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Thursday, 2 August 2018

A new approach to controlling secondary markets

An article in The Guardian (and elsewhere, especially Newshub) today shows how vehicle manufacturers might have new opportunities to control secondary markets, which has been a sort of Holy Grail for them as long as I have known the motor industry.

Back when I started my career, it was - of course! - the spares market that attracted the vehicle manufacturers, or "assemblers" as the component manufacturers preferred to call them. Battles were fought and, generally, won over design protection and restrictions in dealer agreements. Servicing and repair was another battleground, although the block exemption in its early iterations obliged networks to provide sales and service together, for the convenience of the customer who had bought a good the essential point of which was that it could move around and might need servicing or repairing far from home. More recently, the block exemption has separated sales from service, which might be thought of as another defeat for vehicle manufacturers.

I could go on, citing the prevalence of PCPs which ensure the VM retains ownership and control over the car while the customer gets the use of it - a potent means of keeping the network's workshops busy - and the reluctance of the VMs to disclose repair and maintenance information to enable independent repairers to do their jobs. Approved used car programmes do a similar job. It's all about control, and specifically control of the secondary markets that surround the basic matter of moving the metal. Did I mention F & I?

New technology means new opportunities to control these markets. Connected cars have the ability to book themselves into an authorised workshop for servicing or repair (and of course if they are merely hired out on a PCP competition has already been excluded). Maintenance increasingly involves software, whether to reprogram the emissions controls or to update the four-wheeled computer that you're driving nowadays. We used to argue that selling cars was not like selling baked beans (as Asdadrive discovered, for those who remember the 1980s), but nowadays perhaps the comparison is with smartphones. You network provider can stop your phone working (and, if you haven't paid the bill, will do so): so too can your mobility provider (the company formerly known as the manufacturer of your car).

Tesla, whose offering to the car-buying public is so novel, seem to be exploring the limits of what they can do, according the article that started me writing this piece. It occurs to me that the existence of the secondhand market isn't actually in the interests of the manufacturers, who would make more profit from selling new cars even (perhaps) if they had to recycle old ones: but the fact that there is a market for used cars can be helpful, in that it lubricates the market for new ones - and it certainly helps the repair, maintenance and spares businesses. But according to the Guardian's story, Mr Darwin, the owner of an electric bike shop in New Zealand, has found his efforts to fix up a written-off Tesla and get it back on the road thwarted by the manufacturer.

Mr Darwin bought the car in an auction in Australia, where it is not legally possible to put a repaired write-off back on the road. It's hard enough in this country, of course, which is rather wasteful when cars are written-off so easily because their complexity makes the cost of repair of even minor damage so great, but in Australia it seems it simply cannot be done. New Zealand, however, is another matter, and the damage to Mr Darwin's Tesla was limited to the bodywork so he had it fixed in Australia then shipped home. It was "recertified and approved by Tesla" (this is where relying on press reports becomes unsatisfactory - so far my research has not told me what this means) but when Mr Darwin took it to a charging facility he discovered that his car was "not supported".

That's a concept we are probably all familiar with. Computer programs may not be supported by the latest version of Windows - a frequent source of irritation. When some apps were no longer supported on my old BlackBerry, I had little alternative but to get a more modern one - but that's a different matter from the Tesla situation, because that is a third party app provider being left high and dry by the maker of the phone and its operating system. In the Tesla case it's the manufacturer choosing not to support the charging function.

Tesla's argument, according to The Guardian's piece, is that it could not be sure that the car was safe, citing the "extreme amount of damage" it had suffered - which seems at odds with the buyer's version of the story, and he's the one who had seen it. So the safety of second-hand cars is a matter for the manufacturer? What about DVLA and VOSA, and their equivalents in New Zealand and other places? In the UK, the manufacturer would only be liable under the Consumer Protection Act 1987 if the defect were present at the relevant time - when the car was supplied - so subsequent repairs do not expose the manufacturer. (On the other hand, to be fair to Tesla, it might not have been a desire to avoid legal liability but a general promotion of public safety that motivated them.)

Maybe Tesla were acting from an excess of caution, which given the problems they have had with their so-called "Autopilot" feature is perhaps understandable. But they rather undermined their case by giving Mr Darwin access to "fast charging" (several hours) but not "supercharging" (under an hour) when his complaints became public - so they weren't keeping the car off the road completely, which would be consistent with their safety arguments, just taking it out of circulation for a few hours at a time.

In any event, what the matter shows is that modern technology gives car makers new powers that can overreach into additional markets, creating potential competition law problems under the cover of consumer protection concerns. Those concerns need to be left to the appropriate authorities, and any attempt by the manufacturer to control the secondary market has to be resisted. It comes down to the question of what you actually own when you buy a car - and with electric vehicles and connected cars, the manufacturer controls more and more of your wheels.

Thursday, 3 May 2018

General court allows restrictions on sales of spares to independent repairers

In a judgment from last October, the General Court has confirmed that suppliers may restrict aftermarket access to spare parts to authorised repairers. But before you get too excited, the case was about watches and the court specifically said that it did not apply to the motor sector. The fact that the motor sector has its own block exemption was one (fairly compelling) reason why the court excluded it from the scope of the judgement: it would have been surprising had the court applied the same principles to luxury watches and cars, although it begs the question whether perhaps luxury cars should be treated differently from volume ones.

The upshot of the judgment is that an authorised repairers can be refused access to spare parts, even if the supplier has a dominant position in the market for those parts. The case concerned a complaint, first made in 2004, by the European Confederation of Watch Repairer Associations (CEAHR). Initially the commission rejected the complaint on the grounds of the was insufficient interest the European Union level. On appeal, the General Court held that the Commission had failed to consider all the relevant facts and arguments and annulled the decision (Case T-427/08). In 2011 the Commission launched a new investigation which it closed in 2014 on the grounds that the cost was disproportionate to the likelihood of finding an infringement. (Surely it is equally important to make decisions that show where an infringement is not taking place?) Once again CEAHR appealed and once again the court sided with the commission.

It is of course quite common for the commission to identify separate product markets the primary products and secondary products – spares and replacement parts. Manufacturers have often been found to be dominant in the spares market, which is frequently brand specific - it is certainly taken to be in the motor sector. In this case, the Commission recognised a separate product market for the sale of primary products, namely luxury watches, and another market the maintenance and repair services as well as a market for the supply of spare parts. The Commission found that the secondary markets were brand-specific: Swiss watchmakers could be dominant, so was their refusal to supply an abuse of their dominant position?

The court, going beyond what should have been necessary for the purposes of deciding whether the Commission had been right to drop the investigation, took the view that selective repair systems were analogous to selective distribution systems. They are permissible under competition rules, provided the restrictions are objectively justified to preserve the quality of the products and to ensure their product use, and that admission to the network is based on objective criteria of a qualitative nature which are applied in a non-discriminatory fashion. Those criteria must also be proportionate.

If the manufacturer is dominant, the refusal to supply dependent repairers will only be an abuse where all effective competition in the parts will be eliminated. If there is still competition between authorised repairers and the network remains open to new authorised repairers, the petition will not be eliminated and there will be no abuse. Excluding repairers who do not meet criteria sept double. Preserving an distorted competition does not necessarily mean protecting independent repairers as such.

The court thought that the use of selective repair networks was probably justified the luxury watches, to prevent counterfeiting of the watches themselves and of spare parts. Significantly, it would not be justified to protect the brand image. CEAHR appealed to the Court of Justice, but later withdrew, so there the law stands.

Case T-712/14 CEAHR v Commission (27 October 2017) reported here by Baker & Mckenzie.