EU Regulatory Framework - MVBER

IN GENERAL

Article 101(1) of the Treaty on the Functioning of the European Union prohibits agreements between undertakings and concerted practices that restrict competition unless, in accordance with Article 101(3) of the Treaty, these contribute to improving the production or distribution of goods or to promoting technical or economic progress allowing consumers a fair share of the resulting benefits.

 

So-called “vertical agreements” are among those covered by Article 101(1) of the Treaty. These are agreements and concerted practices relate to the conditions under which the parties may purchase, sell or resell certain goods or services.

EC MVBER's review process & Actions by CECRA

Summary of the most important points of the EC Evaluation Report Motor Vehicle Block Exemption Regulation (MVBER) 461/2010

 

On 28 May 2021, the Commission adopted the Evaluation Report on the operation of the Motor Vehicle Block Exemption Regulation.

 

The Motor Vehicle Block Exemption Regulation mandates the Commission to draw up an evaluation report on its operation by 31 May 2021, in view of its expiry on 31 May 2023. The evaluation was launched on 3 December 2018. It is built on several sources: (i) a public consultation (summary of the contributions); (ii) a consultation with the National Competition Authorities (summary of their contributions); (iii) an external fact-finding study; and (iv) the monitoring and enforcement experience of the Commission in the sector over the past decade. The purpose of the evaluation is to gather facts and evidence on the functioning of the Motor Vehicle Block Exemption Regulation (including the application of Commission Regulation (EU) No 330/2010 to the motor vehicle sector), along with the corresponding Guidelines.

 

In the Commission’s staff working document of the MVBER accompanying the evaluation report, some of CECRA’s comments have been integrated. This is the result of CECRA’s good co-operation with Ernst & Young, contractor which had been commissioned by the Commission to conduct the study. The report mentions:

  • “Based on contributions from trade associations, the study reports that over the years, the efficiency of spare part distribution within the wholesale level has been increasingly optimised, evolving from a three-layered distribution system to one with only two-layers, and also shifting towards more direct distribution models and partnerships. More recently, wholesalers are increasingly introducing services to assist repairers with marketing and communication, education and training, process automation and business intelligence linked to volume-based parts turnover - Stakeholder consultations conducted with CECRA and its national members.” 

  • “As to motor vehicle dealers, their European association, CECRA, claimed that the abolition of certain conditions – those mainly contained in Article 3 of MVBER 1400/2002 - for the application of the previous MVBER had increased contractual “imbalances” between vehicle manufacturers and dealers. This argument was also put forward by other associations representing dealers, such as Federauto, ZDK, CNPA, BF and GANVAM, some of which further pointed to related issues of increased financial pressure facing dealers, due to the alleged shifting of costs and investment requirements from vehicle manufacturers to the authorised networks. Finally, this category of stakeholders stressed their wish for a future MVBER to capture vehicle manufacturers’ new technically advanced capabilities to prevent, restrict and distort competition, without however elaborating further on the nature and scope of such capabilities.”  

 

Overall assessment of the Evaluation Report

 

The competitive environment on the motor vehicle markets has not changed greatly since 2010. However, the sector is under intense pressure to adapt, due to three factors: 

  1. there is technological evolution, in particular as regards communications technologies and the growing importance of in-vehicle data;

  2. there is pressure to reduce emissions;

  3. the sector needs to face the post-COVID-19 crisis and mobility patterns may have changed. It therefore seems likely that some parts of the motor vehicle sector will evolve rapidly and that this will have an impact on competition.

 

Motor vehicle distribution markets

The information available tends to indicate that competitive conditions vary depending on the type of vehicle. While competition in passenger cars is vigorous, it is less intense for light commercial vehicles, trucks and buses. At this stage, there are no indications of market failure or actual or potential consumer harm that would justify distinguishing motor vehicle distribution from the distribution of other durable goods. Therefore, the application of the VBER appears appropriate for motor vehicle distribution.

 

Motor vehicle repair markets

The evaluation shows that many authorised repairers enjoy considerable local market power (particularly given their high share of repairs on newer passenger cars and light commercial vehicles), and that it would therefore not be safe to raise the market share threshold of the MVBER to capture agreements between such repairers and their suppliers. Although intra-brand competition within the authorised networks is limited by strict and detailed quality criteria and the large investments that authorised repairers are required to make, independent repairers continue to exert vital competitive pressure on authorised repairers and ensure that consumers can enjoy choice in provision and prices. These operators can only continue to exert such pressure if they have access to key inputs such as spare parts, tools, training, technical information and vehicle-generated data.

 

The current regime therefore remains appropriate, but may require updating to take account of technological progress. The motor vehicle spare parts markets appears to have rigidities that (indirectly) reduce the choice available to end consumers. At this stage, it therefore seems that special treatment of these markets continues to be merited.

 

Overall, according to the Commission, the current MVBER regime has proven to be appropriate and adapted to diverse situations. The Commission therefore does not consider that major change is currently needed to the existing rules. However, it also observes that some provisions may need updating, in particular to reflect the importance that access to data is likely to have as a factor of competition. Some of the specific policy objectives of the current regime may also need to be reconsidered in the light of this assessment.

Furthermore, the Commission mentions under point 7 ‘Preserving the deterrent effect of article 101 of the Treaty – preventing suppliers from using indirect pressure and threats to achieve anticompetitive results’ that “It appears that, as many durable goods industries, distributors are often the weaker party to agreements with suppliers. While this is not anticompetitive of itself and does not amount to prima facie evidence of anticompetitive behaviour, the Commission would nonetheless take such imbalance into account if elements were brought to its attention suggesting that suppliers had exerted such indirect pressure or threats on dealers or repairers. Contributions from a few NCAs as well as respondents to the public consultation bear out these observations as regards the relative weakness of dealers’ contractual position, but do not seem  to indicate that pressure or threats have been used to exploit this weakness with a view to hindering pro-competitive behaviour.”

 

The report presents the results of the evaluation on the functioning of the MVBER regime and does not prejudge in any respect the Commission’s decision whether to let the current MVBER regime lapse by 31 May 2023, renew it or revise it. The findings of the VBER evaluation will also be considered in this context.

 

CECRA’s action plan proposal

CECRA identified the following points as important to discuss with DG Competition: 

  • ‘Fairness’ in the contractual relations : how to deal with it (regulation itself or guidelines?; which content?)

  • Access to in-vehicle data : important for all operators : how to deal with it?; which content?

  • With regard to inter-brand competition, which is, according to the Commission - at least for the commercial vehicle market- less vigorous, we can ask the Commission whether it envisages, at least for this segment : - on the one hand, to set restrictive conditions for the exemption of direct sales, - on the other hand, to lower the 30% exemption threshold.

  • About the passenger cars: even if inter-brand competition is ‘vigorous’ according to the Commission, the report mentions also that ‘the existence of dealer groups that may hold a portfolio of brands in a particular local area, thereby potentially reducing inter-brand competition in that area, may be an indication that the protection of intra-brand competition also remains a relevant objective for passenger car distribution”.

 

We could use this argument to remind the Commission about the clause on of the former article 3 of the 1400/2002 BER which could be re-introduced as it would decrease this risk.

 

With regard to intra-brand competition, we should also insist on the fact that manufacturers control the pricing policy of their distributors through the remuneration systems that they have put in place. We should ask the Commission to set out in future supplementary guidelines the limits that manufacturers should not exceed in this area in order to avoid situations of .

 

We highlighted this point in our exchange with the Commission last May, but it did not seem to catch their attention. However, the summary of the NCA contributions states in point 4.3 that the NCAs have also identified this problem, which gives us an additional argument. To this should be added the risks of controlling end-customer sales prices arising from the use of agency contracts envisaged by several manufacturers. We should ask the Commission its position on the points we highlighted in CECRA's e-mail of 14 May concerning its "Working Paper" on this subject.

 

  • Working paper on “Distributors that also act as agents for certain products for the same supplier”: this document sent to DG COMP Unit on 2 April. By email of 14 May, the Unit indicated the following: “We have taken good note of the paper you sent us and will consider it as stakeholder feedback for the impact assessment phase, similar to the papers we have received from other stakeholders. The timeline has remained unchanged, with the launch of the stakeholder consultation on the revised rules still being planned around mid-2021/before the summer.  We have also taken note of the Austrian Supreme Court judgment. As explained during our meeting, the VBER is a horizontal instrument, which applies across sectors. The possible need for any sector specific provisions would have to be discussed in the context of the MVBER review. I would therefore suggest that you get in touch with Natalia Lazarova who is leading the MVBER review team”. We should use the opportunity to request at least an answer from the Commission regarding the questions raised by us.

 

  •  Furthermore, with regard to all segments, we could also ask the Commission to review point 56 of the Guidelines, in which it indicated in 2010 that quantitative selective distribution of new vehicles could be allowed up to a derogatory market share threshold of 40%. Two arguments can be put forward in support of this claim. First of all, in the summary of the NCA contributions under point 5 ("potential inconsistencies"), in the 2nd §, it is stated that NCAs have pointed out that this threshold is not consistent with the general exemption threshold of 30% market share. Furthermore, if, according to the Commission, the concentration remains less marked in the passenger car segment, its conclusions on inter-brand competition between the three major groups (VOLKSWAGEN / PSA / RENAULT-MISSAN-MITSUBISHI) is based on the analysis of the ERNST & YOUNG report, which is itself based on data prior to the merger of PSA and FCA into STELLANTIS.

 

  • Finally, with regard to the need for further hardcore restrictions, we could insist again on the issue of refusal of authorisation to distributors/repairers whom contracts have been terminated and who are re-applying for authorisation as a "sole" repairer.

 

In the summary of Commission’s report, it reaffirms on pages 3 and 4, its analysis that there is a brand-specific after-sales market, at least as far as passenger cars are concerned, where the majority of purchasers are private individuals or small and medium-sized enterprises who buy vehicles and after-sales services separately.

 

The Commission also acknowledges on page 11 of the same document that the objective of protecting competition between authorised repairers of the same brand has only been "partially achieved". Moreover, the need to maintain the intensity of competition between authorised repairers of the same brand, in parallel with the competition between authorised and independent repairers, is all the more necessary as the Commission also notes that : - authorised repairers continue to concentrate the most expensive, highly technical repairs, - the extension of contractual warranty periods and extended warranty formulas offered by manufacturers increases the captivity of after-sales customers to the official repairer networks of each brand.