranchising on the head. the permitted requirement for separate sales areas is no longer relevant.
Full non-competes can fall outside Article 101 where the de minimis notice applies - which could be at 5 or even 15 per cent. They are not hardcore restrictions. The supplemental guidelines suggest that there will be no material foreclosure unless 40 per cent of the market is closed off by non-competes. However, the focus on duration suggests that a non-compete over five years might be in trouble.
But self-assessment outside the block exemption is relatively unimportant - given that the regulation gives VMs most of what they want. Fixed term agreements are still not popular in the industry, but a five year agreement has advantages in that the non-compete can run for the duration of the agreement. Having a re-negotiate-after-five-years clause would not serve much purpose - the dealer is unlikely to agree to it (unless wary of losing the franchise altogether?). It could be that the restriction is designed to reduce after five years - from a full non-compete to an 80 per cent one. Surely 80 per cent is to al intents and purposes a full non-compete?
A requirement in a dealer standard which effectively makes it economically unsustainable to sell competing brands will be regarded as an indirect non-compete. But there is lots of uncertainty around this: what, for starters, is a showroom? Does a separate showroom have to be in a separate building? Can it just have a brand-specific entrance? The economic sustainability test is all important here.
Paragraph 32 of the Supplemental Guidelines talks about qualitatative standards specifically designed to discourage the sale of competing brands. In the context of 80 per cent loyalty, such a standard is hardly going to be a problem.
Non-competes can be imposed on some dealers but not all, unless the supplier is dominant, but the dealer cannot be prevented from selling specified brands or only allowed to sell specified competing brands. And in any case the power of larger dealer groups is likely to prevent foreclosure in many markets.
In the spares market, non-competes are still permitted but the Commission is keen to preserve access to spares of competing brands for both authorised and independent repairers. It is strange in that case that they emasculated the block exemption. See Supplementary Guidelines, para 18. A prohibition on the use of parts of matching quality by authorised dealers is no longer a hardcore restriction.
A non-compete imposed on a repairer - not to repair competing vehicles - is in principle block-exempted. If repair markets are brand-specific (contrary to MAN), it is not even a non-compete!
Next the panel discussion. Chairman Frank had three questions. First, does the new regime meet their needs and expectations? If there are to be particular enforcement issues will there be any particular practice to follow (I hope the meaning of that will become clear later)? And finally is there anything missing?
Klaus Heimgaertner (from ADAC) went first. He deplored the loss of clarity from 1400 to 461. He is anxious about the impact in the future of open platforms, which is only slightly to do with the block exemption. Marc Greven expressed surprise that anyone should worry about clarity - especially lawyers. But the regulators set out to be less prescriptive and to allow undertakings more flexibility.
Frank asked about the wisdom of kicking the whole aftermarket into self-assessment. It condemns the aftermarket to the most conservative position. Marc agreed that this was the case ... the industry is not necessarily keen on being very creative in this area, but some manufacturers are trying out new approaches. That requires self-assessment, and that's something that companies are not used to yet, but from what he hears companies do not see it as a particular problem.
Derek Ridyard (RBB Economics) said he observed convergence between what happens in the motor industry and outside it - and there is little convergence. Why is there so much regulation in a sector where there is so much competition? There is so much regulation where there is little need for it, that companies are inclined to take the safe route and stick to the conservative approach to anything. The modern approach to competition law should be to ask what is the case for intervening in this market? That still does not happen. Intervention is not aimed at a particular theory of harm - it is designed to protect dealers, often unnecessarily. The result is less efficient distribution than need be, depriving consumers of benefits.
Markus Erdmann of VW AG, said that there has to be a good reason to change contracts and that the changes required now are relatively small. It is expensive to change the contracts. Sylvia Gotzen (FIGIEFA) expressed pleasure at many of the features of the block exemption but noted that the small companies that are active in the market cannot deal with competition law problems with the same sophistication that the large companies represented in the conference could. They need certainty and clarity. The link with the type approval scheme is partly the product of problems with the old block exemption - getting DGs Enterprise and Competition to work together so that type approval underpins the block exemption is very important. But she calls for the Commission to remain alert to the need for enforcement - the rules are not working perfectly in practice. The French report shows that there are issues to be addressed. Increasing computerisation means that the technical information does not lie in wiring diagrams - it lies in the software.Obtaining passwords, user names and keys is often a lengthy process. Mar Greven responded by saying that the present situation goes far beyond creating a level playing field between authorised and independent repairers, and remarked that independents often don't use the websites that are made available to convey information to them. Perhaps they go ahead without the information? He suggested that this shows the nature of the debate is changing.
Sylvia Gotzen responded repairers can only function if the competition mechanism works at all levels. The need for technical legislation highlights defects in competition law.
I have done my best to keep up with proceedings today, and to blog the conference accurately (though not comprehensively). If you have any suggestions or corrections please let me know. I hope that (if you weren't in the room) you'll have got the impression that this is a great conference, with well-informed speakers, and you should make sure you come to it next year!
He suggested that the abolition of the non-exemption of the location clause (can you cope with all those negatives?) wil have little effect, Few dealers invoke it and the de minimis rule limits its impact. The 30 per cent threshold will have little impact in vehicle distribution. Dealer protection provisions will of course be done away with: the Commission found them to rigid, ineffective and at times counterproductive. This assessment was supported by the Commission's findings in its consultation on unfair byb pcommercial practices, which showed a great deal of concern in the auto sector. The code of conduct, which is in the hands of the representative associations, will deal with dealer protection - and having said that he moved swiftly on ...
What about obligations for dealers to share information with the VM? The VMs clearly have an interest in sales-related information - and to know how the dealer is performing, whether it is doing enough promotional work. However,k the exchange of information carries with it potential legal problems. In a vertical agreement (the food industry has been particularly under the microscope) an information exchange might be indicative of RPM, customer allocation, territories? There are also problems where vertically-integrated importers are competitors of their independent distributors.
He reviewed the decisions on agency set-ups, identifying what factors tend to show that there is an agency relationship and those that suggest otherwise - it remains a tricky matter to set up an agent, certainly not as simple as at first sight it might appear.
If a selective distribution agreement is not enforced, it will create bad will because members of the network will lose sales to suppliers who simply should not have cars to sell. It's a problem that has been going on for years - ever since parallel imports first became an issue.
Andrzej Kmiecik of van Bael and Bellis then spoke about multibranding, which chairman Frank hoped woud be the final word on this topic (though I don't believe he really meant that - and it surely won't be: this one will run and run). To start with he ran through the changes that have taken plpace since Regulation 1400 came into force in 2002. Direct and indirect non-competes were a complete no-no under 1400, but now they are exempted for five years (with the proviso that if the site is owned by the supplier the exemption will carry on for ever). The previous 30 per cent loyalty requirement has chnged to 80 per cent, effectively knocking multifranchising on the head. the permitted requirement for separate sales areas is no longer relevant.
Full non-competes can fall outside Article 101 where the de minimis notice applies - which could be at 5 or even 15 per cent. They are not hardcore restrictions. The supplemental guidelines suggest that there will be no material foreclosure unless 40 per cent of the market is closed off by non-competes. However, the focus on duration suggests that a non-compete over five years might be in trouble.
But self-assessment outside the block exemption is relatively unimportant - given that the regulation gives VMs most of what they want. Fixed term agreements are still not popular in the industry, but a five year agreement has advantages in that the non-compete can run for the duration of the agreement. Having a re-negotiate-after-five-years clause would not serve much purpose - the dealer is unlikely to agree to it (unless wary of losing the franchise altogether?). It could be that the restriction is designed to reduce after five years - from a full non-compete to an 80 per cent one. Surely 80 per cent is to al intents and purposes a full non-compete?
A requirement in a dealer standard which effectively makes it economically unsustainable to sell competing brands will be regarded as an indirect non-compete. But there is lots of uncertainty around this: what, for starters, is a showroom? Does a separate showroom have to be in a separate building? Can it just have a brand-specific entrance? The economic sustainability test is all important here.
Paragraph 32 of the Supplemental Guidelines talks about qualitatative standards specifically designed to discourage the sale of competing brands. In the context of 80 per cent loyalty, such a standard is hardly going to be a problem.
Non-competes can be imposed on some dealers but not all, unless the supplier is dominant, but the dealer cannot be prevented from selling specified brands or only allowed to sell specified competing brands. And in any case the power of larger dealer groups is likely to prevent foreclosure in many markets.
In the spares market, non-competes are still permitted but the Commission is keen to preserve access to spares of competing brands for both authorised and independent repairers. It is strange in that case that they emasculated the block exemption. See Supplementary Guidelines, para 18. A prohibition on the use of parts of matching quality by authorised dealers is no longer a hardcore restriction.
A non-compete imposed on a repairer - not to repair competing vehicles - is in principle block-exempted. If repair markets are brand-specific (contrary to MAN), it is not even a non-compete!
Next the panel discussion. Chairman Frank had three questions. First, does the new regime meet their needs and expectations? If there are to be particular enforcement issues will there be any particular practice to follow (I hope the meaning of that will become clear later)? And finally is there anything missing?
Klaus Heimgaertner (from ADAC) went first. He deplored the loss of clarity from 1400 to 461. He is anxious about the impact in the future of open platforms, which is only slightly to do with the block exemption. Marc Greven expressed surprise that anyone should worry about clarity - especially lawyers. But the regulators set out to be less prescriptive and to allow undertakings more flexibility.
Frank asked about the wisdom of kicking the whole aftermarket into self-assessment. It condemns the aftermarket to the most conservative position. Marc agreed that this was the case ... the industry is not necessarily keen on being very creative in this area, but some manufacturers are trying out new approaches. That requires self-assessment, and that's something that companies are not used to yet, but from what he hears companies do not see it as a particular problem.
Derek Ridyard (RBB Economics) said he observed convergence between what happens in the motor industry and outside it - and there is little convergence. Why is there so much regulation in a sector where there is so much competition? There is so much regulation where there is little need for it, that companies are inclined to take the safe route and stick to the conservative approach to anything. The modern approach to competition law should be to ask what is the case for intervening in this market? That still does not happen. Intervention is not aimed at a particular theory of harm - it is designed to protect dealers, often unnecessarily. The result is less efficient distribution than need be, depriving consumers of benefits.
Markus Erdmann of VW AG, said that there has to be a good reason to change contracts and that the changes required now are relatively small. It is expensive to change the contracts. Sylvia Gotzen (FIGIEFA) expressed pleasure at many of the features of the block exemption but noted that the small companies that are active in the market cannot deal with competition law problems with the same sophistication that the large companies represented in the conference could. They need certainty and clarity. The link with the type approval scheme is partly the product of problems with the old block exemption - getting DGs Enterprise and Competition to work together so that type approval underpins the block exemption is very important. But she calls for the Commission to remain alert to the need for enforcement - the rules are not working perfectly in practice. The French report shows that there are issues to be addressed. Increasing computerisation means that the technical information does not lie in wiring diagrams - it lies in the software.Obtaining passwords, user names and keys is often a lengthy process. Mar Greven responded by saying that the present situation goes far beyond creating a level playing field between authorised and independent repairers, and remarked that independents often don't use the websites that are made available to convey information to them. Perhaps they go ahead without the information? He suggested that this shows the nature of the debate is changing.
Sylvia Gotzen responded repairers can only function if the competition mechanism works at all levels. The need for technical legislation highlights defects in competition law.
I have done my best to keep up with proceedings today, and to blog the conference accurately (though not comprehensively). If you have any suggestions or corrections please let me know. I hope that (if you weren't in the room) you'll have got the impression that this is a great conference, with well-informed speakers, and you should make sure you come to it next year!
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