Fair contractual relations
During more than 135 years, the automotive wholesale model has remained mostly the same. The automaker builds a vehicle and then sells it to a dealer. The retailer takes care of all major sales and service activities.
This traditional automotive wholesale model is facing disruption.
Changing customer expectations and behaviors, new mobility concepts and technological disruptions such as digitization, vehicle connectivity and electrification are driving the transformation of automotive retail. The COVID-19 pandemic has further accelerated the ongoing transformation. It raised the cost consciousness of OEMs and facilitated decisions on further outlet consolidation, leaner retail formats, direct customer access and alternative sales models.
The brick and mortar retail model require copious capital expenditures and the returns for dealerships in the last years are negligible. OEMs have consistently required their dealer network to perform major investments in real estate and corporate identity. However, these expenditures have not translated into an improved return on sales. Dealers are buying the vehicles from the OEMS which is why the financial cost is divided and why this model has lasted for decades.
Many automakers have started changing course. Several OEMs are turning toward ‘agency’ sales models, this to combine the strengths of their widespread network of independent dealers with the benefits of more tightly managed sales processes and direct customer access.
Many dealers are still sceptical to ‘agent’ models and what it would mean for them. The major concerns are that they fear they would become obsolete as vehicle manufacturers would take over the entire sales, they would loose their independence and OEMs might use their investments to unroll their ‘agency’ models. CECRA invites OEMs to take dealers’ concerns seriously when transforming their model. CECRA, therefore, pleads OEMs to design a viable remuneration model and to kick off the negotiations with their authorised network partners without any delay and to agree upon bilateral commitments proposing an economic viable partnership to unroll a sustainable business model. A fair remuneration is considered a central success factor at all levels.
In addition, CECRA calls upon the European Commission to take these evolutions into account when renewing the EU block exemption regulations applicable to the automotive industry more precisely the Motor Vehicle Block Exemption Regulation (MVBER) N° 461/2010 and its Guidelines which is applying to authorised & independent aftermarkets and spare parts distribution - and the Vertical Block Exemption Regulation (VBER) N° 330/2010 and its Guidelines which is applying to franchise networks applicable to all sectors – for the automotive sector, it regulates the new car sales.
The European Commission published its evaluation report on the operation of the MVBER and its Guidelines end May 2021. Although the Commission communicated the outcome of the evaluation report will not prejudge its decision, it however recognizes that the current regime is still appropriate but might need some updates due to the technological progress and market developments, in particular in the field of spare parts and access to data. The Commission has started its policy-making stage of the review and will reveal its decision by the 1st quarter of 2022 whether it will renew the current Motor Vehicle Block Exemption regime, revise it or let it lapse. Regarding the VBER, the Commission has published its drafts of the revised regulation and its guidelines at the beginning of July 2021.
The Commission has correctly noted a trend towards the increased use of models combining agency and distribution in consumer goods markets, under which a single undertaking combines the functions of agent and independent distributor for the same principal/supplier. The Commission therefore prepared a working paper ‘Distributors that also act as agents for certain products for the same supplier’ in the context of the ongoing review of the VBER and the Vertical Guidelines.
CECRA has contributed to all the open consultations launched by the Commission as well as organised meetings with DG Competition to set out its arguments.
CECRA's contributions to the last consultation round:
In principle, it is up to automotive manufacturers to decide upon which distribution model to unroll. However, they shall respect the legal terms linked to that particular distribution model they wish to put in place. CECRA urges manufacturers and their authorised distribution networks to kick off their bilateral discussions on the details of the future envisaged distribution models.
In addition, CECRA appeals the European Commission to put in place a robust legal framework for a fair level playing field taking into account all developments and to anticipate its consequences.