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Thursday, 28 June 2012

Brussels conference session 3

Alternative distribution models for original parts is the subject of the graveyard presentation immediately after lunch .... a tough assignment for Walter van Overbeek of Houthoff Barouma. This isn't an area where there has ever been much original thinking: not much has changed about the way original parts are distributed since - well, since as long as anyone can remember, I suppose, although having said that Unipart springs to mind as one example of a different approach. It's a case of not fixing something that isn't broken.
Of course, one problem with selling original spares is that you have to supply them to your competitors. the independent repairers who come to authorised outlets are competing for the same repair business, but of course the competition authorities cannot permit the authorised network to refuse to supply them (subject to what was said earlier about working out what is the relevant market, as only if there is a dominant position is there a legal problem.
I am reminded that years ago I regularly advised a factor who, as factors do, obtained supplies of parts wherever he could. Sometimes he would be able to get hold of a large consignment of original parts which he could split into more manageable lots and sell on to the retailers he served. He was frequently accused by the vehicle manufacturers of handling stolen goods, as they were unable (or unwilling) to accept that he could get hold of them legitimately. Once he called me in some alarm as he had the fraud squad after him, at the instigation of one particularly harsh VM.
And that reminds me of another story too - but for now I need to keep an eye on proceedings at this conference, which incidentally is excellent and deserves to have a bigger audience. The change in date from previous years seems to have resulted in a rather smaller attendance.
Presumably VMs will want to preserve selectivity in parts distribution. That should be a given. Within that constraint, what will the future shape of this relatively profitable part of the system take?
It is also fair to assume that VMs will not want to harm existing relationships and sales channels. No point in trying to do something new if in the course of it you destroy something old ... Equally, VMs are not going to want to set up direct sales channels. (No, I would add, because they like to unload their slow-moving stock onto the dealers who are obliged to be repositories for just about whatever the VM decides to make them buy - what in conversation with a dealer association client I would refer to as the P***** headlining syndrome (model name redacted)). I saw a similar problem with L***** suspension struts once.
But the VM isn't going to be able to solve the problem of engineering the ideal size of network by raising qualitative standards. All dealers and ARs will want to be able to handle parts. Quantitative selective distribution, which would have to be limited to parts where the market share was less than 40 per cent, would be possible but terribly complicated. It would require a separate parts distribution agreement, in addition to dealer and AR agreements. There would probably be fewer parts distributors and selectivity would be maintained, but Mr van Overbeek thought this would approach would not appeal to VMs. Apart from anything else, such a structure would lack legal certainty.
E-commerce offers an alternative, but it only makes buying easier - it does not help with delivery, which is an essential part of the parts distribution offering.
Paccar has pioneered a system in which outside parts are distributed to DAF dealers along with DAF parts. In the truck industry, where body builders and others have parts to get out to the dealers, there's scope for this which would not exist in the car spares market. In a universe in which all manufacturers use selective systems to distribute their parts, though, this extended offering could never take in other VMs' parts - they simply would not be available for resale.
Another alternative would be to set up separate parts agents, separate legal entities established by authorised repairers. VW have gone down this road in the UK. Not all ARs have spares agencies, so the number of outlets can be reduced. These are called "trade parts specialists". In an agency relationship (VW have tried this before, in other contexts - finance, I recall - and run into problems with the Court of Justice determining that the "agent" was not an agent at all) the principal can set the price and assign territories, which is why I don't fully understand why VMs haven't adopted this approach in other parts of the system. If it works, a non-compete obligation should be enforceable.
In a variation on this theme, joint ventures of dealers or ARs could be set up as parts agents, and could represent multiple OEMs not just one. Dealers can still sell parts to whomever they like. There are still potential problems and risks, which are largely those that flow from any situation that looks dangerously like a cartel, even when it isn't.
Next came a review of the legal implications, such as they are, of electric vehicles. The title also mentioned "licensing", which could be taken in one of at least two ways, but in the context of competition law it should be clear which meaning is intended. The speaker was Eva-Lena Bergqvist, who sounds like a character in a Wallendar novel, or another work from that genre of Swedish detective fiction - but in fact is a lawyer with Volvo Car, which of course is a Chinese company these days. The company's proposed hybrid V60 is a joint venture between Volvo and Vattenfall AB, a generator of electricity, which makes sense - this is where the licensing issues come in. From the experience, she said that they had learned of the importance of preserving freedom of action: at the time that the JV was put together, the company was being sold by Ford to Geely, which probably made life interesting. It's also necessary to have the right people involved from an early stage (SOTBO), which would be a useful lesson for a few organisations I can think of. Also, it's important that decision-makers understand the implications of the licensing agreements. Another SOTBO, perhaps.
Marc Greven (ACEA) asked about the distribution of electric vehicles, which is an interesting question. Would an agency or franchise be more appropriate for this new type of car? For hybrids, Volvo intends to use existing distribution channels. For pure electric cars, she said they were still thinking. A GM lawyer in the audience said that they had considered new routes to market but chosen to stay with traditional ones - while recognising that there are formidable and therefore expensive requirements for investment and training. Chairman Frank asked whether this was rolled out to the entire GM network - the answer being that any dealer who met their higher standards (so, not all of them but not a specially selected group) was given the new franchise.

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