1

Contents

LIST OF ABBREVIATIONS ..................................................................................................................... 3

INTRODUCTION ................................................................................................................................ 4

I. GENERAL STRUCTURE OF THE ANTITRUST RULES .................................................................................. 7

1. General prohibition of Article 101(1) of the TFEU ............................................................... 7

2. Exemption from the prohibition under Article 101(3) ......................................................... 7

2.1. General rule of exemption ..................................................................................................... 7

2.2. Specific ways of exemption .................................................................................................... 8

II. THE MOTOR VEHICLE MARKET IN THE 21ST CENTURY .......................................................................... 10

1. Car distribution systems in general .................................................................................. 10

2. Effect on distributors and consumers ............................................................................... 12

3. The block exemption framework applicable for selective distribution between 2002 and

2010 ....................................................................................................................................... 12

4. The new regime of the block exemption – new horizons of distribution ............................ 14

4.1. New car sales ........................................................................................................................ 14

4.2. Aftermarket........................................................................................................................... 15

4.3. Directions of the new block exemptions scheme ................................................................ 15

III. THE NEW REGIME IN THE NEW VEHICLE PRIMARY MARKET .................................................................... 16

1. General block exemption framework ............................................................................... 16

2. Scope of application ........................................................................................................ 17

2.1. Market share thresholds ...................................................................................................... 17

2.2. The relevant market ............................................................................................................. 19

3. Hardcore restrictions ....................................................................................................... 21

4. Selective distribution system ........................................................................................... 21

4.1. The selection criteria - Interpretation of the Commission’s Guidelines ............................. 22

4.2. The ECJ’s interpretation of qualitative selective distribution– the Metro-doctrine .......... 23

4.3. Practical problems of interpretation.................................................................................... 24

4.4. The ECJ’s interpretation of quantitative selective distribution .......................................... 25

4.5. Other aspects for consideration ........................................................................................... 26

5. Dealer protection ............................................................................................................ 27

6. Single branding ............................................................................................................... 28

7. Location clauses and sales-only dealers ............................................................................ 30

IV. POLICY OF THE AFTERMARKETS ...................................................................................................... 31

2

1. Sector specific regulatory framework with general BER background ................................. 32

2. Scope of application – market share thresholds ............................................................... 33

3. Selection criteria ................................................................................................................... 35

4. Access to technical information ....................................................................................... 36

4.1. Legal basis of the obligation ................................................................................................. 37

5. Misuse of warranty ......................................................................................................... 44

5.1. Prohibition to impose restrictions on warranty .................................................................. 45

5.2. The issue of extended warranties ........................................................................................ 46

6. Hardcore restrictions on tooling and spare parts access .................................................... 48

V. SUMMARY ............................................................................................................................... 50

1. The primary market ......................................................................................................... 50

2. The aftermarket .............................................................................................................. 51

3. Future of the automotive industry ................................................................................... 52

4. Conclusion ...................................................................................................................... 53

BIBLIOGRAPHY ............................................................................................................................... 55

3

LIST OF ABBREVIATIONS

The following phrases and abbreviations will have the meaning set forth below in regards to this

thesis:

TFEU

Consolidated Version of the Treaty on the Functioning of the European Union, 13

December 2007, 2008 O.J. C 115/47,

BER

Commission Regulation 330/2010 of 20 April 2010 on the application of Article

101(3) of the Treaty on the Functioning of the European Union to categories of

vertical agreements and concerted practices

Official Journal L 102, 23.4.2010, p.1.

MVBER

Commission Regulation (EU) No 461/2010 of 27 May 2010 on the application of

Article 101(3) of the Treaty on the Functioning of the European Union to

categories of vertical agreements and concerted practices in the motor vehicle

sector OJ L 129, 28/05/2010, p. 52.

FAQs

Frequently Asked Questions (FAQS)on the application of EU Antitrust Rules in the

Motor Vehicle 27 August 2012 A vailable at:

http://ec.europa.eu/competition/sectors/motor_vehicles/legislation/mv_faq_en

.pdf

Guidelines

Commission notice - Guidelines on Vertical Restraints OJ C 130, 19.05.2010, p. 1

Supplementary

Guidelines

Commission notice- Supplementary Guidelines on vertical restraints in

agreements for the sale and repair of motor vehicles and for the distribution of

spare parts for motor vehicles OJ C138, 28.5.2010, p.16.

Commission Staff

Working

Document Annex

3.

Commission Staff Working Document Accompanying the Communication from

the Commission The Future Competition Law Framework applicable to the motor

vehicle sector Impact Assessment COM(2009) 388 final, Technical Annex 3.

Evolution of the Motor Vehicle Markets since Regulation 1400/2002 entered into

force, Available at

http://ec.europa.eu/competition/sectors/motor_vehicles/documents/technical_

annex_3.pdf

Type-approval

regulation

Regulation (EC) No 715/2007 of the European Parliament and of the Council of

20 June 2007 on type approval of motor vehicles with respect to emissions from

light passenger and commercial vehicles (Euro 5 and Euro 6) and on access to

vehicle repair and maintenance information (OJ L 171, 29.6.2007, p. 1)

De minimis

notice

Commission Notice on agreements of minor importance which do not

appreciably restrict competition under Article 81(1) of the Treaty establishing the

European Community OJ C 368, 22.12.2001, p.13-15

Regulation

1400/2002

Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of

Article 81(3) of the Treaty to categories of vertical agreements and concerted

practices in the motor vehicle sector OJ L 203, 1.8.2002, p. 30

SMEs small and medium sized enterprises

4

INTRODUCTION

The automotive industry is one of Europe’s key industrial sectors and is of strategic importance to

European economy. It directly employs 3 million people, around 10% of it in manufacturing, the

industry as a whole (automotive producers, supply chain and aftermarket, including thousands of

SMEs) represents approximately 12.9 million direct and indirect jobs, €839 billion turnover generated

by the automotive sector represents 6.9% of EU GDP. The automobile sector contributes positively to

the EU trade balance with a €92 billion trade surplus. It is the EU’s largest investor in R&D,

accounting for 25% of total R&D spending. These are very impressive figures.

The automobile industry has ripple effects throughout the economy, with a supply chain involving

industries such as metals, plastics, chemicals, textiles and electronics. Cars and commercial vehicles

generate a wide variety of business services: sales and after-sales, insurance and finance; roadside

assistance; leasing and rental; distribution and logistics; fuels; infrastructure and maintenance; traffic

management...1

It can easily be recognized that a well-functioning internal market with a level playing field to market

players in this important industry is a key contributor to a strong and prosperous European industry

and social and economic welfare.

One of the regulatory tools of ensuring the development and maintenance of such level playing field

is competition law. Among the several aims of competition policy, the more general ones are

ensuring proper functioning of the internal market, enhancing social welfare, promoting economic

efficiency, the more tangible ones are protection of individual economic freedom and protecting

competitors (which is rather a tools of competition law than the goal itself) and ultimately ensuring

consumer welfare.2

The structure of the industry represents a multitude of small and big companies, active in different

parts of the distribution, supply and service chain. This enormous diversity requires constructive,

transparent and respectful relations among the different actors in the automotive sector, including

the repair, maintenance and customer service sector, however at the same time it creates

contradictory motivations as to the economic goals and the tools sought for by the different market

actors in achievement of these goals.

The European Union’s competition policy controls this complex economic network of participants of

the automotive market acting at different levels of the supply chain – among others - with the tools

of antitrust, the legal basis of which lays upon the Article 101 of the Treaty of Functioning of the

1 European Automobile Manufacturers Association (ACEA) 2014 Mapping the Automobile Industry, Available at:

http://www.acea.be/publications/article/mapping-the-automobile-industry

2 For more detailed analysis on goals of competition policy see Monti, Giorgio: EC Competition Law (Cambridge

University Press 2007) p. 4, Whish, Richard and Bailey, David: Competition Law (Oxford University Press 2007),

p.19.

5

European Union (TFEU)3, and the secondary legal sources and communications related to the

application of and exemptions to the aforementioned Article. These tools regulate the primary

prohibition of competition restraints in the vertical supply chain of new vehicle primary market and

aftermarket, and also implement exemptions to the general prohibition.

The European automotive industry has gone through significant challenges after the global financial

crisis in 2008. Vehicle sales continued to drop throughout the years 2008-2013, showing moderate

increase only from December 2013 and in first quarter of 2014.4 Not only the structural complexity

and the diverse interests, but also the challenging financial and industrial environment of the post-

2008 years called for the well-informed, cautiously considered restructuring of the competition

regime of the motor vehicle industry.

The European Commission (hereinafter “Commission”), in 2008, when commencing the review of the

then current era of competition framework applicable to motor vehicle industry, had to face not only

the above described multiple layers of market players with diverging economic interests, but also the

most significant economic downstream since the post world war II crisis.

This thesis intends to give an insight of the changes introduced by the Commission on EU level to the

regulation of the vertical agreements in general and the motor vehicle sector in particular, starting

from 2010 with the issuance of general block exemption regulation (BER)5 and the sector specific

block exemption regulation (MVBER)6, which process was completed when the new motor vehicle

block exemption regulation entered into full force on June 01, 2013, and pulled the new vehicle sale

under the umbrella of the general regime. Although there can indeed be found quite a number of

comprehensive summaries in professional literature, which give some type of guidance regarding the

changes introduced to the regulatory framework. Most of these professional reviews were however

prepared before or shortly after the issuance of the relevant commission regulations, therefore – by

their very nature – they are capable only of merely describing the changes from a legal perspective,

but not the practical implementation of the new rules. In regards to what changes the new

framework was predicted to bring and what changes it actually brought to the lives of the market

players, these professional studies contribute little to such assumptions.

Being a counsel for market players conducting business on different levels of the supply chain, in the

past years my clients have addressed many questions related to practical implications of block

exemption regulations, for which no direct answer could be found in the communications issued by

3 Consolidated Version of the Treaty on the Functioning of the European Union, 13 December 2007, 2008 OJ C

115/47, hereinafter TFEU.

4 ACEA registration data of passenger vehicles and commercial vehicle registrations 2008-2014 of EU15+EFTA

countries, available at www.acea.be

5 Commission Regulation 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the

Functioning of the European Union to categories of vertical agreements and concerted practices

OJ L 102, 23.4.2010, p.1-7 (hereinafter BER)

6 Commission Regulation (EU) No 461/2010 of 27 May 2010 on the application of Article 101(3) of the Treaty

on the Functioning of the European Union to categories of vertical agreements and concerted practices in the

motor vehicle sector OJ L 129, 28/05/2010, p. 52–57 ( hereinafter MVBER)

6

the Commission, in the professional literature, not even in the very rare and tangential case law of

the European Court of Justice. When the new block exemption regime was introduced in 2010 (and

partially in 2013), some of these questions were eliminated by the new regulations, some remained

the same, and new ones emerged. I intend to give an overview of the practical and most problematic

issues that require legal interpretation in the course of relationship of manufacturers and their

authorized networks of dealers and repairers, and how these issues changed as the result of the new

regulations. For better understanding why the focus of this thesis is placed on one topic while setting

aside other (seemingly very important) matters, I will try to highlight what the economic motivations

of the market players are in relation to these topics and why the particular matter is of key focus to

them. I will attempt to demonstrate what the very diverging economical motivations of the different

interest groups are, how the Commission succeeded in balancing among these interests, and what

practical impacts the changes resulted for the manufacturers and distributors/repairers of motor

vehicles. By placing the focus on the foregoing, the thesis will not deal with the more general

competition restraints (for example general hardcore restrictions of BER), which have a great

literature and large case-law background.

The practical implications of the regulatory background will be presented through the market

features of the primary market of passenger cars (as the passenger car market segment is considered

separate market from the market of light and heavy commercial vehicles). The new sector specific

regulation regarding the motor vehicle aftermarket will be discussed in relation to repair and

maintenance, also with regards to spare parts distribution.

The ultimate question that thesis addresses through presenting the details of competition regulatory

framework in automotive industry is the following. Do the changes currently introduced by the

Commission result in undue benefits to the car manufacturers, and deprive the dealers and repairers

of their due benefits? Or exactly the opposite: do they create a healthy balance of economic powers

on the two levels of the market, resulting in better competition in the market and ultimately benefit

to the consumers? Metaphorically: do the car manufacturers, as armored giants, tower over the

small and medium sized enterprise dealers, which heroically fight for survival? Is Goliath as powerful

as he seems? What is David’s stone in the sling that can overcome Goliath? What is the regulatory

protection provided to protect the SMEs and what other tools the authorized networks have to

enforce their rightful interests? Authorized networks and car manufacturers – are they really David

and Goliath?

7

I. GENERAL STRUCTURE OF THE ANTITRUST RULES

1. General prohibition of Article 101(1) of the TFEU

Article 101(1) of the TFEU prohibits the agreements between undertakings, decisions by associations

of undertakings, and concerted practices of the undertakings, which aim at or may have the effect of

prevent, restrict or distort competition on the internal market.

The agreement of the different market players at different levels of the supply chain of the motor

vehicle industry (i.e. manufacturers, importers, distributors, repair service providers, suppliers of

spare parts, suppliers of diagnostic tools etc.) can easily fall under such prohibition, if either

deliberately eliminating or decreasing the competition or potential competition on the market, or as

a side effect, resulting in such restriction.

2. Exemption from the prohibition under Article 101(3)

2.1. General rule of exemption

According to Article 101(3) of the TFEU, in case of fulfillment of certain criteria, the

agreements, decision and concerted practices (together will be referred to as “agreements”

for this paper) having such restrictive object or effect may however be declared not be subject

to the above general prohibition. In order for an agreement restricting competition not to fall

under (i.e. be exempted from) Article 101(1) of the TFEU, it has to fulfill the following

conditions: i) the agreement contributes to the improvement of economic or technical

progress, ii) the consumers benefit from these positive effects to a fair extent, and iii) the

agreement restricts competition only to the extent necessary and proportionate to the

achievement of the improvement, while not completely eliminating competition. Article 101(3)

is creating a balance between the disadvantage of restriction of competition and the other

advantages that can be reached through such restriction.

The wording of the Article 101(3) of TFEU refers to such advantageous agreement not as

automatically being allowed or not prohibited by the TFEU, but “be declared” as exempted

from the prohibition, which implies that a specific act is necessary for an agreement in

question to benefit from the exemption under Article 101(3).

Declaration of an agreement being exempted under Article 101(3) is the task of the European

Commission (or ultimately the European Court of Justice (ECJ) as supervisory body over the

decision of the Commission). An agreement to “be declared” as not falling under the general

prohibition, has the following ways.

8

2.2. Specific ways of exemption

a) De minimis agreements, SMEs

According to the de minimis notice of the Commission7, agreements between

participants of different levels of the market do not appreciably effect competition, if

the market share of each of the parties does not exceed 15 % on any of the relevant

markets affected by the agreement, provided that those agreements do not contain

certain hardcore restrictions (the scope of which is basically the same to the restrictions

prohibited by the applicable block exemption regulations).8

Further, in its de minimis notice, the Commission also stated that agreements between

small and medium-sized undertakings (SMEs) (as defined in the Annex to Commission

Recommendation 96/280/EC (38)) are normally not capable of affecting trade between

Member States9. The reason for this presumption is the fact that the activities of SMEs

are normally local or at most regional in nature. However, SMEs may be subject to

Community law jurisdiction in particular where they engage in cross-border economic

activity.

b) Exemption based on Article 101(3) of the TFEU

Should the parties’ market share threshold exceed the de minimis limit, and the

agreement contains elements which aim at or may result in restriction of competition, in

the absence of any specific Commission decision (whatever the form of that may be) the

agreement has to be assessed individually against the criteria laid down in Article 101(3)

of the TFEU.10

7 Commission Notice on agreements of minor importance which do not appreciably restrict competition under

Article 81(1) of the Treaty establishing the European Community OJ C 368, 22.12.2001, p.13-15 (hereinafter de

minimis notice)

8 It has to be noted that application of the de minimis rule is not obligatory for the ECJ, and the Commission

notice is not considered as legally binding regulatory vehicle, only as soft law in orientation of assessment of

individual agreements. As the topic of this thesis is the vertical block exemption, the de minimis rule and

practice will not be discussed herein in details.

9 De minimis notice Section 3.

10

The modernization regulation (Council regulation (EC) No 1/2003 on the implementation of the rules on

competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, 4.1.2003, p. 1) eliminated the possibility to

obtain negative clearance from the Commission based on former Council regulation No 17, therefore currently

the Commission exercises no ex ante control of the agreements.

9

Although the Commission issued a notice on the criteria of assessment of the

agreements on an individual basis11

, given the non-objective nature of the exemption

criteria, the need for extensive market survey and analysis, and the uncertainty of the

exact content of the different criteria among the specific market conditions, all these

factors impose significant unpredictability, high transaction costs, and high economic

(and reputation) risks on the undertaking forced to conduct such assessment.

c) Block exemption

Realizing the importance of unified control in certain sectors of the economy, the TFEU

itself12

creates the possibility of general exemption from the prohibition of Article

101(3).

As an early recognition of the special position of the car market in EU economy, the

technical specifics of the product, the diversity of economic interests and the high cost

and risk of individual assessment, as of the 1980s the general exemption of the group of

vertical agreements between market players of different levels of the automotive

market became a tool for exempting the sector from the general prohibition of Article

101(1) from.

In 1965, to reduce the administrative burden in assessing similar agreements, the

Commission became authorized to grant block or group exemptions for certain

categories of agreements falling under Article 8113

. It was not until 1985, however,

when, after extensive consultations with stakeholders, the first block exemption

regulation was introduced on the automotive market14

.

Block exemption regulations essentially define a set of agreements and criteria for which

there is a safe harbor, i.e. a presumption that the benefits from the agreement outweigh

the anticompetitive effects. If the undertakings participating in the agreement have a

market share above the threshold, the agreement is not necessarily illegal, but an

individual assessment of the agreement has to be performed against the criteria set in

11

Communication from the Commission - Notice - Guidelines on the application of Article 81(3) of the Treaty

OJ C 101, 27.04.2004, p. 97.

12 TFEU Article 103

13

Regulation No 19/65/EEC of the Council of 2 March 1965 on application of Article 85 (3) of the Treaty to

certain categories of agreements and concerted practices OJ P 36, 6.3.1965, p. 533

14 Commission Regulation (EEC) No 123/85 of 12 December 1984 on the application of Article 85 (3) of the

Treaty to certain categories of motor vehicle distribution and servicing agreements, OJ L 015 , 18/01/1985 p.

0016.

10

Article 101(3) of the TFEU and with respect to the Commission’s guidelines on the

application thereof15

.

Although the technique of applying block exemption for the sector has been a solution

applied for decades, the interests subject to protection and specific tools utilized for

that have changed as the market itself was changing from the late 20th

to the early 21st

century.

II. THE MOTOR VEHICLE MARKET IN THE 21ST CENTURY

In order to understand the significance of the currently applicable rules regarding distribution

networks of the automotive industry, it is essential to examine those in relation to the specifics of the

products and the market itself, and to the rules applicable for the sector until the very latest changes

introduced in 2010, some of the rules entering into force only on June 01, 2013. To be able to create

our own opinion whether the new regime and certain elements thereof are to be evaluated as

achievement or as compromise for the different market participants, we have to investigate the new

rules in comparison to the previous criteria for exemption.

1. Car distribution systems in general

As a tendency on the market, vehicle manufacturers can penetrate to the very wide international

retail market of new vehicles via a network of agreements concluded in the different levels of the

supply chain. They tend to establish regional and national sales companies as subsidiaries of the

manufacturer, contract with wholesalers, agents, and eventually with the retail resellers, the latter

being the dealers as distributors of the primary market and repairers as distributors of the spare

parts and servicing of the vehicles in the aftermarket.

The peculiarities of the industry, the market and of the regulation itself can be captured the most

clearly at the retail level, therefore the model through which the application of the European

competition policy is be explained will be the agreements of the manufacturer (or its subsidiary16

)

with the members of its authorized distribution network (dealership/repairer agreements).

15

See for example Communication from the Commission - Notice - Guidelines on the application of Article

81(3) of the Treaty OJ C 101, 27.04.2004, p. 97.

16

For the purposes of the thesis the term „manufacturer” shall mean the manufacturer of the vehicles and the

wholly owned subsidiaries established as national or regional sales companies (importers). These

national/regional sales companies conclude the wholesaler agreements with the authorized distributors of the

vehicles/authorized repairers. In case of wholly owned subsidiaries, the competitive effect of the agreements

of the vertical supply chain will need to be examined only on the dealership agreements level, because the

agreements – which are in many cases commissionaire or agency agreements – between the manufacturer and

its subsidiary will not be subject to competition restraints. In case of several levels in the distribution chain

involving independent wholesalers the relationship between the manufacturer and the wholesales/importer

would also be subject to assessment from competition point of view, however the aspects of assessment – due

11

Sale and servicing of new vehicles requires a very specialized and continuously improved technical

knowledge of the vehicle, which necessitates not only continuous training of the reseller’s personnel,

but also relatively large investment into premises, stock to display and stock to sell, tools for

inspection, repair and maintenance, stock of spare parts, availability of diagnostic tools etc.

Distributors therefore seek for guarantees for return of their investment, while manufacturers seek

for guarantees to maintain brand image, quality and expected revenue. Aim of competition law,

however, is not the protection of the competitors, but the competition itself.17

The economic

interests of the different market players are subject to other legal tools (for example regulatory

protection for SMEs, prohibition of unfair commercial practices etc.).

Some of the interests of the stakeholders do however meet the ultimate aim of competition policy to

enhance consumer welfare. Manufacturer’s interest to ensure high quality of its products and

services is also the interest of the consumers; distributors’ interests to operate in a level playing field

of intra-brand competition, but protected from non-authorized resellers (with the argumentation of

economic efficiency) is also to the ultimate benefit of the consumers by enhancing competitive prices

and improving consumer choice. There are certain solutions applied by the market players, which

very well serve the interests of the participants, and can be justified based on competition law

grounds.

The experiences in the motor vehicle industry show that the best way to serve the above interests

and have its valid competition law arguments is to ensure a system where the manufacturer is able

to select its distributors itself to cover its entire territory of operations and require the distributors to

comply with certain criteria during the term of the agreement, and keep close control on the

operation of the member of its distributor network. In the meantime distributors are provided with

certain priorities over non-authorized resellers/repairers and guarantees for continued operations.

Such systems can be built up in two ways. One way is the exclusive distribution system, in which the

manufacturer appoints one distributor for a specific territory with exclusivity rights and obligations.

The other one is selective distribution system, in this one the manufacturer selects the members of

the network based on certain quality criteria defined by the manufacturer, which criteria are

associated with the characteristics of the market and the product. Such criteria usually include

requirements on minimum area, equipment and layout of premises, minimum stock requirements,

qualified staff, training, availability of special tools, visual identity etc. In vehicle distribution and

servicing selective distribution is the typically used scheme.

Selective distribution can be either pure qualitative system, meaning that the applicant which fulfills

the selection criteria of the manufacturer will be entitled to enter the network as a member, or it can

be quantitative system, in which case the manufacturer further limits the total number of members

to different phenomena of the market level – would be different. Any reference to the manufacturer in this

thesis will therefore refer to the manufacturer or its wholly owned subsidiary national sales company. (See

Decision Vj-166/2006. of the Hungarian Competition Authority Section V.26.)

17

See Communication from the Commission: Guidance on its enforcement priorities in applying Article 82 of

the EC Treaty to abusive exclusionary conduct by dominant undertakings. OJ C 45, 24.2.2009, p. 7–20. Section

6. “…Commission is mindful that what really matters is protecting an effective competitive process and not

simply protecting competitors.”

12

(most commonly by appointing the distributors with respect to an essential – but not exclusive –

territory).

New car dealership networks almost always operate as a quantitative selective distribution system,18

while authorized repairer networks as qualitative distribution systems, therefore this thesis will

describe the applicable competition rules for the primary market by examining the operation of the

quantitative selective distribution system for primary retail sales, and qualitative system for repairer

networks operating on the aftermarket.

2. Effect on distributors and consumers

Having introduced the peculiarities of the market from the manufacturers’ and distributors’ point of

view, it has to be mentioned that the interests of the above market players, and arrangements taking

into consideration these (diverging and sometimes contradictory) interests, may (and are likely to)

result – beside the positive effect on technical reliability and high quality of products and services - in

less choice for consumers and higher prices.

Manufacturers tend to control the operation of the dealers by imposing minimum purchase

obligations and encouraging dealers to purchase for stock. This results in the dealers trying to sell out

their existing stock rather than obtaining the tailor-made model for the customer from the

manufacturer. Manufacturer’s intent to orientate customers to the dealer located in the specific

essential territory (for example by directly or indirectly preventing sale to consumers from higher

priced countries) will result in less competition between dealers of the same network and

maintenance of higher prices.

These are only some of the techniques with which the manufacturers intend to maximize profit and

minimize their own risk. The regulatory framework aiming at leveraging the different interests of the

different stakeholders have to create a set of tools balancing the corners of the triangle of

manufacturer-distributor-consumer.

3. The block exemption framework applicable for selective distribution between 2002 and 2010

In 2002, when introducing the previously prevailing regime of block exemption for the motor vehicle

industry, the Commission applied a complete set of rules specific only to this sector and different

from the exemption applicable to the vertical agreements in general19

. The Commission, when

18

Commission Staff Working Document Accompanying the Communication from the Commission The Future

Competition Law Framework applicable to the motor vehicle sector Impact Assessment COM(2009) 388 final,

Technical Annex 3. Evolution of the Motor Vehicle Markets since Regulation 1400/2002 entered into force,

Available at http://ec.europa.eu/competition/sectors/motor_vehicles/documents/technical_annex_3.pdf,

(hereinafter Commission Staff working document Annex 3.) Section 157.

19

Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the application of Article 81(3) of the

Treaty to categories of vertical agreements and concerted practices OJ L 336, 29.12.1999, p. 21

13

deciding upon the tools of regulatory framework, considered a number of factors for assessment of

degree of competition on the primary (new vehicle sale) and aftermarkets. Among others it took into

consideration the findings of market analysis performed by assigned experts, market investigations

conducted in connection with mergers authorized in the manufacturing industry, the findings of its

inspections conducted at car manufacturers and distributors, the large number of complaints from

consumers, and the car price reports that had been prepared yearly20

. As a result of the assessment,

Commission found that the insufficient degree of inter-brand and intra-brand competition,

particularly the need of protection of dealers’ investment and consumers’ participation in the

economic benefits, requires a set of rules more strict that those of the general block exemption

regulation applicable to other sectors of economy21

.

The Commission Regulation (EC) No 1400/2002 on the application of Article 81(3)22

of the Treaty to

categories of vertical agreements and concerted practices in the motor vehicle sector imposed a very

strict set of rules on manufacturers above what was generally applicable to all vertical agreements.

The regulation exempted agreements where the manufacturer’s market share did not exceed 40% in

the relevant market. To fulfill the criteria for exemption, the regulation defined – above the criteria

generally applicable on all vertical agreements and almost identically defined in the then current

general block exemption regulation of 2790/1999 - specific contractual elements of the dealership

agreements, such as minimum term/termination of the agreement for the protection of dealer

investments and possibility for arbitration or independent expert’s decision for the sake of dealers’

interest.

It ensured the possibility of selling competing brands by dealers at the same premises (multi-

branding), and prevented manufacturers from introducing limitation for dealers to open additional

locations on the internal market. Moreover, in order to further encourage dealer investment and

ease market access, it allowed the operation of “sales-only” dealers enabling them to subcontract

repair and maintenance services.

In the after-sales market the regulation contained guarantees for authorized and independent

repairers (members of the manufacturer’s network and outsiders), and guaranteed also directly to

consumers to have access to original and matching quality spare parts, technical information and

diagnostic tools, therefore aiming at increased competition and consequently more competitive

prices in repair and servicing activity.

As shown by the above very brief overview, the clear goal of the Commission when forming the

Regulation 1400/2002 was to encourage inter-brand and intra-brand competition and protect the

20

Prepared annually between 1993-2011,, available at:

http://ec.europa.eu/competition/sectors/motor_vehicles/prices/report.html

21 Report on the evaluation of Regulation (EC) No 1475/95 on the application of Article 85(3) of the Treaty to

certain categories of motor vehicle distribution and servicing agreements, COM/2000/0743 final, Available at:

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52000DC0743

22

Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to

categories of vertical agreements and concerted practices in the motor vehicle sector OJ L 203, 1.8.2002, p. 30,

(hereinafter: Regulation 1400/2002. (Article 81(3) renumbered as Article 101(3) of the TFEU.)

14

economic interests of the dealers operating mostly as SMEs. The more detailed analysis of the

specific provisions – from the perspective of the consequent changes introduced in 2010 – will follow

in the upcoming part of this paper.

4. The new regime of the block exemption – new horizons of distribution

The motor vehicle block exemption Regulation 1400/2002 expired in 2010. Prior to the expiry, in

2008 the Commission performed a deep market analysis and evaluation, and extensive consultation

with the stakeholders.23

In its evaluation report the Commission made the following basic findings regarding achievements of

the block exemption framework.

4.1. New car sales

As for the car sales market, the Commission concluded that convergence of the market shares

of the car manufacturers present on the internal market resulted in a situation where no car or

commercial vehicle manufacturer enjoys a strong market power in the EU as a whole. Entry

barriers are relatively low, which fact is underlined by the successful expansion of the Eastern

Asian (Japanase, South Korean, Chinese, Indian) manufacturers in the European market, and

the expansion of most car manufacturers to new market segments by broadening their

product portfolio to cover the most sizes of vehicles.24

A steady trend of price decrease in

retail prices25

, relatively high and constant R&D spending with the purpose to maintain

competitiveness of the products, and relatively low profitability of car manufacturers also

show that the inter-brand competition on the new car market have been increasing during the

application of the Regulation 1400/2002, and it was expected to grow further.26

Turning to intra-brand competition, the Commission found that the car manufacturers’ dealer

networks were heading for rationalization by decrease in dealer number and higher

concentration of the market, the efficiency gains and economies of scale (together with the

other above described effects of increase in inter-brand competition) despite resulting in lower

prices and better quality for consumers.27

All in all, the Commission confirmed a growing competition on the new vehicle sales market,

with perceptible benefits on the consumers’ side.

23

Commission Staff working document Annex 3. Section 2.

24

Commission Staff Working Document Annex 3. Section 50.

25

Press Release: Car price report shows price differentials for new cars in EU narrowing in 2010 European

Commission - IP/11/921 26/07/2011

26 Commission Staff Working Document Annex 3. Sections 59-69.

27

Commission Staff Working Document Annex 3.. Section 82.

15

4.2. Aftermarket

Contrary to vehicle sales, Commission found in its Evaluation Report that competition on the

aftermarket between authorized repairers and independent repairers, and manufacturers of

original and competing spare parts are not so progressing. The more complex nature of the

vehicles require higher qualification, more advanced diagnostic and repair tools and more

thorough technical information. Although access is to be made available to these resources in

equal manner to authorized and independent repairers, the cost of investment itself makes a

selection among members of the manufacturer’s network and those outside. Although repair

and maintenance by an independent repairer cannot in itself lead to impair of any warranty

right of the consumers, consumers are reluctant to have their vehicles repaired or even

maintained at independent repairers during warranty period, this phenomenon resulting in a

definite competitive disadvantage to independent repairers in respect of vehicles under

warranty.28

4.3. Directions of the new block exemptions scheme

The continuously growing inter-brand and not decreasing intra-brand competition lead to a

more general, and more relaxed29

approach by the Commission to the primary market of new

vehicles sale, by terminating – following a prolongation period of 3 years - the special position

and the distinction of the motor vehicle sales market from the general rules, and pulling this

sector under the umbrella of the BER generally applicable for vertical agreements30

.

The aftermarket, however remained to be separate from the general regime, continued to be

regulated by a sector specific block exemption regulation31

with – at first sight - mostly the

same conditions of as the previous block exemption regulation of 1400/2002.

28

For detailed resons see Commission Staff Working Document Annex 3. Sections 194-197., and Chapter III.

below.

29

Zuehlke, Susanne; De Stefano, Gianni: EC motor vehicle block exemption reform: are you ready for the new

regime? (European Competition Law Review Issue 3, 2010 Sweet & Maxwell p.93) pg 95

30

Commission Regulation 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the

Functioning of the European Union to categories of vertical agreements and concerted practices

Official Journal L 102, 23.4.2010, p.1. (BER)

31

Commission Regulation (EU) No 461/2010 of 27 May 2010 on the application of Article 101(3) of the Treaty

on the Functioning of the European Union to categories of vertical agreements and concerted practices in the

motor vehicle sector OJ L 129, 28/05/2010, p. 52. (MVBER)

16

III. THE NEW REGIME IN THE NEW VEHICLE PRIMARY MARKET

1. General block exemption framework

In May 2010 the Commission accepted two sets of rules – the new regulations on general exemption

of categories of vertical agreements from the prohibition of Article 101(1) of the TFEU (Commission

Regulation 330/2010, „BER”), and the sector specific rules regarding exemption of agreements

related to the motor vehicle after-market (Commission Regulation 461/2010, “MVBER”).32

The MVBER, however, contained a provision relating to the new vehicle primary market (distribution

of new vehicles)33

, which extended the application of former motor vehicle block exemption rules

(Commission Regulation 1400/2002) for a 3 year period, until May 31, 2013. Based on this provision,

the motor vehicle distribution agreements became subject to the generally applicable block

exemption framework (without sector-specific distinction) as of June 01, 2013.

Such prolonged entry into force had its arguments and counter-arguments. Because of the numerous

facilitations the new framework resulted for manufacturers, Commission was facing strong pressure

from these interest groups arguing that postponing the application of the new rules for car

distribution does not have its economic grounds34

. The Commission reasoned its decision with the

argument that the – later explained35

– driving out of multi-branding will require a grace period for

return of dealers’ investments made in connection with building their multi-branded showrooms36

.

32

The Commission regulations are directly applicable in the Members States. The Hungarian Government

implemented the regulations by Government Decree 205/2011 (X.7.) on exemption of categories of vertical

agreements from the prohibition of restriction of competition (implementation of BER) and Government

Decree 204/2011 (X.7.) on exemption of categories of agreements in the motor vehicle market from the

prohibition of restriction of competition (implementation of MVBER). The government decrees contain

identical rules to those of the Commission regulations, and applicable not only to agreements falling within

Article 101(1) of the TFEU, but also to agreements under the scope of the Hungarian Competition Act of LVII of

1996.

33 BER Article 2. and 3.

34

See Japanese Motor Vehicle Manufacturers Association (JAMA) Observations on Proposed Motor Vehicle

Block Exemption Policy Options 2009 September pg 5. Section 2.2.2., available at:

http://ec.europa.eu/competition/consultations/2009_motor_vehicles/jama_en.pdf,

See European Automotive Manufacturers Association (ACEA) response to the Commission’s draft automotive

Block Exemption Regulation and guidelines, Available at:

http://ec.europa.eu/competition/consultations/2010_motor_vehicles/acea_en.pdf, pg 2 last para

35

See Section 5. of this Chapter III.

36

See Commission notice- Supplementary Guidelines on vertical restraints in agreements for the sale and

repair of motor vehicles and for the distribution of spare parts for motor vehicles OJ C138, 28.5.2010, p.16

(hereinafter: Supplementary Guidelines) Section 13.

17

Without questioning the Commission’s reasoning, it has to be mentioned that prolongation was

satisfying the requests of the strong lobby of the car distributors, , which primarily aimed for the

prolongation of the then current sector-specific regime for the entire motor vehicle sector.37

The previous block exemption regulation contained a set of hardcore provisions, which – if applied in

the parties’ relationship – will automatically exclude the application of the entire block exemption to

the entire vertical agreement. These hardcore provisions can be found in the new general BER in

more or less the same manner. The most significant changes rather follows from the fact that the

previous regulation also contained a set of provisions very specific to the automotive market, and by

involving the sector in the general block exemption scheme, these additional or specific provisions

ceased to be applicable, or continued to be applicable based on the Commission’s interpretation

rather than by the rules of law.

The different changes brought by the new regulatory framework to new car sales will be presented

below in details, focusing on those changes that were most significantly perceivable to the market

players as a result of termination of the sector-specific legislation.

2. Scope of application

2.1. Market share thresholds

It is to note as a starting point, that agreements between the car manufacturer and its dealers

(vertical agreements), which grant the possibility to sell the manufacturer’s brand at retail

level solely by those dealers who entered into a dealership agreement with the manufacturer,

by their very nature will impose certain restrictions on competition both on the vehicle market

as a whole and between the contracted dealers themselves. Such an agreement will be

exempted from the general prohibition of restriction of competition (Article 101(1) of TFEU) if

it fulfills certain requirements defined by the BER.

In order for BER to be applicable for the agreement, the contracting parties – first of all - need

to have a market share not exceeding 30% on the relevant market.38

37

See European Council for Motor Trade and Repairs (CECRA) Comments on the Commission Evaluation Report

on the operation of the Block Exemption Regulation 1400/2002 (2008), available at

http://ec.europa.eu/competition/consultations/2008_motor_vehicle/cecra_en.pdf, pg 4-5,

and Response to the European Commission’s Communication „The Future Regulatory Framework for

Competition in the Automotive Sector” (2009), available at:

http://ec.europa.eu/competition/consultations/2009_motor_vehicles/cecra_en.pdf, pg 4

38

As mentioned above in Section 2.2. a), under a certain market share, and in case of small and medium

enterprises, the Commission presumes that the agreement of these parties will not have a restrictive effect on

competition. The BER therefore in fact will come into the picture above these minimum thresholds but below

the market share of 30% of each of the parties.

18

Until June 01, 2013. the motor vehicle sector applied a larger threshold of 40% for the market

share of the supplier, in our case the manufacturer. A stricter 30% was the condition of

exemption only in relation to exclusive distribution, which is very rarely applied scheme for

passenger cars. This means that the new block exemption rules in this respect bring a tighter

limit for an agreement to be exempted from prohibition of Article 101(1).

The more significant impact the new BER brings to the exemption scheme is however not the

30% threshold, but more the rule that not only the supplier (manufacturer) has to comply with

this percentage limit, but also the distributor (dealer), in order for the agreement to be

exempted under BER. This in practice means that each and every dealership agreement has to

be assessed against the 30% threshold not only on the manufacturer’s side, but also against

the specific dealer’s market share on an individual basis. More frankly, the manufacturer’s

market share not exceeding 30% will not guarantee the applicability of the BER to its entire

dealer network.

In case either the dealer or the manufacturer exceeds the 30% limit, the agreement can be

exempted from the general prohibition (“made compliant” with law) based on individual

assessment, with the condition that it justifies the efficiency gains criteria defined in Article

101(3) of the TFEU. As the Commission no longer provides preliminary clearance of such

agreements, it is always a potential and significant risk to market players that – even following

careful analysis and assessment – their agreements would be found infringing the prohibition

of restriction of competition39

.

It is needless to say what administrative burdens such double limitation resulted for

manufacturers relating to assessment of their dealership agreements. In order to be able to

individually assess each agreement, the parties have to define the relevant market in their own

respect, and thereafter the market share – for the entire duration of the agreement – on that

specific market. The said shares need to be maintained on a continuous basis40

, which requires

continuous monitoring by the manufacturer of the position of all of its dealers.

The reason that justifies the application of a double limitation is the tendency of increase of

large distributors’ market power, which means that in theory the buyer (dealer) can introduce

competition restraints also. This phenomenon is not very common in new passenger vehicle

sales at this point of time, however the consolidation of dealer market and the reduction of

the number of distributors point to a direction of growing dealer market power41

.

39

According to the Commission (see Supplementary Guidelines Section 56) in case of market share of either

manufacturer or distributor, or both exceeds the 30% threshold, it can still be presumed that below 40%

market share the quantitative selective distribution system will comply with requirements of Article 101(3) of

TFEU

40

Exceeding thresholds are allowed without losing the benefit of block exemption for a temporary period and

to a limited extent as per Article 7. para d) and e) of BER

41

Commission Staff Working Document Aneex 3. Sections 82-83.

19

2.2. The relevant market

As application of BER is subject to compliance with the 30% market share threshold on both

supplier and buyer (manufacturer and dealer) side, it is a very important factor in market share

assessment where the economical and physical borders of such market lies. In other words,

what products will be assessed included in the total volume sold on the market, and within

what geographical area the total sales will have to be added up. The total sales volume so

calculated will influence the manufacturer’s and dealer’s portion actual portion of the total

figures.

Obviously, the participants of the vertical agreements will opt for the most possible broad

determination of the market, resulting in a lower share, and granting the possibility of “legally”

imposing restrictions on their competitors and their distributors.

a) Manufacturer’s relevant market

Defining the basic rules in nutshell, in respect of motor vehicle industry the Commission

accepts the primary distribution of new passenger vehicles being as separate market

from the repair market of these vehicles, maintenance and spare parts after-market42

.

Further, different segments of the vehicles (as differentiated based on size by the

Commission’s yearly car price report, e.g. subcompact segments A and B as VW Polo,

Opel Corsa, Nissan Micra, compact segment C for example VW Golf, Opel Astra,

intermediate segment D for example Opel Vectra, Audi A4 etc.) will be considered as

separate products, although it has to be noted that in specific cases an upper category

of segment C would likely to be an option for a consumer instead of a lower segment D

vehicle, which would somewhat blur the line between the two product markets, and

involve certain model types of one segment into the product market of another

segment. (For example the buyer of an upper grade Opel Astra may consider opting for a

lower grade Opel Vectra, as their price may be very close or even the same).

As from geographical point of view, Commission declares43

(and national competition

authorities follow the practice44

) to define the new vehicle market as a national one,

although as a result of the changing customer patterns (customers becoming more

willing to travel longer distances) and development of online sales (less in the vehicle

42

Wijckmans, Frank and Tuytschaever, Filip: Vertical Agreements in EU Competition Law, Second Edition,

Oxford University Press 2011, p 313-314 Section 10.93-10.95

43

See footnote 41, p 317. Section 10.105

44 See Hungarian Competition Authority Decisison Vj-81/2003. Section V.16.

20

sector at this point, but with the possibility of further development in the future) such

qualification of national markets may have to be revised in the future45

.

b) Dealer’s relevant market

Due to the double threshold, the relevant market from the dealer’s perspective also

needs to be defined, because the market share of the dealer has to be assessed on its

own relevant market. As product market is defined based on customer substitutability in

accordance with segments of size categories as detailed above, such product market

categorization can be applied in relation to the dealers also.

In respect of the dealer – which purchases from the manufacturer but sells to the end

user – it is a question which market – the upstream market from which it purchases, or

the downstream market on which it sells – will be relevant. According to Article 3. of the

BER, the market on which the buyer purchases will be relevant. From product market

perspective this means that in respect of a specific segment, the total purchases of all

brands selling the specific vehicle segment has to be added in to define the total

purchase volume.

It is somewhat more difficult to assess the geographical borders of the dealer’s relevant

upstream market. As there is no guidance in this respect in relation to the motor vehicle

sector46

, and as for geographical market, the territory on which the dealer purchases the

vehicles has to be assessed47

, it seems logical to define it as the territory allocated as a

primary territory to the dealer (usually a radius of approximately 50-70 kilometers of the

outlet).

Market analysis and defining the relevant market and market shares is more of an economic

than a legal task, therefore more details will not be devoted to this topic48

, but for the

purposes of the thesis it will be accepted that on manufacturer’s side the relevant market will

be the national market of the specific vehicle segment, while on dealer’s side it will be the

45

For detailed analysis see Verboven, Frank: Quantitative Study to Define the Relevant Market in the Passenger

Car Sector (17 September 2012), available at:

http://ec.europa.eu/competition/sectors/motor_vehicles/documents/study01.pdf

46

As the buyer’s market share is a new rule not only in relation to the motor vehicles sector, but in relation to

vertical agreements in general, the Commission notice on the definition of the relevant market for the

purposes of Community competition law (OJ C 372, 9.12.1997, p. 5) does not give proper guidance in defining

the geographical borders of the dealer upstream market. Unfortunately neither does the guidelines on BER nor

MVBER.

47 BER Article 3.

48

Detailed information on this topic is available in Niels, Gunnar; Jenkins, Helen; Kavanaghh, James: Economics

for Competition Lawyers (Oxford University Press 2011)

21

total purchases of the same vehicle segment in the specific regional territory on which the

dealer operates.

It can be said, that by pulling the motor vehicle sales under the general block exemption

regime, the new rules result in more limitation as regards to the exemption possibilities, more

administrative burden and definitely more uncertainty in respect of applicability of the BER. At

this point no guidance exists in relation to the view of the Commission (and of the European

Court of Justice) regarding the sector-specific interpretation of buyer market, as all previous

interpretation deals only with supplier’s market share as the only decisive factor of

applicability of exemption. Surprisingly, however, in the course of public consultation about

the draft BER and the draft guidelines of interpretation, very little opposition was made to the

new rules in this respect. Very few remarks were made by the stakeholders in relation to not

only the increasing administrative burden of continuous monitoring of the market shares of all

participants, but moreover in relation to the uncertainty of the interpretation of buyer market

share, in particular the method of defining dealer relevant market.

3. Hardcore restrictions

As mentioned in the Introduction, the purpose of this thesis is to discuss the sector specific

characteristics of competition regulatory framework of the motor vehicle sector, and therefore the

general rules applicable for all types of vertical agreements irrespective of the industry shall not be

included.

However, in order to see the full picture, some words have to be devoted to the other condition of

application of BER beside the compliance with market share thresholds. Even if the participants’

market share does not exceed the 30% limit, the agreement further has to comply with the condition

that it does not contain the hardcore provisions listed in Article 4. The hardcore restrictions relate to

restrictions on freedom of the distributor to define its retail prices, territorial restrictions or

restrictions related to certain customers, cross-supplies between members of the distribution

network, and restriction relating to access to original spare parts by distributors and customers.

If any of these restrictions are contained explicitly in the parties’ agreement, or impliedly followed by

the parties with mutual intent, the entire agreement shall fall out the application of BER and shall be

subject to prohibition under Article 101(1) of the TFEU. Application of the hardcore provisions most

of the time will result in a restriction that cannot be individually exempted under Article 101(3) of the

TFEU, however the Commission in its Guidelines regarding BER49

define certain circumstances under

which the application of one or another hardcore restriction may still be acceptable.

4. Selective distribution system

As briefly described in Part I. above, typical way of operation of passenger car distribution is through

quantitative selective distribution systems. The manufacturer defines a set of criteria to be complied

49

Commission notice - Guidelines on Vertical Restraints OJ C 130, 19.05.2010, p. 1

22

with by the potential dealer, and the manufacturer selects a limited number of applicants with which

it concludes a dealership agreement. The dealers are nominated for an essential territory, which

means that they conduct their activity from this specific territory, which however does not mean that

they cannot sell (either actively or passively) to those customers who reside outside this territory.

Legal basis of the operation of a selective distribution system lies in the doctrine, which allows the

selection of its distributors by the manufacturer – and foreclose the participation of others in the

distribution of the product – provided that the selection complies with certain criteria.

Selective distribution is allowed for certain types of products which justify the necessity of the

selection by the specialties of the product. The ECJ dealt with a number of product types which

qualify for selective distribution by their nature. In its emblematic decision in the Metro I case50

the

ECJ confirmed that selective distribution agreements were justified in the sector covering high quality

and technically advanced consumer durables. As mirrored by the ECJ’s later case-law51

, motor

vehicles are also considered as such technically complex products for which selective distribution can

be applied. In subsequent decisions the ECJ later broadened the scope of products which can be

subject to selective distribution (e.g. also luxury52

and branded products53

).

The main question that arises in connection with selective distribution system is the selection itself.

While the previous motor vehicle block exemption regulation of 1400/2002 gave a very clear set of

rules on what it considers qualitative and quantitative selective distribution54

, and what criteria the

selection can be based on, the general block exemption BER does not define these rules. In the

absence of relevant definition of BER, guidance is provided by the case-law of the European Court of

Justice and the Commission’s Guidelines on Vertical Restraints55

(hereinafter: “Guidelines”).

4.1. The selection criteria - Interpretation of the Commission’s Guidelines

The Commission Guidelines on Vertical Restraints follow from the ECJ’s case law on

interpretation of selective distribution (in details see below), and continue the approach

previously set in the Regulation 1400/2002 itself.

The Guidelines briefly sets that members of qualitative selective networks (in the automotive

sector authorized repairers are operating in such system) have to be selected based on criteria

50

Case C-26/76, Metro-SB-Grossmärkte GmbH v Commission [1977] ECR I-1875, para 21.

51

Case C-228/82 Ford v. Commission ECR 1984 p. 01129

52

Case Parfumes Givenchy (Case No IV/33.542) OJ L 236, 19/08/1992, p. 11–22 (luxury parfums)

53

Case Murat of 5.12.1983: OJ L 348, 10.12.1983, high quality gold and silver products

54

See definitions of Regulation 1400/2002 Article 1. par. g) and h)

55

Commission notice - Guidelines on Vertical Restraints OJ C 130, 19.05.2010, p. 1

23

justified by the specialties of the product, applied only to the necessary extent to achieve

quality goals, and equally applicable to all candidates in a non-discriminatory manner.

In respect of quantitative systems, even the previous block exemption regulation referred only

to such criteria that limit the number of distributors, without further requirements of the

criteria. As said above, the current BER contains even less guidance. The Guidelines state –

after defining the set of rules for the qualitative selection criteria – that “Quantitative selective

distribution adds further criteria for selection that more directly limit the potential number of

dealers by, for instance, requiring minimum or maximum sales, by fixing the number of

dealers, etc.”56

Ordinary interpretation of the wording itself leads to the conclusion that if a

manufacturer opts for establishing a quantitative selective distribution system for sale of its

vehicles, it can impose quality-related, justified, necessary and non-discriminative

requirements for the applicants, and above that it may add further (non-quality related)

criteria that the dealers have to comply with.

4.2. The ECJ’s interpretation of qualitative selective distribution– the Metro-doctrine

A look at the ECJ case law helps to refine the requirements of selective distributions, the

difference between quantitative and qualitative selection, and the possibilities of the

manufacturers.

In 1976 in the Metro I case57

the ECJ declared that selective distribution accords with Art.

101(1) provided that: (1) resellers are chosen on the basis of objective criteria of a qualitative

nature relating to the technical qualifications of the reseller and its staff and the suitability of

its trading premises, and that (2) such conditions are laid down uniformly for all potential

resellers and are not applied in a discriminatory fashion. The court declared that qualitative

selection does not in itself infringe prohibition of Article 101(1), while other – quantitative -

selective distribution systems, however, may infringe Art. 101(1).

In the Metro decision the ECJ also made a distinction that requirement to achieve a turnover

and obligations relating to stock volume exceed the frame of qualitative selection, therefore

these amount to quantitative requirements. Those obligations bind the appointed distributors

closely to the manufacturer and although they fulfill the qualitative conditions for

appointment, those undertakings that cannot or will not undertake such obligations, which

thus indirectly bring about a limitation in the number and establishment of outlets.

56

Commission notice - Guidelines on Vertical Restraints OJ C 130, 19.05.2010, p. 1 Article 175 last sentence

57

Case C-26/76, Metro-SB-Grossmärkte GmbH v Commission [1977] ECR I-1875, para 21.

24

Later on the ECJ in many cases relied on the definition of qualitative selection, and continued

to apply the criteria set in the Metro case in a consequent manner without too much novelty

in interpretation.58

What brought a very important clarification for practice was the decision in the case C-158/11

Auto 24 SARL v Jaguar Land Rover France SAS. The case dealt with very specific implications of

distinction of quantitative and qualitative selection. While the previous decisions of the ECJ

focused on defining the requirements of qualitative selection, as an opportunity that the

agreements falls out of the scope of Article 101(1), this latter decision – in the context of the

motor vehicle distribution – highlighted very important distinction of quantitative selection,

and brought answers to practical questions of operation of quantitative selective distribution

systems. Let’s see what the practical questions are and how the decision clarified those.

4.3. Practical problems of interpretation

In practice the question of what type of criteria can be imposed on dealers comes up not only

upon establishment of the networks, but more frequently in the course of operation. In

promoting their products, manufacturers introduce new marketing schemes, incentives,

upgraded services, sales schemes, special upgraded services (excellence centers), broader

product range, etc. The manufacturers many times aim such programs to a target group of

customers, to be accessed through certain dealers at preferred locations. In other cases the

promotion campaign is linked with certain dealer incentive schemes where the intent is to

incentivize only certain dealers or dealerships. It also happens that the manufacturers are

willing to invest into the growth of some of their preferred dealers, while it is not in its interest

in case of others. In case of certain premium products the manufacturers may want to sell

those (and invest into the increased costs of such premium sales) at certain locations close to

the potential demand. Different promotions/product availability/programs etc. would require

compliance by the dealers with different sets of criteria. (For example an excellence center for

premium vehicles would require special visual identity elements, special training for the staff,

special tools etc, but would also mean special incentives/margins/support for the dealer as the

manufacturer’s contribution.)

58

Case 107/82 AEG/Telefunken [1983] ECR 3151 and Case 31/80 L’Oreal v AMCK. In the L’Oreal case the ECJ

declared: “In order to determine the exact nature of such ''qualitative'' criteria for the selection of re-sellers, it

is also necessary to consider whether the characteristics of the product in question necessitate a selective

distribution system in order to preserve its quality and ensure its proper use, and whether those objectives are

not already satisfied by national rules governing admission to the re-sale trade or the conditions of sale of the

product in question. Finally, inquiry should be made as to whether the criteria laid down do not go beyond

what is necessary. In that regard it should be recalled that in case 26/76, Metro v Commission cited above, the

Court considered that the obligation to participate in the setting up of a distribution system, commitments

relating to the achievement of turnovers and obligations relating to minimum supply and to stocks exceeded

the requirements of a selective distribution system based on qualitative requirements.”

25

All these situations raise the same question: is the manufacturer allowed to apply – not only

upon selection, but also in the course of operation – different criteria (including different

financial terms, incentive systems, discounts and bonuses) in relation to different dealers.

Following from the word by word interpretation of the Guidelines described in the previous

section 3.1., the answer would be no.

The BER itself – similar to the previous MVBER – does not answer this question directly.

MVBER and the Guidelines of the current BER refer only to the selection criteria. These criteria

however not only function as the condition list of selection of the dealers, but also they have

to be complied with throughout the entire term of the dealer contract as a condition of

maintaining dealer status. Therefore we can say that the requirements of BER/Guidelines in

respect of selection criteria will be applicable also for the entire cooperation of the parties.

But as we saw, the interpretation of the Guidelines’ word would lead us to the obligation to

comply with the conditions prescribed for qualitative systems (justified and necessary, non-

discriminative qualitative criteria), and the possibility to impose other (not quality-related)

criteria, these latter also having to comply with the above conditions. But how can the

manufacturer set up the above mentioned excellence centers, premium resellers, high quality

services to the customers if it cannot define different (stricter) criteria for different dealers and

in return favor and support them?59

4.4. The ECJ’s interpretation of quantitative selective distribution

Auto 24 was Land Rover’s authorized dealer from 1994 to 2002 at which point in time it

became an authorized repairer, but its application to be readmitted as an authorized dealer

was rejected. The subsequent dispute was appealed to the Paris Cour de Cassation which

rejected Auto 24’s case on the grounds that Land Rover was entitled to refuse entry on the

basis of a quantity cap which it established in 2005 and which foresaw the admittance of 72

dealers covering 109 sites in France. On appeal, Auto 24 argued that in a quantitative selective

distribution, the supplier must satisfy objective economic justifications, of which the supplier

must provide evidence, and the criteria must be applied in a uniform and non-discriminatory

59

(There may be other arguments against the restrictive nature of promoting certain dealers. One could – for

example - try to argue that dealers located in areas with different features (large cities vs. small towns), or

selling premium brands cannot be considered as being in the same position as the others, therefore

differentiating by the criteria applicable to them would not even amount to discrimination. It is a rather vague

argument, because it is very uncertain what differentiating elements could be justified form competition law

purposes – for example what would be the size of the city that would make a justified difference.

Counterargument against this method of justification of differentiating would be the qualitative selection itself.

Namely, if we accepted that in a quantitative selection the size of the city the distributor operates in would

mean a type of difference between the dealers’ position that would objectively justify different criteria (and

would mean that such differentiation is not qualified as discrimination), this argument could be used for

qualitative distribution also, meaning that different criteria would be justified for different applicants, which

however would clearly be contrary to the ECJ’s case-law.)

26

manner in all areas and to all participants. The question referred to the ECJ was to what extent

the supplier is required to define entry criteria.

In its ruling the ECJ states that in a selective distribution system, quantitative or qualitative,

distributors must be admitted on the basis of specified criteria, which the ECJ defines as

“criteria whose precise content may be verified”. This does not mean that a supplier is under

an obligation to publish these criteria: as the ECJ points out, as this may jeopardize business

secrets, and even risk facilitating possible collusive behavior60

.

The ECJ also confirmed that there is no obligation on a supplier using a quantitative system to

adopt criteria that are objectively justified (i.e. by the product or service) or to apply these

criteria in a uniform or non-discriminatory manner61

. According to the ECJ, the different

wording of the Regulation 1400/2002 (which the ruling is based on ) relating to qualitative

criteria from that applying to quantitative criteria shows, that it was not apparent that the

European Parliament and the European Commission wished to impose the same conditions on

the two different types of selective distribution systems.

The ECJ’s decision is based on the previous block exemption regulation 1400/2002. As

mentioned above, the current BER does not contain definition of quantitative and qualitative

selective distribution. However, because the Guidelines of the current BER do contain almost

identical rules in regards to the criteria as the previous regulation, we have to assume that -

until contrary decision - the ECJ’s ruling has to be considered as prevailing for the current BER

also. This means that manufacturers are under no obligation to select their dealers based on

objective and non-discriminatory criteria, which gives grounds for consideration of the

manufacturers’ economic motivations other than those related to quality of the products and

services.

It has to be nailed down that the ECJ’s above decision refers specifically to dealer selection. As

to date, neither the Commission, nor the EJC passed any decision in respect of the conditions

of operation on different grounds in respect of different dealers. However due to the fact that

the criteria has to be complied with by the dealers throughout the entire cooperation, and the

vertical agreement will be exempted by BER only if it complies with the regulatory conditions

during the entire term of the agreement, by analogy the ECJ’s decision has to be followed in

respect of the criteria imposed by the manufacturer on the dealers in the course of the

operation as well.

4.5. Other aspects for consideration

The ECJ’s ruling certainly eliminates previous doubts as to the possibility of selecting certain

dealers for certain premium incentive programs. It may also justify different financial criteria

60

paragraph 31 of the decision

61

paragraph 32 of the decision

27

agreed with different dealers, and different volume targets agreed for different territories. It is

also in line with the aims of competition policy, because developing certain territories by

applying positive discrimination should result in better service for consumers on these

territories.

It has to be noted however, that the EJC ruling does not provide for clear roads for the

manufacturers to discriminate among dealers without any justification. Even if the criteria

does not infringe the requirements of BER, therefore the vertical agreement itself would not

lose the benefit of exemption, other competition law implications of such selection also have

to be respected.

The manufacturer, in the course of its unilateral actions imposed on the dealer, have to comply

with the prohibition of abuse of dominant position of Article 102 of the TFEU62

. Any of the

manufacturer’s operational decisions (except if those are based on real, mutual and free

agreement of the parties) shall be subject to assessment based on Article 102. (It is to be

noted however, that due to the equation of market power of the manufacturers on the EU

market63

, it is very rare that one or the other manufacturer manages to establish a dominant

position on one or another national market.)

Although the TFEU does not explicitly declare, most of the national competition laws contain

the obligation of fair market conduct. This means that although the criteria imposed on dealers

(and the incentive schemes provided to them) are not required to be justified by objective and

non-discriminatory grounds, the obligation to conduct the market behavior fairly will require

some justification based on economic rationality from the manufacturer. This means that the

EJC interpretation does not give free hands for discrimination between the members of the

dealer network, however it does provide for a certain degree of freedom for the manufacturer

to observe its own economic preferences.

5. Dealer protection

The Commission Regulation 1400/2002 applicable until May 31, 2013. contained a set of provisions

aiming at protecting dealers’ interests against manufacturer’s market strength. These rules were

formulated as compulsory contractual terms to be incorporated into the agreement between the

manufacturer and the dealer, as condition of applicability of the block exemption to the agreement.

Most significant protection of dealer investments were provided through a minimum term of 5 years

of the dealership agreements, or a 2 years termination period for indefinite agreements (1 year in

case of re-structuring the entire dealer network), with the obligation for the manufacturer to give

objective and clear reasoning of termination in writing. It is not a surprise that dealer associations

were very much determined to put pressure on the Commission to maintain such dealer protection,

62

Pánczél Márk: Régi-új szabályok és értelmezési kérdések a gépjárműszektorban a C-158/11. sz. ügy kapcsán

(Versenytükör 2012. II. évf. pg 48.) pg 50. 63

See the Introduction part above

28

and the main argument was that by the new BER enabling the manufacturers to impose single-

branding obligation on dealers, this would be the only tool to protect dealer’s investments until full

return.

The other dealer protection tool was the possibility to be ensured to dealers to take disputes to

arbitration or to an independent expert for resolution in respect of certain aspects of the agreement.

Although the Commission, when formulating the final regulations, maintained its approach phrased

in the draft of MVBER that with involvement of the car sales market into the general BER, such

sector-specific measures will be lost, the pressure from the dealer associations gave an

argumentation for the Commission to introduce the 3 years grace period for continued application of

the sector-specific regulation 1400/2002. (It is to be noted that introducing the possibility of single-

branding, which is to be discussed in details below, does not follow automatically from the provisions

of new BER, it requires the modification of the dealership agreements with mutual consent, or – in

case of lack of consensus – the dealership agreement can be terminated with the above mentioned 1

or 2 years termination period. For this reason single-branding itself did not – at least from legal point

of view - justify the necessity of extension of application of stricter sector-specific block exemption

by 3 more years.)

Although BER no longer contains obligatory contractual content, manufacturers’ associations reacted

to this regulatory change by introducing code of conducts, in which they oblige themselves to

maintain the termination periods of 1 or 2 years, and the possibility of arbitration64

. Reason for this

practice is primarily connected to the possibility of single-branding, namely that once the dealers are

obliged to make relatively high, mostly brand-specific investments, without providing a certain extent

of guarantee, manufacturers would be facing constraints in recruiting new members to their

networks. Secondly, the increase of investment need resulting from the more and more complex

technology necessitates manufacturer’s participation in dealer’s investments. Such manufacturer

investment is equally secured by a longer termination period65

. Such commitments by the

manufacturers can help to legally validate – as just and fair - the very strict quality requirements

defined in the manufacturers’ selection criteria, and this complying with the requirement of

necessity and fairness.

6. Single branding

One of the most significant and most-debated changes in the new regulatory framework is the non-

competition obligation on dealers in respect of selling other brands.

64

See JAMA Code of Good Practices available at

http://ec.europa.eu/competition/consultations/2008_motor_vehicle/jama_en.pdf (Annex of the document),

ACEA Code of Conduct available at

http://www.acea.be/uploads/news_documents/20100906_BER_code_of_conduct.pdf

65

See JAMA Position Paper on the Future EU Motor Vehicle Market: Distribution, Servicing and Parts (11

January 2008) http://ec.europa.eu/competition/consultations/2008_motor_vehicle/jama_en.pdf, Section IV.3.

29

The former motor vehicle block exemption regulation of 1400/2002 did not exempt those provisions

of vertical agreements, which directly or indirectly prohibited the dealer to sell competing brands, or

obliged it to purchase more than 30% of the dealer’s total purchases of the brand manufactured by

the manufacturer and subject to the dealership contract. This meant that the dealer was allowed to

sell at least 3 different brands from different suppliers.

Upon the new BER, manufacturers now can impose a non-compete obligation or an obligation of

purchase up to 80% of the dealer’s total purchases of the manufacturer’s brand, and such obligation

would still benefit from the block exemption. Such non-competition obligation is limited up to a

period of 5 firm years, which should not be capable of automatic or implied renewal66

. Express

renewal by mutual agreement of the parties is not prohibited by BER.

The Commission in its impact assessment report issued in respect of the achievements of the

Regulation 1400/2002 noted67

that although the former regulation allowed the possibility of multi-

branding for dealers – not only through subsidiary companies or separate dealer locations, but also

from the one and only showroom operated by the dealer -, the practical application of this possibility

was not really exploited by dealers. Although with development of large dealer groups it is a

tendency that different companies of the group operate different branded dealerships at different

locations, the Commission found that selling different brands from the same outlet is very rare. The

Commission also noted that such multi-branding from a single location may in fact have adverse

effect to competition, as it may negatively affect brand image and result in conflicts between criteria

applicable for the different brands. It is not surprising that the manufacturers’ associations aligned

up behind this reasoning of the Commission and eagerly commended that multi-branding is not a

common practice68

.

Contrary, the dealer associations hang on to their standpoint emphasizing that multi-branding is an

actual practice, especially in the Central-European countries.69

Despite the fact that the Commission

seems not to perceive the actual market pattern of multi-branding, in reality, in the CEE countries it

is indeed a common practice that dealers sell several brands from the same location, the different

parts of the showroom reserved for different brands and marked with very specific visual identity

elements. These dealerships in fact face some issues by the new regulation of BER not prohibiting the

non-compete obligation.

66

Non-competition obligation can extend the 5 years period only in respect of prohibition of sale from a

location owned by the manufacturer or an independent third party. Maximum period of prohibition equals to

the time of occupancy.

67

Commission Staff Working Document Annex 3. Section 108.

68

See as an example JAMA Response to the Commission’s Evaluation Report on Regulation 1400/2002

concerning Motor Vehicle Distribution and Servicing 31 July 2008., available at:

http://ec.europa.eu/competition/consultations/2008_motor_vehicle/jama_en.pdf , Section III par. 4

69

CECRA Response to the European Commission’s Communication „The Future Regulatory Framework for

Competition in the Automotive Sector” (2009), available at:

http://ec.europa.eu/competition/consultations/2009_motor_vehicles/cecra_en.pdf, Section 2/a

30

As the agreements concluded under Commission Regulation 1400/2002 either do not contain any

non-compete obligation, or – what is more common – utilize the possibilities of the 30% limit to

oblige for a minimum purchase ratio and defining very strict requirements for separation of brands

within the showroom, any change in the contractually agreed provisions (including switching from

30% to 80% purchase ratio limitation and non-compete obligation) requires the explicit agreement

by the dealer. This – together with the other modifications in the competition framework in the

sector - resulted in a thorough review of the ongoing dealership agreements by manufacturers

before June 01, 2013.

As the practical application of multi-branding in different markets was different, this required an

individual approach by the manufacturers. Experience shows that in those countries where multi-

branding is a common practice, manufacturers tended to allow the continued operation even under

the newly formed dealership agreements.70

7. Location clauses and sales-only dealers

By drawing the automotive sector under the general BER, the prohibition of previous motor vehicle

block exemption regulation relating to location is no longer applicable for automotive market.

According to the previous regulation, manufacturer could not prohibit the dealer to open secondary

sales outlets anywhere in the internal market. The Commission’s survey showed, such right for the

dealers was more a theoretical than a practical possibility. Given the investment need, lack of local

economical familiarity and language constraints, very few dealers lived with the possibility of opening

locations in other member states. Within a single member state these constraints did not apply,

however as the manufacturers were cautious to cover the market entirely, dealers were not eager to

open competing premises on an already covered territory. The convergence of the car prices

throughout Europe further reduced the practical significance of the location option of the dealers.

The previous regulation prevented the manufacturers from prohibiting the subcontracting of repair

and manufacturer activity by the dealers. Such restriction would have been considered as hardcore

restriction, meaning that the entire vertical agreement would lose the benefit of exemption from

Article 101(1). The regulation created the possibility for the dealers to operate only as sales location,

without investing into a repair shop, but rather subcontracting it to a third party. It is generally

known fact however, that dealer’s profit comes rather from the repair and maintenance activity and

sale of spare parts, rather than new car sales, the margin of which has significantly dropped since

2008.

The new BER does not prohibit such restriction, therefore manufacturers can impose the obligation

of conducting servicing activity along with new car sales on dealers, which has been a generally

followed practice anyhow.

70

Price Waterhouse & Coopers: Survey on car dealers market pg 5. available at

http://www.pwc.pl/en_PL/pl/publikacje/car_dealers_2008-eng.pdf

31

The above changes in the regulatory framework – due to lack of practical impact on operation - did

not result in any articulated opposition, nor any actual detriment to the dealers.

IV. POLICY OF THE AFTERMARKETS

Contrary to the Commission’s findings regarding the intense competition in the primary motor

vehicle market, the after-markets involving repair and maintenance of vehicles and sale of spare

parts seemed to be struggling with more competition concerns in 2008-2009.

The Commission reported an overall price increase of 17,8% EU-wide between 1996-2006 71

in repair

and maintenance services. Increase of service prices are mostly the consequence of the more

advanced technical solutions applied by the car manufacturers, which necessitate a more complex

technical knowledge, and more high-tech – and therefore more expensive – tooling and equipment

inevitable for proper performance of the repair and maintenance. The servicing price increase is

mostly counter-balanced by the less frequent service intervals of vehicles resulting from the more

advanced technical solutions, therefore the customers experience little, if none of the price increase

in their overall servicing expenditure. Taking into consideration, however, that repair and

maintenance cost amounts up to about 40% of the total lifetime operating cost of the vehicle72

, and

experiencing the rapidly developing and more and more complex technical solutions, it is not hard to

predict that the increase in price of servicing will at some point result in very much perceivable

overall burden to the consumers.

Beside price increase (and as some of the root causes thereof), other warning signals in the sector

are the disappearance of small independent repairers (apparently not being able to keep the pace

with the increasing investment need necessary to be able to provide high-quality services on

technically very complex and very unique vehicles)73

, large market shares of vehicle manufacturers in

brand-specific spare parts market,74

and general reluctance of the customers to turn to independent

repairers, especially with relatively young vehicles.75

71

Commission Staff Working Document Annex 3., Section 151., Available at

http://ec.europa.eu/competition/sectors/motor_vehicles/documents/technical_annex_3.pdf

72 Commission Staff Working Document Accompanying the Communication from the Commission The Future

Competition Law Framework applicable to the motor vehicle sector Impact Assessment COM(2009) 388 final,

Technical Annex 5 Identification and weighing of the relevant assessment criteria, Section 26. Available at:

http://ec.europa.eu/competition/sectors/motor_vehicles/documents/technical_annex_5.pdf

73

Commission Staff Working Document Annex 3. Section 142.

74 Commission Staff Working Document Annex 3. Section 170.

75

Commission Staff Working Document Annex 3. Section 197.

32

The Commission found that despite of the efforts of Regulation 1400/2002 to ensure independent

repairers’ competitiveness on the service and repair market and to ensure alternative resources of

spare parts competing with those of the manufacturers’, and despite of the positive effects of these

guarantees, the aftermarket (especially regarding servicing of new vehicles and those within

warranty) would still need a closer eye on by the Commission and national competition authorities.76

1. Sector specific regulatory framework with general BER background

As mentioned above, Commission continued to place the motor vehicle aftermarkets under a sector

specific regime regulation, the new MVBER. This regulation – contrary to the 3 year extension period

of the previous sector specific regulation regarding the primary market – replaced the previous

regulation of 1400/2002 with the effect of June 01, 2010 as regards to motor vehicle aftermarket.

The reason for the immediate action was a negative one, namely that the new MVBER continued to

apply rigorous rules – in certain aspects even more rigorous than previously - in respect to

competition restriction, and the market analysis showed that the sooner the better these rules are

introduced, the competition in the sector should be enhanced.

MVBER, as set forth by its Article 4., has to be read in conjunction with the general BER. Basis of

regulation of the aftermarkets will be the general regime of BER, and onto those the specific

provisions of motor vehicle aftermarket are built by MVBER.

General conditions of applying BER77

and hardcore restrictions applicable for the primary market78

–

and for all other distribution agreements falling under Article 101(1) – will be identically applicable

for the motor vehicle aftermarket also. Above these conditions and general hardcore restrictions, the

MVBER adds further hardcore restrictions, which exclude the application of the block exemption79

.

Any of the hardcore restrictions, whether stipulated by BER or MVBER would lead to the inability of

the vertical agreement to be exempted under block exemption, and therefore be subject to

individual assessment under Article 101(3) to be able to escape the detrimental qualification by the

Commission.

The sector specific hardcore restrictions introduced by MVBER – as being basically identical - can be

paired with restrictions contained in the previous sector specific block exemption regarding the

aftermarket80

. As the market practices have changed since the initial introduction of these

restrictions, and also by extending the general BER to the aftermarket, the old rules raise new issues.

It is also important to note that while in case of the primary market the most apparent and direct

subject of protection (beside the consumer of course) – especially in case of the earlier regulation of

76

MVBER Preamble Section 11.

77

BER Article 2. and 3.

78

BER Article 4.

79

MVBER Article 5.

80

See Regulation 1400/2002 Article 4. i) j) and l) and MVBER Article 5. a) b) and c).

33

1400/2002 – is the authorized dealer’s interest, in case of the aftermarkets the regulation protects

the competitiveness of the independent repairers (i.e. those who are not members of the

manufacturer’s network) and directly the consumers by ensuring access to spare parts, tools,

information, etc. It is sure that independent repairers would have some more words about their

concerns than those this paper will shortly assess; however the purpose of this thesis is to highlight

the practical implications of competition rules for the manufacturer and its authorized network.

Therefore the main focus of this chapter will be on the issues arising in the course of operation of the

authorized repairer network, viewed from the perspective of the manufacturer and its repairers, and

those which are specific to the motor vehicle aftermarket.

2. Scope of application – market share thresholds

As mentioned, the basis of the exemption of the after sales vertical agreements (i.e. distribution of

spare parts, repair and maintenance) is the set of rules laid down by BER. The 30% market share

threshold applicable both for the manufacturer and each member of its network, as new element for

the aftermarket, follows from the application of BER to the motor vehicle sector, including the

aftermarket.

Until 2010, the sector specific regulation of 1400/2002 applied the market threshold for only

quantitative selective distribution systems. For qualitative systems, the regulation expressly declared

that no market share threshold is applicable81

, which meant that qualitative selective distribution

systems could benefit from the block exemption even if the manufacturer’s market share was a

theoretical 100%, provided that the agreement did not contain any of the hardcore restrictions

stipulated by the regulation.

MVBER brings a very significant change to this exemption regime. By pulling the aftermarket under

the BER, without adding any specific provisions in respect of qualitative systems, both quantitative

and qualitative systems will be exempted only if the participants comply with the 30% market

threshold criteria. Moreover, as discussed at the primary market, neither manufacturer’s, nor also

the repairer’s/buyer’s market share cannot exceed 30%.

When assessing market shares, the market on which the share to be calculated – the relevant market

- has to be defined. As the Commission confirmed, passenger car aftermarket has to be differentiated

from the primary market of sales82

. While the relevant market in respect of a specific new vehicle will

include also those competing brands, which the customer – based on their functionality, price and

other specialties – considers as substitutable with one another, in case of after-sales services the

relevant market will include the servicing of the specific brand and the spare parts compatible with

the specific model. Moreover, even going further in distinction of different aftermarkets, servicing

new vehicles under warranty will be considered as separate market from the servicing of vehicles out

of warranty, the first being almost exclusively reserved for the authorized repairer network (as the

81

Regulation 1400/2002 Article 3. (1)

82

Supplementary Guidelines Section 57. and footnote 1. thereto

34

only one being in the position to perform free of charge repair to the customer and claim

reimbursement from the manufacturer), while the latter market showing more significant

competition between authorized and independent repairers, the competition proportionately with

the age of the vehicle. (The distinction is also justified by the fact that while in case of warranty

repairs the buyer of the services is the manufacturer itself – and only the manufacturer, in case of

out of warranty the buyer of the services is the customer.)

As manufacturers are entitled to oblige their authorized repairer network to use solely

manufacturer’s original spare parts for performing warranty, free servicing and recall works (all those

which are paid for by the manufacturer), original spare parts can also form a distinct product market

at least during warranty period of the vehicle, and on this market the manufacturer will have a very

high market share. The choice of the repairers (and the customers) widens somewhat in respect of

maintenance and non-warranty repair, because not only the original, but the spare parts having at

least the same quality as original (matching quality spare parts most commonly manufactured by the

original spare parts manufacturer) can be used for these works. Other spare parts, lacking such

matching quality, clearly form a separate product market, at least for under warranty vehicles.83

Geographical territory of the relevant repair and service market will be defined by the distance that

the customer is willing to travel for the specific service. (It is obvious that one repairer is

substitutable with another only as long as both are capable of repairing the same vehicle, and are

within reasonable distance from the customer’s habitual residence.) (Interestingly, there are other

approaches in the practical interpretation of geographical relevant market, as for example the

Hungarian Competition Authority determined the passenger car repair and maintenance market as a

national one84

, which interpretation tends to disregard the customer’s substitutability perspective.)

The above assessment results in a much narrower relevant market, which in case of aftermarkets will

practically be brand-specific (including of course those independent repairers which are capable of

repairing the specific brand, and those spare parts which are – irrespective of the manufacturer –

sufficient – both in functionality and in quality - for use in the specific model)85

.

Narrow market definition will obviously lead to significant market shares. While in case of the

primary market, it is very rare that a manufacturer is able to obtain a share exceeding 30% and it

happens only on certain markets for a limited period, in after sales markets the manufacturers’ share

of the spare parts of their own models are usually very high (40-65% in most cases) and remain high

on a continuous basis86

. For repair and servicing, the authorized repair networks set up by vertical

83

See detailed analysis or product and geographical market in Decision Vj-158/2005. of the Hungarian

Competition Authority, Section I.B b).

84

Decision Vj-158/2005. of the Hungarian Competition Authority

85

Clark, John; Simon, Stephan: The new competition framework for motor vehicle distribution: A toolkit to deal

with real competition breakdowns (Journal of European Competition Law and Practice, 2010, Vol.1, No.6. p.

478.) p.489.

86

Commission Staff Working Document Annex 3. Section 170.

35

agreements will most likely exceed 30% in respect of the specific brand on the relevant geographical

territory during warranty period, and also the share from the total purchases of the model-specific

spare parts by the authorized repairer may be above 30% for the relevant territory.87

Defining the scope of application so narrowly, the Commission impliedly and intentionally excluded

most of the authorized repair networks from the benefit of block exemption. While in the regime of

regulation 1400/2002 the authorized repairer networks operating as purely qualitative network were

exempted automatically by block exemption (assuming that the benefits of such distribution system

exceeds the disadvantages and fulfils the criteria of Article 101(3)), as of June 01, 2014 most of these

networks, even if operating as purely qualitative systems, will not be automatically exempted, but

will be subject to individual assessment. This in practice means that it is not enough that an

authorized repairer agreement does not contain any of the hardcore restrictions contained in BER

and MVBER, all other provisions of the agreement (whether or not included into the agreement, any

other document, or mutually followed as practice by the parties) will have to be assessed whether or

not infringing Article 101(1) of the TFEU and whether or not capable of being individually exempted

under Article 101(3) of TFEU.

This approach indeed gives the possibility of a closer control on the motor vehicle after market by the

competition authorities, and results in a more cautious behavior on the side of the manufacturers.

3. Selection criteria

According to the Commission’s consistent approach88

, qualitative systems in general are declared not

to fall under the scope of Article 101(1), i.e. not being considered as agreements having the object or

effect of restricting competition.89

In order for a qualitative selective distribution be free from

anticompetitive effects, it has to fulfill three criteria, namely that the criteria defined by the

manufacturer has to be connected with the specific nature of the product, it has to be necessary and

proportionate measure to ensure the quality/safety requirements related to the product, and the

criteria have to be applied on an objective, non-discriminatory basis. This in practice means that any

candidate applying to become an authorized repairer, if complying with the pre-set criteria, has to be

admitted to the network. In contrary to the quantitative selective distribution, objectivity and non-

discrimination is an essential requirement of the selection criteria.

The Commission foresees certain examples, when a manufacturer wishes to launch a brand on a

particular geographic market, where it is difficult to find candidates for distribution of vehicles (being

a low-margin business) if they have to face strong competition on servicing (being a high-margin

business). In such limited cases, for a limited period of time, it may be justified under Article 101(3)

to limit participation in the authorized network such repairs, which would not conduct any vehicle

87

See for example relevant market and market share analysis of Mazda by the Hungarian Competition

Authority in case VJ-127/2005. Section IV.45.

88

For case-law of the ECJ, please refer to Chapter III. Section 4. above

89

Supplementary Guidelines Section 43.

36

distribution activity. In general, however, the only way for a manufacturer to set up its repairer

network is to apply purely qualitative selection criteria, because limiting the number of repair shops

in a geographic area cannot be justified based on Article 101(3) of the TFEU.

In a qualitative system the selection criteria is the only filter and only tool to exercise certain control

over the selection results, therefore manufacturers tend to impose very high standards to ensure

that really the best are eligible for the membership. These higher standards however raise the cost

necessary to ensure compliance, which eventually raises consumers’ costs. This cost implication is

often used as counter-argument against qualitative selective distribution systems. This is something

that manufacturers and authorized repairers tend to agree on. Despite, the Commission resists the

pressure by the manufacturers and their networks, and does not justify any quantitative restriction in

the repairer networks.

It is important to note – also reflecting to the above detailed market threshold rules – that although

qualitative distribution in general is considered to fall out of the scope of Article 101(1) (meaning that

such a system does not have a restrictive effect on competition), if the operation of the distribution

network is conducted in such a way that it de facto forecloses the market from potential new market

players, such anticompetitive effects will definitely be realized, and the agreement will fall under

Article 101(1). Once the agreement falls under Article 101(1), it will be considered as “acceptable” by

the competition authorities, in case it is exempted under MVBER (parties are below the 30%

threshold), or the participants can verify the conditions of individual exemption under Article 101(3).

For this reason we cannot simply sit back reassured that our purely qualitative network will not be

subject to any competition infringement, but we always have to assess the conduct of operations in

the light of its effects to the current and potential competitors/market players on all levels of the

supply chain.

4. Access to technical information

As mentioned, primary subject of the regulatory protection in the motor vehicle aftermarket is the

access of the customers to more price competitive vehicle servicing, (including repair and

maintenance and the spare parts used for that), and increasing consumer choice in terms of available

repair shops.

This goal can be reached on one hand by intra-brand competition within the authorized network.

Such intra-brand competition is enhanced by the hardcore restrictions of general BER, which forbid

the imposing of minimum or fixed prices on the repair network, prohibiting the restriction of parallel

trade and other sales restrictions, and providing a certain degree of guarantees for access of spare

parts to customers and repair shops.

The other important aspect of protection of competition on the aftermarket and enhancing

consumer benefits is encouraging the competition between authorized repairers and independent

market players. The presence of independent repair shops, if those mean a real alternative to

customers in respect of repair and maintenance of their vehicle, can be a real competitive force on

37

authorized repairers and eventually manufacturers, and motivate them to provide high quality

services for competitive prices, ultimately to the benefit of the consumer.

As the technology applied in vehicle manufacturing becomes highly developed (not only regarding

the traditional motor vehicles, but also with the introduction and improvement of new technologies

like electric vehicles), repair and maintenance of the technically complex and very diversified vehicles

requires very special diagnostic tools, repair tools, technical information, and special expertise. (We

can think of for example the central electronic control of the vehicle itself, which requires access in

case almost any repair is made on the vehicle, or if any defect needs to be identified.) Obtaining all of

this by the independent repairer is excessively costly. (If we think of the fact that most authorized

repairers are specialized in one single or few selected brands, they have to obtain and maintain

proper equipment necessary for this specific brand, while independent repairers almost always cover

a wide range – as many as possible – brands, therefore even if protected by a very strong

competition framework, they will always be in a competition disadvantage compared to the

authorized network.90

The previous block exemption regulation of 1400/2002 specifically contained a provision that

condition of application of BER is that the manufacturer provides access to technical information,

diagnostic and other equipment and tools – including software and training – necessary for repair

and maintenance or compliance with environmental regulations.91

Interestingly, the current MVBER (and BER) does not contain such an obligation on manufacturers.

The lack of express obligation in MVBER leaves us with several questions: Is there an obligation to

provide access at all, and if yes, then what is the legal basis of it? How does this obligation – if exists

at all – fit into the scheme defined by Article 101(1) of TFEU, the BER/MVBER and Article 101(3) of

the TFEU? If the obligation is not stipulated by the applicable regulations, what is the exact content

of such obligation?

4.1. Legal basis of the obligation

Because the obligation to provide access to technical information and equipment is not

included in BER or MVBER as a condition of exemption, we have to state that the vertical

agreements with the authorized repairer network will not be considered to fall out of the

scope of BER based on the fact that the manufacturer does not provide access to the technical

information and equipment related to its brand to independent repairers.

As discussed above, qualitative selective distribution in general is not falling under the

prohibition of Article 101(1) of the TFEU anyhow.

90

Economies of scale is the reason for a relatively new feature on the market, the appearance of the large

independent repair chains (e.g. Kwik Fit) which in fact can mean competition to authorized repairers in terms of

capacity, technology, quality and prices.

91

Regulation 1400/2002 Article 4. (2)

38

Does this mean that manufacturers are free to deny access to technical information?

a) Agreements subject to individual assessment

Very obviously, the access to technical information specific to the brand is a key to

performance of proper maintenance and repair on the vehicle. Also the use of the specific

diagnostic and other equipment and proper tooling is essential for the servicing, given the very

much brand-specific nature of the technical solutions applied in the vehicles. Denial of access

to such information and equipment would prevent the independent repairers from performing

repair and maintenance of the vehicles of the manufacturer, and foreclose the brand-specific

relevant aftermarket from any market players outside of the authorized network. Such

behavior clearly has restriction of competition as its object, and consequently as its effect.

Therefore in general it can be stated that if a vertical distribution system set up for repair and

maintenance operates in a manner that it forecloses the participation of independent market

players by denying access to necessary technical information and equipment, it will fall under

the prohibition of Article 101(1), despite that it operates as a purely qualitative selective

system.

Those agreements which do not fall under BER and MVBER (the most of the authorized

repairer networks would be such), the Commission itself dealt with the question in very deep

details in its Supplementary Guidelines92

and its later issued Frequently Asked Questions

(FAQs) relating to application of antitrust rules in the motor vehicle sector93

and gave very

specific guidelines on the strict obligation of the manufacturers to provide the necessary

information and equipment (not accessible from other resource) on a non-discriminatory

basis, with only very narrow and very few justified exceptions.

In addition to the general prohibition of such restriction under Article 101(1), it also has to be

noted that denial of access may also be subject to prohibition of Article 102 of TFEU, if the

manufacturer is in a dominant position on the relevant market.

But what about those agreements, where market players have less market share (smaller

manufacturers and smaller networks), and therefore the agreement falls under BER and

MVBER?

92

Supplementary Guidelines Section 62-68

93 Frequently Asked Questions (FAQs)on the application of EU Antitrust Rules in the Motor Vehicle 27 August

2012, Available at: http://ec.europa.eu/competition/sectors/motor_vehicles/legislation/mv_faq_en.pdf

(hereinafter FAQs) Questions 13-17

39

b) Agreements exempted by block exemption

Application of BER and MVBER means that as long as the agreement does not contain any of

the expressly defined hardcore restrictions, all other restrictions applied by the manufacturer

will be considered as exempted from the prohibition of Article 101(1), because the advantages

of the restrictions all in all are presumed to exceed the disadvantages thereof. Does this mean

that denying access to technical information and equipment by independent repairers would

be just acceptable and justified restriction for agreements under BER and MVBER?

Looking at the structure of the regulation, the answer would theoretically be yes, such

restriction – by word (or rather the lack of any word) of the law – would be exempted from

prohibition, if both the manufacturer’s and each of the authorized repairers’ market share was

not exceeding 30% during the entire term of their cooperation.94

However, three remarks have

to be made to this theoretical assumption.

First, as we saw, it is very rare (if not never occurs) that the market share of a manufacturer

and each of its authorized repairers does not exceed 30%, and this situation is maintained on a

continuous basis. In almost all cases, the manufacturer has a significant market share on the

market of servicing of its own brand on a specific territory and sale of original spare parts

(quasi monopoly at least in respect of very new vehicles covered with warranty), likewise the

authorized repairers represent a high share of the repair market (including the purchase of

original spare parts) on the specific geographical territory. Therefore exemption under BER is

very unlikely.

Secondly, even if the agreement itself is exempted under BER and MVBER, and although denial

of access to technical information and equipment is not considered as a hardcore restriction,

in the individual case the national competition authority and the Commission will have the

possibility to withdraw the exemption of BER/MVBER for the entire network of vertical

agreements (authorized network).95

Given the restrictive nature of the denial of access, and

evaluating the possible effect of total foreclosure of the market, it is very likely that because of

such a restriction the entire authorized network would be denied of the exemption of BER and

MVBER.

Thirdly, as we will see below, beside the competition law regulatory tools, the EU organs used

other regulatory means to ensure access to necessary technical information for independent

repairers, irrespective of whether any block exemption applies or not.96

94

Except for the possibility of temporarily exceeding the market share threshold provided for by Article 7. d)

and e) of BER.

95

Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition

laid down in Articles 81 and 82 of the Treaty (OJ L 1, 4.1.2003, p. 1) Article 29.

96 see Section 4.2. a) of this Chapter below

40

Based on the above assessment, is has to be concluded that the manufacturer is practically unable to

find any justified excuse for not providing access to its brand specific technical information and

equipment to independent repairers.

4.2. What needs to be provided?

It has to be nailed down that technical information related to the construction and technical

operation of the vehicle is the most valuable information of the manufacturer, created as a

result of highly expensive and long-term technological R&D. Moreover, because car retail

prices bear very little if no margin at all, manufacturer’s profit is directly related to the ability

of the manufacturer to build customer loyalty and sell as many maintenance and non-warranty

repair services (including original manufacturer spare parts) as possible.

As the obligation to provide access to such information and technical equipment is made very

obvious by the Commission, the manufacturer has a limited room left to maneuver within the

definition of what exactly has to be provided.

During the term of the previous block exemption regulation, the explanatory brochure issued

for the interpretation of the regulation, contained guidelines as to what has to be considered

as technical information and equipment subject to the obligation to provide access.97

These

guidelines however left some room for interpretation by manufacturers, and they were

excusing the denial of access with referring to their industrial property rights on the requested

piece of information or the security and safety-related nature of the specific repair action

(resulting in potential safety risk e.g. repair of brakes, or security risk e.g. possibility to change

the odometer data).98

The unclear nature of the prohibition is demonstrated by the fact that the Commission

rendered four simultaneous investigations relating to four large car brands99

(Daimler Chrysler,

Fiat, Toyota, Opel)100

, and in all cases it found that the access to technical information by

independent repairers was insufficient. In all four cases the Commission accepted the

97

Distribution and Servicing of Motor Vehicles in the European Union, Commission Regulation (EC) No

1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to Categories of Vertical Agreements

and Concerted Practices in the Motor Vehicle Sector, Explanatory Brochure OJ L 203, 1.8.2002, p. 30. Section

5.5.1

98 Relationship of the protection of intellectual property and prohibitions of competition law are outside of the

scope of this thesis.

99

Clark, John; Simon, Stephan; Bierer, Axel: The new competition framework for vertical agreements in the

motor vehicle sector (Competition Policy Newsletter Number 3-2010, pg 15 available at:

http://ec.europa.eu/competition/publications/cpn/2010_3_3.pdf)

100

Commission Decisions of 13 September 2007 relating to a proceeding pursuant to Article 81 of the EC Treaty

Cases COMP/E-2/39.140, COMP/E-2/39.141, COMP/E-2/39.142, COMP/E-2/39.143.

41

manufacturers’ commitments to improve the systems of access, however the cases showed

that the topic needed further refining by the Commission.

a) Type-approval regulation

Even before the expiry of the sector specific regulation 1400/2002, a new regulation was

introduced outside the scope of competition law, which however influenced the interpretation

of the notion of technical information. Regulation 715/2007 issued by the European

Parliament and the Council101

had the aim of harmonizing type approval procedure and

contribute to the reduction of CO2 emission of certain types of motor vehicles, including

passenger cars. The type approval regulation applies to vehicles equipped with engines not

exceeding a certain emission value defined by the regulation (Euro 5 and Euro 6 engines). As of

September 2009 those vehicles could be distributed in the European market which complied

with at least the requirements of Euro 5, therefore the provisions of the type-approval

regulation in respect of access to technical information of these vehicles are applicable for

those vehicles distributed after this date102

.

For the vehicles with Euro 5 engine (all vehicles distributed after September 2009) the

manufacturer has the obligation based on the type-approval regulation to make available all

repair and maintenance information necessary to perform all types – expressly listed in the

regulation – of repair and maintenance works on the vehicle.

The importance of this regulation is that it defines expressly the types of works the

independent repairer has to be capable of performing based on the information provided by

manufacturer, and the list covers all of the procedures that may ever be necessary to be

performed on a vehicle.

Moreover, it gives a very extensive list of what it considers technical information. Such

information covers for example training materials, but also very specific pieces of information,

for example “data record information and two-directional monitoring and test” and “ standard

work units or time periods for repair and maintenance tasks” which latter is considered on the

market more of a business information than technical information.

101

Regulation (EC) No 715/2007 of the European Parliament and of the Council of 20 June 2007 on type

approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and

Euro 6) and on access to vehicle repair and maintenance information (OJ L 171, 29.6.2007, p. 1)

102

Rules for compliance with Euro 6 engine requirements are planned to enter into force in September 2014.

42

b) Notion by Supplementary Guidelines

In 2010 when MVBER entered into force, the above type-approval regulation was already in

force. Although MVBER does not expressly contain the obligation to provide access, based on

the type-approval regulation manufacturers have the obligation to provide access to

information relating to vehicles equipped with Euro 5 engine, based on the type-approval

regulation. This obligation applies for all manufacturers, irrespective of their market share.

The Supplementary Guidelines themselves refer to the application of the type-approval

regulation, not only in respect of application of the notion of technical information and the

scope of obligation in respect of Euro 5 passenger cars, but it states that it will also use the

type-approval regulation when interpreting cases related to vehicles distributed prior to the

issue of the type-approval regulation103

. This means that the obligation defined by the type-

approval regulation for Euro 5 vehicles is extended by the Commission to the entire passenger

car market in the EU with quasi retroactive effect in terms of interpretation of manufacturers’

obligation.

The Commission also declares that it considers the examples of technical information of the

type-approval regulation as a guideline, a non-exhaustive list of information. In general, all

information that is necessary for the performance of any of the repair/maintenance/diagnostic

works on the vehicle is subject to access, which are available to the authorized network also

(obligation for equal treatment, independents cannot be provided less, but do not have to be

provided with more either), and the lack of which information would prevent the independent

repairer from performing the necessary work. General business information (such as invoicing

software, hourly fees) shall not be considered as technical information. (It has to be noted

however, that contrary to the above, type-approval regulation – which the Commission

declares as applicable in interpretation of this obligation - does contain some information that

may be considered as business information, which contradiction may result in interpretation

issues in respect of certain pieces of information.)

c) FAQs

The fact that in 2012 the Commission once again addressed the question in its FAQs,

Frequently Asked Questions, shows on one hand that the access to technical information and

equipment is a crucial condition of building and maintaining competition on the internal

market, and that – despite the Supplementary Guidelines and the type-approval regulation –

there were still many unclear points of interpretation.

The FAQs explain the possible exceptions form the obligation to provide access, and the

interpretation of these exemptions. It declares that exemption from Article 101(1) of the

vertical agreements cannot be provided based on Article 101(3) – meaning that the

103

Supplementary Guidelines Section 65.

43

manufacturer’s entire distribution system will be considered as infringing – if the access to the

information is denied based on safety or security reasons, despite the fact that a less

restrictive measure would also be suitable to achieve the safety or security protection. (For

example proper training for the independent repairer to repair high voltage electric

component of an electric vehicle would provide safety guarantee; requesting negative criminal

record as condition of access to anti-theft systems – the practical efficiency of this latter

solution is however remaining questionable.)

The above leaves very little space to manufacturers to impose restriction on certain

information they wish to deny the access to.

4.3. How does it need to be provided?

General rule is that information and equipment has to be provided in the same manner as it is

provided by the manufacturer to its own network. This in practice leads to feasibility problems.

In respect of those information and equipment which relate to the actual maintenance or

repair activity, the tools and equipment can be purchased from the manufacturer itself or via

its sales distribution channels. The same is applicable to one-time download software, against

payment of a one-time or periodic license fee, the independent repairer can purchase these

items - in theory - with the same terms as the members of the authorized networks.

It is allowed to request a certain fee for the information and equipments (which of course

cannot be set in at a level which would be considered as excessive and abusing manufacturer’s

dominant position, or at a level excessive compared to the extent of use by the repairer). The

information has to be provided in a reasonable time, in a form readily usable.

(There are of course techniques to ensure more advantageous conditions to the member of

the own network, by granting a discount on other purchases of the authorized, not tied

directly to, but taking into account the overall volume of purchase including the equipment

and information also; or by providing manufacturer subsidy to larger dealer investments,

marketing costs etc.)

Where the issue arises is the business management tools, the IT systems used for official

communication between manufacturers and dealers and containing significant amount of

relevant information. These different IT systems are linked with one another via interfaces (for

example records of sale of vehicles linked to the repair history, which is linked to the spare

parts stock control database etc.), and used not only for registration of vehicle data and

history, but also communicating technical updates, repair instructions for specific technical

issues etc, the source of which information is solely the circulars communicated through these

channels. Furthermore, the authorized repairers are also authorized to input data into these

systems, which will add information to the vehicle history officially stored by the

manufacturer. (At this point it has to be emphasized that repair and maintenance is performed

by the authorized network in the name and on behalf of the manufacturer, therefore the data

44

so entered are the manufacturers’ own data, the accuracy of which is ensured by its internal

business management and quality control procedures.)

The FAQs expressly impose an obligation on the manufacturer to allow the independent

repairers to access, but moreover to update the electronic repair history of the vehicle, namely

to enter data in the manufacturers’ own database. The manufacturer has no control

whatsoever over the form and content of such data. Manufacturers are both reluctant and

currently technically not prepared to provide such access to independent repairers.

It also deserves a sentence to mention, that such direct access to manufacturer’s database

may have data privacy implications, which may also result in (or can be used as?) and obstacle

to providing access to vehicle history.

Based on the Commission’s approach articulated in the FAQs, always the possibly least

restricting measures have to be applied. Therefore it is very likely that, if such complaint is

made at the Commission against a manufacturer not enabling direct and full access to its

vehicle repair history database, the manufacturer would be obliged to implement IT measures

which provide for the possibility of a limited access by the independent repairer, only to those

data which are inevitable for the specific vehicle (and no access to personal data for example),

and enabling only certain types of entries into the database, or requiring the repairer to attend

user training before granting access etc.

5. Misuse of warranty

Significant part of retail margins in the passenger car market comes from maintenance and out-of-

warranty repair of vehicles, including the sale of manufacturer’s original spare parts. It is essential

interest of the manufacturer to build loyalty of its customers and tie them to the authorized network

for as long as possible. Competition in the repair and maintenance sector greatly depends on the age

of the vehicle, as the vehicle is passing out of the warranty term, the independent repairers are

getting more chance to compete for the repair of the vehicle. As comparison, approximately 90% of

the repairs of 1-year-old vehicles is performed by authorized repairers, this figure drops

approximately 10% by each year of the vehicle life.104

Already the Explanatory Brochure to the Regulation 1400/2002 addressed the restriction105

which

the manufacturers tended to apply to tie their customers to their repair network, namely that they

either expressly, or impliedly imposed an obligation on the consumer to have his vehicle maintained

104

Commission Staff Working Document Annex 3, Section 139.

105 Distribution and Servicing of Motor Vehicles in the European Union, Commission Regulation (EC) No

1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to Categories of Vertical Agreements

and Concerted Practices in the Motor Vehicle Sector, Explanatory Brochure OJ L 203, 1.8.2002, p. 30., Question

37.

45

and repaired by an authorized repairer if he wanted to benefit from the manufacturer’s (or in some

cases even the statutory) warranty. The Explanatory Brochure clearly sets that fulfillment of warranty

obligation cannot be subject to the obligation to have the vehicle treated by the authorized network.

Despite, manufacturers were phrasing their warranty booklets in a manner that gave the impression

to the less conscious customers (or even the average consumer) that the only way to preserve

warranty of his vehicle was to stick to the manufacturer’s network.

In addition, manufacturers were developing other techniques, with the clear goal of finding a

justified tool for building customer loyalty. One of these techniques was increasing manufacturer

(contractual) warranty term from two to three years, the other was introducing extended warranty

schemes, which are typically insurance products providing additional warranty (with same or less

conditions than manufacturer warranty) by covering cost of repair for a specific period after expiry of

the manufacturer warranty term.

Such extended warranty is provided either free of charge within a frame of a special offer, or as a

different product that can be purchased by the customer within a time limit, typically within the first

year after purchase of the vehicle.

Apparently, the prohibition phrased briefly in the Explanatory Brochure to Regulation 1400/2002,

and later in the Supplementary Guidelines again very briefly, was not sufficient to clarify the issue

and give a clear prohibition to manufacturers.

Therefore in the FAQs the Commission addressed the question again106

, and gave a very detailed –

and very interesting - interpretation of the notion of warranty and description of manufacturers’

obligations and prohibitions in relation to these warranty terms, which interpretation however gives

rise to significant concerns on manufacturers’ (and lawyers’) side.

5.1. Prohibition to impose restrictions on warranty107

The Commission clarifies again, that the manufacturer cannot prescribe as condition of the

warranty the obligation for the customer to have his vehicle repaired or maintained at

authorized repairer during the term of warranty, and neither can it require the use of

manufacturer’s original spare parts as condition of warranty. (This of course does not affect

the possibility of the manufacturer to provide the free of charge repairs – whether based on

warranty, free servicing or recall – solely via its own network, with the use of its own original

spare parts.)

106

FAQs, Questions 1-6.

107 Prohibition to impose restrictions on warranty has the same legal grounds as discussed in relation to the

obligation to provide access to technical information. Namely, neither BER nor MVBER expressly states such

obligation, but it derives from the general prohibition of the vertical agreements to restrict – by aim or effect –

competition. Therefore the authorized repairer network would be subject to prohibition of Article 101(1) and

not be exempted under Article 101(3) if the prohibited restriction on warranty terms are applied by

manufacturer, and in case of networks operating under BER and MVBER such restriction would likely to result

in withdrawal of exemption.

46

What does this mean in practice? If customer takes his vehicle to the authorized repairer, the

repairer always checks vehicle maintenance and repair history. First thing that the repairer

inspects is whether the defect can be caused by a reason which is outside of the scope of

warranty, for example misuse of the product by the consumer (for rally purposes for example),

failure to have the periodic maintenances performed, etc. Until recently one of the reasons to

reject warranty was the failure to have the maintenance or repair performed at an authorized

repairer. Such rejection cause however is no longer justified, therefore the authorized

repairers tend to question the proper performance of the works.

While having the vehicle repaired by a non-authorized repairer cannot be a justified cause to

refuse warranty repair (or moreover, invalidate entire warranty), the unprofessional, improper

performance with non-sufficient quality materials can indeed be a justified reason for refusal

of further warranty on the questionable part of the vehicle. The problematic part of refusal of

warranty however is evidencing the improper repair, because it is not enough for the repairer

to refer to improper previous repair or maintenance, but it also have to evidence that the

works were performed in an insufficient manner, and this fault directly caused the defect in

question. As independent repairers are not bound by the strict and uniform data and record

keeping procedures of the manufacturer, customer rarely possesses a full set of information

on the materials used for the repair and the specific works (and technologies used) on his car.

Therefore the first thing the repairer asks from the customer is the verification of all of this

information, which in reality rarely occurs. The authorized repairer in such case has few tools

to determine with reasonable certainty whether the previous repair or maintenance caused

the defect and to decide whether to refuse the customer claim and face a potential long and

costly litigation (with the burden of evidence, and consequences of inability to evidence lying

with the authorized repairer, and eventually the manufacturer), or accept the repair history

and proceed with the repair within warranty (assuming that the cost of litigation, even if

successful, would be close to the cost of repair itself).

Nothing in the law (whether the regulation or the soft-law issued in the frame of Commission

communications) obliges neither the independent repairer, nor the customer to provide

sufficient data to the authorized repairer to make a reasonable assessment. This makes the

regulation one-sided, imposing the obligation and the negative consequences on the

authorized repairer and eventually the manufacturer nearing the cost of warranty, without

balancing it with the obligations of the other participants of the relationship.108

5.2. The issue of extended warranties

Further to the above detailed practical difficulty, the Commission gives a very broad

interpretation of warranty. Commission states that such prohibition to impose restriction on

108

Such obligation to cooperate by the other participants may be assessed based on civil law grounds, which is

however outside of the scope of this thesis, and very much subject to the diverging contract laws of the

Member States.

47

warranty applies not only to statutory warranties, but also contractual warranties provided by

the manufacturer linked to the sale of the car. (Usually the terms of such manufacturer’s

warranty are set forth in a warranty booklet provided to the customer upon purchase or take-

over of the vehicle.)

The Commission also states that the prohibition to restrict warranty applies irrespective of

where the warranty terms are stipulated (in the purchase agreement or in a separate

document), and irrespective of whether the warranty terms were stipulated upon purchase of

the vehicle, or “within a short time thereafter” as extended warranty undertaken by the

authorized repair network.109

It is also irrelevant whether the warranty is undertaken directly

by the manufacturer, the authorized repairer, or an insurance company.110

It also states

however, that extended warranty purchased years after the purchase of the vehicle would not

fall under such prohibition, meaning that the manufacturer is allowed to impose servicing and

parts restrictions on the customer as condition of warranty.111

The guidance of the Commission raises significant problems. It is not clear what the

Commission considers as “shortly after“ purchase of the vehicle. Extended warranties are most

of the time available for the customer within the first year of the vehicle. (Such practice is not

unique to the motor vehicle sector, most extended warranties offered for household

equipment also have a time cap of 1 year or less.) The Commission’s guidance in Question 3. of

the FAQs – read together as argumentum a contrario with the term “years after purchase of

the vehicle” used in Question 4. – implies that all of the extended warranties offered by

manufacturers within the first year, usually as insurance products, whether or not provided

free of charge or for a price, will be subject to prohibition, and manufacturer cannot request

the owner of the vehicle to have his vehicle serviced in its own network. This will make the

performance of the services provided within extended warranty more expensive, since the risk

associated with the repair (above mentioned evidencing constraints, resources necessary for

such evidencing etc) is significantly higher than in case of repairs performed in manufacturer’s

own network, according to its own standards, under its control.

The other concern with Commission’s approach is rather a legal one. Namely, in case of

extended warranties, customer and manufacturer/insurer enter into a civil law contract for

provision of certain services for which customer pays a fee (typically in the form of an

insurance fee), the customer is by no means obliged to enter into the agreement, and,

moreover, as several independent repairers offer similar schemes, is free to select from

several offers on the market. Commission’s interpretation results in a limitation of contractual

freedom of the parties and consumer choice. (It also has to be noted that such prohibition is

not imposed on independent repairers offering similar services on the same market and tying

the service to having the maintenance performed in their own independent network. Imposing

obligation on solely the authorized networks while not on the independent repairers, results in

109

FAQs Question 1.

110

FAQs Question 3.

111

FAQs Question 4.

48

discriminative approach to the detriment of manufacturer’s selective distribution systems and

adverse competitive effects on the servicing market of vehicles out of warranty.)

6. Hardcore restrictions on tooling and spare parts access

The MVBER itself – without addressing the above mentioned questions of access to technical

information and misuse of warranty - limits itself to the definition of certain hardcore restrictions,

which – if despite applied by the manufacturer – would prevent the application of both MVBER and

BER, and would most probably result in infringement of Article 101(1) of the TFEU, and very unlikely

to be individually exempted under Article 101(3) of the TFEU.

It has to be emphasized once again here that these hardcore restrictions apply together with those

specified by BER, and either one of those is applied, will result in exclusion of application of block

exemption to the manufacturer’s repairer network.

The hardcore restrictions covered by MVBER protect the potential access to manufacturer’s original

spare parts by the entire after-market. This aims to reach effective competition on the spare parts

market, access by the independent operators to these spare parts, and eventually resulting in more

reasonable prices to customers.

The manufacturer cannot prevent its repairers and dealers from selling original spare parts to

independent repairers, nor can it prevent the manufacturer of these spare parts to sell to the

market. Consumers also have to be able to access these parts directly from the market (not only

through their authorized or independent service provider). Further, the authorized repair network

itself has to be able to order directly from the spare parts manufacturer, which should create a price

competition for the purchases by the authorized network. Market participants have to be able to

identify the manufacturer of the spare parts (in order to be able to access them directly from the

spare part manufacturer), therefore the manufacturer of the spare part cannot be prevented from

placing its own trademark or logo on the part.

All these guarantees ensure that the spare parts manufactured by the original spare part

manufacturer (therefore having a matching quality with those spare parts manufactured for the

order of the vehicle manufacturer) are accessible via several channels applying competitive prices,

and manufacturer’s monopoly can be somewhat mitigated. (The minimum stock obligations, the

minimum purchase requirements and volume incentives imposed by manufacturers on their own

network have a counter-effect against the competition-promoting goal of the prohibition of the

hardcore restriction, therefore manufacturer’s high market shares are unlikely to ever shrink to a

non-dominant level.)

The market players – including authorized and independent repairers and end-users themselves –

cannot be deprived of the possibility to purchase not only parts, but also tools and other equipment

necessary for the repair of the vehicle. This rule supports the general requirement of the

manufacturer to ensure access to diagnostic equipment and repair tools by independent repairers,

49

and provides a further guarantee, the access through direct channels to the equipment

manufacturer.

One more interesting issue that the FAQ addresses in connection with restrictions on parts supply.

Manufacturers generally do not themselves sell spare parts to independent repairers. Before the

FAQ, one practice applied by manufacturers was that in the authorized repairer agreements they

stipulated a specific volume or value, below which the manufacturer – with reference to

administration reasons – did not serve its own repairers, but directed them to another member of

the network, and handled only the allocated order of this second repairer. This practically resulted

that – based on equal treatment – the manufacturer did not itself have to deal with independent

repairers either, because independent repairers typically purchase a much lower amount of spare

parts than authorized repairers. By the FAQs, there was no further need for such a limitation for the

own network. The FAQs state that, as long as it is possible to obtain the spare parts via the

authorized repairer network (which – by the way – has no obligation to serve the independent

competitors), the manufacturer can refuse serving independent orders. Such refusal however cannot

completely prevent the independent market players from sourcing the necessary spare parts.

50

V. SUMMARY

Agreements and concerted practices between undertakings, which aim at or result in restricting

competition on the internal market, are prohibited based on Article 101(1) of the TFEU. Agreements

concluded by manufacturers with their authorized vehicle distributors and authorized repairers fall

under this prohibition, because their aim is to ensure control for the manufacturer over its

contracted networks, which however will necessarily result in placing certain undertakings in

competition advantage compared to those outside of the network.

Anti-competitive agreements and practices may be exempted from the prohibition of TFEU either by

block exemption regulation issued by the Commission in respect to certain groups of agreements,

subject to compliance with certain criteria, or by individual exemption, if the positive economic

effects of the agreement exceed the detrimental effects thereof.

The degree of anti-competition effects depends on the method of organization of the network. If the

manufacturer limits the number of participants, as we saw in case of quantitative selective

distribution in passenger car networks, the anti-competitive effects are very obvious. If the

manufacturer only defines certain qualitative conditions that the applicants have to comply with in

order to be eligible for admission without any further requirements – as typical for qualitative

selective distribution applied for authorized repair networks, the restrictive effects are not so

apparent.

In its market research and analysis, completed by an evaluation report in 2008, the Commission

concluded that the competition in the primary market of vehicle sales amounted to a sufficient

extent; however the competition achievements on aftermarkets involving servicing and spare parts

distribution did not reach the previously intended and anticipated degree. The Commission therefore

decided to put more emphasis on the aftermarkets by continuing to place it under a sector-specific

regulation, by which the aftermarkets will have to comply with the general requirements of the block

exemption regulation applicable to vertical agreements in general, and additionally the sector

specific rules. In respect of the primary market, the Commission found it a sufficient degree of

protection to apply only the general block exemption regulation applicable for vertical agreements.

1. The primary market

The rules applicable for the primary market as of June 31, 2013 are the same ones that are applicable

to vertical agreements in general. Many of the previously applied sector specific prohibitions

disappeared from the regulatory framework. Although the market share threshold was reduced to

30% instead of the previous 40%, and the compliance criteria was extended to the dealers, this

change did not have an impact on the scope of those agreements which actually enjoy the benefit of

block exemption, because most of the manufacturers and dealers do not have a market share

exceeding 30% on the national market of the specific segments of the passenger vehicles. The market

share thresholds therefore in most of the cases did not result in dealership networks falling out of

the block exemption, on the other hand however the manufacturers benefit from a lot more flexible

51

rules as result of termination of the restrictive prohibitions of the previous sector specific regime.

Manufacturers are no longer bound by long-term dealer contracts and termination periods, neither

by limited termination causes, therefore they have much more freedom in organizing their

distribution networks. Dealers in respect did lose a lot, namely the long agreements set in concrete,

being capable of termination only in case of very serious contractual breaches. Although it may seem

that such change is very one-sided and extremely detrimental to dealers’ interest, in reality the

common interest of the parties is to maintain the long-term cooperation, because not only the

dealers, but also the manufacturers invest significant amounts into the setting up and operation of

the dealership, which requires guarantees of recovery on both sides. This mutual interest is well

represented by the codes of conduct introduced by most manufacturers, which retain the benefits of

contract term and termination previously set forth by the Commission’s regulatory framework.

In respect of other prohibitions abolished by the new regime, dealers and manufacturers agree that

there was little practical benefit in the option for the dealers to open additional sales outlets, or to

operate as sales-only dealership without providing repair and maintenance service to customers.

Additional sales outlets were indeed very rarely opened due to full coverage of distribution within a

territory, and due to language constraints in case of cross-border openings. Servicing, as the most

prosperous activity, was almost never abandoned by the dealers.

The possibility for the manufacturers to prohibit sale of multiple brands from the same outlet may

result in some detriment to the dealers, especially in those countries where it was not a common

practice to operate as multi-brand dealership. Practice shows however, that in those countries where

multi-branding was in fact generally applied, manufacturers tend to continue to authorize such multi-

brand dealerships, possibly with certain additional criteria to be complied with by dealers.

It is apparent that despite of the newly gained flexibility, manufacturers were interested in the

continued operation of their network to the benefit of all parties (rather than enforcing their new

rights by all means), especially taking into consideration that recruiting new members to the

dealership network can be a challenge, considering the very high investment need and very low

profit margin. In practice, the distribution networks in the primary market experienced less changes

and more compromise from their manufacturers.

2. The aftermarket

Interestingly, although the rules applicable for the aftermarket seemingly changed little by

introduction of the new sector specific block exemption regulation in June 2010, (which new

regulation mostly repeats the previous hardcore restrictions that cannot be applied in an exempted

agreement), the impact of the new regime was much more perceivable to the aftermarket.

By applying the 30% threshold for both manufacturers and repairers, and with respect to the fact

that repair and spare parts markets are brand specific, therefore all market players represent a very

high market share, these authorized repairer networks basically fell out of the benefit of block

exemption. This means a tremendous difficulty to all participants, because in order to avoid the

consequences of infringement of Article 101(1) of the TFEU, all of the provisions of all of their

52

agreements have to fulfill the conditions of individual exemption under Article 101(3) of TFEU. This

deprives the manufacturers of the safe harbor and of the little freedom they enjoyed under the

previous motor vehicle block exemption regime.

The new regime does not impose new obligations or new prohibitions on manufacturers, but the

supplementary materials issued by the Commission for interpretative purposes clarify the

manufacturers’ obligations giving more strict guidelines than those the manufacturers tended to

follow based on their own interpretation.

Very strict rules are introduced in respect of manufacturers’ obligation to provide access to all

technical information, diagnostic equipment and repair tools to independent repair shops. Such

obligation is widened by the European type-approval regulation issued in 2007, and in addition the

Commission further expanded the obligation via its interpretative communications. Manufacturers

are facing confidentiality issues on one hand, and technical constraints on the other hand in respect

of the very wide obligation to disclose.

The Commission further refined the prohibition of abuse of warranty by manufacturers, and

expressly declared that not only statutory and contractual warranties, but also extended warranties –

purchased by the customer as a separate service, and often provided by insurance companies –

cannot be made conditional to having the vehicle repaired and maintained in the manufacturers’

own network. This interpretation results in additional costs and risks to manufacturers, and results in

competitive disadvantage to the members of the authorized networks, especially in relation to

vehicles outside of original manufacturer warranty.

The Commission’s new motor vehicle block exemption scheme, together with the very straight

forward and strict interpretation, brings the manufacturers and authorized repairers in a sensibly

more difficult situation. Due to the fact, however, that the regulation of the aftermarket aims to

protect not only the authorized repairers (primarily through the hardcore restrictions of the general

block exemption regulation), but at least as importantly the competition by the independent

repairers outside of the authorized networks, the interest and motivations of the manufacturer and

its repairers are very much the same on most of the issues at hand.

3. Future of the automotive industry

In 2012 the Commission introduced the CARS 2020 Action Plan112

aimed at reinforcing the European

automotive industry’s competitiveness and sustainability heading towards 2020. The anticipated

action plan was made necessary by the strong decline of the EU automotive market and structural

112

Communication from the Commission to the European Parliament, the Council, the European Economic and

Social Committee and the Committee of the Regions CARS 2020: Action Plan for a competitive and sustainable

automotive industry in Europe, COM/2012/0636 final

53

overcapacities113

stemming still from the 2009 financial crisis. One of the pillars of the action plan is a

stronger internal market and smart regulation, under which the Commission proposes – among

others – to set up a dialogue between stakeholders, encouraging them to work towards common

principles on vertical agreements on the distribution of new vehicles, and to evaluate the vehicle

type-approval framework to avoid unfair competition.

In 2013 the Commission issued a Green Paper on Unfair Trading Practices114

with the aim of public

consultation to identify issues and possible tools in addressing the problems. The distributor

associations are listing in their position papers115

very specific market practices (imposing minimum

sales targets, conditions of bonus scheme, contract termination), some of which subjects may fall

within the scope of a future amendment of the competition regulatory framework116

.

The Commission will conduct impact assessment and evaluation of the current block exemption

regulations by 2021, in which it will again examine the extent of achievement of the goals set by the

current regime, the level of competition in the primary and aftermarkets, address any remaining or

new issues, define the next steps and allocate tools to achieve the new goals.

It is clear from the above efforts that regulating the competition relations of the motor vehicle

industry is far from being completed. A lot more mountains have to be climbed and a lot more

lessons to be learned.

4. Conclusion

After review of the development of the competition framework from the previous block exemption

regulation of 1400/2002 until the current general regime for vehicle sales and sector specific rules for

servicing and spare parts distribution, it has to be acknowledged that many of the goals set forth by

the previous regulation was achieved, and the involvement of the primary market under the

umbrella of the general block exemption regime and maintaining the sector specific rules for the

aftermarket cannot be considered as significantly detrimental to any of the participants. The dealers

and repairers did not become as vulnerable as it may seem at the first glance; the market

mechanisms – increasing investment need and decreasing profit margin – provide a significant

113 Colino, Sandra Marco: Recent Changes in the Regulation of Motor Vehicle Distribution in Europe –

Questioning the Logic of Sector-Specific Rules for the Car Industry (The Competition Law Review Volume 6

Issue 2 July 2010 p.203) p. 206

114

Green Paper on Unfair Contract Trading Practices in the Business-to-Business Food and Non-food Supply

Chain in Europe, COM/2013/037 final

115

See for example CECRA’s Response to the Green Paper, Available at:

http://ec.europa.eu/internal_market/consultations/2013/unfair-trading-

practices/docs/contributions/registered-org/european-council-for-motor-trades-repairs-cecra_en.pdf

116

Vogel, Louis: Vertical Restraints: Towards More Rigid Rules for Distribution Networks in Europe? Journal of

European Compatition Law and Practice (May 8, 2014.)

54

protection – the stone in the sling - in their “battle” against the manufacturers. The manufacturers –

although equipped with some more freedom than previously – are not invested with full power,

neither by the regulations, nor by the market conditions. The Commission’s initiatives also point into

a direction when cooperation between the market players and leveraging the powers will further

continue to improve. After all, authorized networks and manufacturers are not so much like David

and Goliath.

55

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