Competition law in the
motor vehicles sector
A Lexis PSL document produced in partnership with
Neil Baylis of K&L Gates LLP
®
• Distribution of motor vehicles
• Exempting dealership agreements
• After sales and spare parts
• Cartel investigations update
• State aid
The motor vehicles sector has been the subject of frequent attention from
the European Commission, in particular regarding issues arising out of the
distribution of motor vehicles (eg restrictions on selling cars cross-border
due to the strong price differentials within the EU), cartel activity in relation to
various car components and state aid due to the importance of motor vehicle
manufacturing in a number of Member States.
There have also been a number of mergers in the motor vehicle sector (eg Tata’s
acquisition of Jaguar and Land Rover, and Volkswagen’s acquisition of Skoda,
Seat, Bentley, Lamborghini and Porsche). However, since the global motor
vehicle market remains highly competitive, no motor vehicle mergers have yet
been blocked by the Commission.
Separate product markets have been identified for private motor vehicles as
opposed to light commercial and heavy commercial vehicles.
The motor vehicles sector is subject to general competition law in the same way
as any other sector in relation to cartels, mergers, market investigations and abuse
of a dominant position. However, in relation to the after-markets for repair and
maintenance services, particular competition concerns can arise as manufacturers
may be able to seek to restrict consumers using independent suppliers for servicing
and parts, rather than the manufacture-owned/approved dealerships.
Distribution of motor vehicles
Motor vehicle manufacturers may elect to use either an exclusive distribution
network or a selective distribution network.
Broadly speaking, allocating dealers exclusive territories gives wider, but
not total control, over sales between territories and dealers may sell to
intermediaries without the manufacturer’s permission.
Produced in partnership with
Neil Baylis, Partner, K&L Gates LLP
Selective dealerships give the manufacturer control over which dealers sell
their cars (ie dealers can be required to meet specified criteria before they are
admitted to the manufacturer’s dealer network, eg having an after-sales service
in place). Selective distribution is the predominant form of distribution in the
motor vehicle sector.
An increasingly popular alternative is for the manufacturers to own some
or all of their own dealerships. Since the dealer agreements are then
between companies in the same group, no competition law issues arise—the
manufacturer can dictate pricing and other terms of resale by the dealer.
Mercedes is an example of a company that has a number of owned dealerships.
Although permitted under competition law, multi-brand dealerships remain
relatively rare with most dealers choosing to specialise on selling just one or two
brands. In some cases dealers choose to operate out of two adjacent premises
with one brand in each location.
Restrictions in dealership agreements are relatively limited given the need to
comply with competition law, however, selective distribution regimes will set out
strict criteria which must be met in order to be appointed; exclusive dealerships
will restrict active marketing outside the specified territory. The dealer may be
required to use manufacturer-authorised parts for warranty work.
Some of the principal issues which arise in the context of motor vehicle
distribution are:
• restrictions on parallel trade
• territorial restrictions on dealers, and
• pricing controls.
Restrictions on parallel trade
The single market is intended to enable consumers to purchase motor vehicles
in other Member States and take advantage of price differentials between them.
The Commission views the protection of parallel trade in this sector as an
important competition objective, given the high value of the goods and the
direct benefits in the form of lower prices accruing to consumers buying motor
vehicles elsewhere in the single market.
Restrictions on parallel trade may take a number of forms. A supplier may:
• put pressure on distributors
• threaten them with contract termination
• fail to pay bonuses
• refuse to honour warranties on motor vehicles imported by a consumer
or cross-supplied between distributors established in different Member
States, or
• make a distributor wait significantly longer for delivery of an identical
motor vehicle when the consumer in question is resident in another
Member State.
All these restrictions can amount to a restrictive agreement which infringes EU
competition law. Following a series of challenges by the Commission of such
arrangements, they are no longer prevalent in the industry.
References: TFEU, art 101
Produced in partnership with
Neil Baylis, Partner, K&L Gates LLP
Territorial restrictions
In an exclusive distribution system, manufacturers may legitimately place limited
geographic restrictions on dealers’ sales in that pro-active sales to territories
which have been exclusively allocated to another dealer can be prohibited (see
practice note: Exclusive distribution agreements).
However, in the context of a purely selective distribution system, manufacturers
may not legitimately place any geographic restrictions on dealers’ sales (see
practice note: Selective distribution).
Pricing controls
Manufacturers cannot generally impose pricing controls on dealers.
Manufacturers can issue recommended or maximum prices but cannot
stipulate fixed or minimum prices, or back up recommendations with incentives
for complying or sanctions for failure to comply (see practice note: Pricing
restrictions).
An exception applies where the dealer acts as an agent for the manufacturer but
this model is rarely used in the motor vehicles sector (see practice note: Vertical
integration, distributors or agents-which to use?).
Exempting dealership agreements
From 1 June 2013, the Vertical Agreements Block Exemption will apply to vertical
agreements relating to the purchase, sale or resale of new motor vehicles. This
exempts agreements which fulfil certain criteria from the prohibition on anticompetitive agreements (see practice note: The vertical agreements block
exemption).
The Motor Vehicle Guidelines give guidance on the Block Exemption that will be
applied in the motor vehicles sector.
If a selective distribution system falls within the Block Exemption (all parties’
market shares must be below 30% and cross-supplies between approved
dealers must be permitted), there is greater flexibility as to the criteria which the
manufacturer may apply before admitting dealers to its network. In particular,
it is permissible to limit the number of dealers and to require each dealer to
achieve a minimum volume of sales. The primary requirement is that the criteria
are specified, ie the precise content of the criteria must be capable of being
verified (see practice note: Selective distribution).
Any selective distribution system which directly or indirectly causes members
not to operate a multi-brand outlet cannot benefit from the General Block
Exemption. This will include sales targets or other measures, for example, local
market shares that deter multi-brand dealers.
References: Regulation 330/2010
References: EU motor vehicles
guidelines
References: Regulation 330/2010, art
4(d)
EU motor vehicles guidelines, para 44
References: Case C-158/11 Auto 24 v
Jaguar Land Rover
It’s also not permitted to operate a selective distribution system which only
admits dealers who do not also sell the cars of competing brands. However, as
noted above many dealers will themselves choose not to sell or service more
than one brand.
Further, the benefit of the Block Exemption may be withdrawn where a number
of manufacturers prohibit multi-brand outlets, even where no selective
distribution systems are in operation. In practice though this will rarely apply
given the preponderance of selective distribution models in the industry.
References: Regulation 330/2010, art
5(1)(c)
EU motor vehicles guidelines, paras 27
and 35
Produced in partnership with
Neil Baylis, Partner, K&L Gates LLP
After sales and spare parts
In most cases, there is likely to be a brand-specific aftermarket, with, for
example, Audi-authorised repairers competing with independent operators
specialising in Audi cars.
Also, the majority of buyers are private individuals or small- and medium-sized
enterprises that purchase motor vehicles and aftermarket services separately
and do not have systematic access to data permitting them to assess the overall
costs of motor vehicle ownership in advance.
There is less intense competition in the aftermarkets for servicing and repairs
of motor vehicles than in the primary market for their sale. The Commission’s
goal is to enable independent operators to compete effectively with authorised
repairers and independent operators are considered to require unrestricted
access to essential inputs such as technical information for this purpose.
Additional rules are in place to try to protect this access, as explained below.
References: Regulation 461/2010
Vertical agreements relating to the purchase, sale or resale of spare parts
for motor vehicles or repair and maintenance services for motor vehicles
are subject to the Vertical Agreements Block Exemption but must also not
contain certain additional ‘hardcore’ clauses to benefit from the exemption, for
example:
• restricting authorised dealers in a selective distribution network from
selling on spare parts for motor vehicles to independent repairers, and
• restricting the supplier of motor vehicle components from placing its
trademark or logo on the spare parts supplied.
There are three areas of focus in the aftermarkets where competition issues
could arise:
References: EU motor vehicles
guidelines, paras 60 to 71
• preventing access of independent repairers to technical information
• misusing the legal and/or extended warranties to exclude independent
repairers, and
• making access to authorised repairer networks conditional upon
non-qualitative criteria (eg restrictions on the number of authorised
repairers or minimum sales requirements).
In particular, in relation to the provision of technical information to independent
operators, the guidelines provide that the following factors should be taken into
account:
• whether the item in question is technical or other information which can be
legitimately withheld
• whether withholding the technical information in question will appreciably
disadvantage independent operators
• whether the technical information is made available to members of the
relevant authorised repair network, in which case it should also be made
available to independent operators on equivalent terms, and
• whether the technical information in question will ultimately be used
for the repair and maintenance of motor vehicles rather than another
purpose, eg the manufacturing of spare parts or tools (in which case it
can be withheld).
Produced in partnership with
Neil Baylis, Partner, K&L Gates LLP
Cartel investigations update
There have been many cartel investigations by the Commission (as well as by
other international authorities, eg the US Department of Justice) in the car parts
sector in recent years:
Cartel case
Latest developments
Car glass
Combined fines of EUR 1.348bn imposed in 2008 for
market sharing cartel
Wire harnesses that supply electricity to car components
European Commission conducted dawn raids in February
2010 and opened a formal investigation in August 2012
Thermal systems—air conditioning and engine cooling
European Commission conducted dawn raids in July 2012
Air bags, seat belts and steering wheels—vehicle occupant
safety systems
European Commission conducted dawn raids in June 2011
Automotive and industrial bearings used to reduce friction
European Commission conducted dawn raids in November
2011
Commercial vehicles
Original OFT investigation passed on to European
Commission—Commission conducted dawn raids in
January 2011
The cartel decisions are expected to lead to several follow-on damages claims
by car manufacturers. For example, an action has already been issued by Volvo
Car Corporation and others against the Pilkington Group in the High Court in
relation to the car glass cartel.
Many were surprised that so many cartels were uncovered in the same industry and
queried why this was the case. Markets generally considered to be most susceptible
to cartel activity are those where the product is homogeneous or undifferentiated,
where output and market conditions are normally stable and/or where most
players in the market remain constant. Some of these factors certainly apply to the
markets for car parts, for example, car glass is essentially similar regardless of the
manufacturer and the same could be said of wiring products.
State aid
During the financial crisis, the motor vehicles sector came under particular
pressure in terms of a dramatic drop in demand (eg the European passenger car
market shrank by 27% between January 2008 and January 2009; commercial
vehicles space orders for heavy duty vehicles fell from 38,000 in January 2008
to 600 in November 2008) and difficulty in accessing funds due to the credit
crunch. Member States lobbied to be able to bring in measures which would see
the large EU car manufacturers through their difficulties.
The Commission was concerned that any such measures should be compliant
with EU state aid rules.
Produced in partnership with
Neil Baylis, Partner, K&L Gates LLP
In basic terms, state aid is any financial advantage granted by EU Member States
for the benefit of particular firms or industrial sectors, distorting the ‘level playing
field’ of competition and potentially keeping inefficient businesses afloat. State
aid can include subsidies, grants, cash injections, state guarantees and loans
at discounted rates. If aid is unlawfully paid through state resources, then the
Member State is required to recover the unlawfully paid state aid plus interest
from the recipient.
A number of measures were identified which would not be unlawful state aid:
• ‘scrapping schemes’ which offer financial incentives to consumers to scrap
their old cars and buy new ones from any manufacturer (such schemes could
not be conditional on consumer buying cars from home manufacturers
though, eg UK consumers buying from UK manufacturers)
References: EU temporary framework for
state aid in the economic crisis
EU research and development state aid
guidelines
EU rescue and restructuring state aid
guidelines
• certain state guarantees and subsidised loans were permitted temporarily
during the financial crisis
• certain aid for research, development and innovation, subject to prior
notification to the Commission, may fall into this category—eg research
and development projects for cars, including the development of green
technology, and
• rescue and restructuring aid for companies in difficulty which are restructuring
their operations so that they will be viable in the long-term.
Produced in partnership with
Neil Baylis, Partner, K&L Gates LLP
Produced in partnership with
Neil Baylis, Partner, K&L Gates LLP
Neil is a partner in the Antitrust and Trade Regulation, and the Telecom, Media
and Technology practice groups. He has experience in advising clients on all
aspects of EU and UK competition law. His work covers merger control; bringing
and defending competition law based complaints before the regulators; drafting
and implementing compliance programs; drafting and advising on commercial
agreements; advising on regulatory issues under EU laws, and advising on
litigating competition law issues before the English courts. He has advised on
major cases in the following industries: automotive; construction materials; fertilisers; subsea cables;
travel; media; sport; betting and gaming; beverages; transport; and oil and gas services.
K&L Gates LLP comprises nearly 2,000 lawyers who practice in 41
offices located on four continents.
K&L Gates represents leading global corporations, growth and middle-market companies, capital
markets participants and entrepreneurs in every major industry group as well as public sector
entities, educational institutions, philanthropic organizations and individuals. Our practice is a
robust full market practice — cutting edge, complex and dynamic, at once regional, national and
international in scope. Over the last three years our revenues exceeded $1 Billion and, as stated in the
July 2010 issue of the UK publication Legal Business, the firm “has further cemented its position as
the Global 100’s fastest growing firm.”
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Produced in partnership with
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