EU’s New Block Exemption Rules Please Auto Industry, Good for Consumers

Auto makers are welcoming the European Commission’s new binding rules on how the auto industry should compete, primarily because car companies, dealers and repair shops got what they wanted.

The European Union’s auto sector is unusual in that it benefits from “block exemption” laws on competition, which generally ban formal collusion between manufacturers, retailers and repairers. Instead, special competition rules allow these close relationships.

The first phase of the new rules becomes law today; all will stay in place until 2023.

Marc Greven, director-legal affairs for the ACEA, the association of European auto makers, welcomes the long-term regulatory stability. “We now have new rules; we know what they are and have legal certainty for the next 13 years.”

Not only does the special treatment of the auto sector stay in place, it also allows the industry to decide how it sells vehicles and secures aftersales service, including preserving the right to have franchised dealers, something long sought.

The changes will come into force in two stages. On June 1, there will be new rules on agreements between auto makers and aftermarket players, such as repair garages and parts distributors. The rules are designed to make sure independent repairers outside the manufacturer-authorized network have equal opportunity.

The new laws stress auto makers may not withhold technical information from the independents. Nor can they misuse warranty terms aimed at excluding independent repairers.

The new legislation also blocks OEMs from preventing consumers from having their vehicles repaired with alternative parts. Importantly, the new system, gives “the Commission more room for enforcement of these rules,” Greven says.

In cases where networks of authorized repairers and spare-part distributors have a national market share exceeding 30%, which is often the case, standard EU competition rules will apply to their agreements – not the block exemption.

Under the new system, auto makers will be able to set standards for licensed repairers, although they will not be able to arbitrarily set limits on the number of licensed repair shops that can exist in an EU member state.

“They cannot say there will be 50 in this country and 100 in another,” the ACEA director says.

This represents good news for the consumer, EU Competition Commissioner Joaquin Almunia says in a statement. “I strongly believe the new framework will bring tangible benefits for consumers by bringing down the cost of repairs and maintenance that represent an excessive share of the total cost of a car over its lifetime.”

This rule also will reduce distribution costs considerably by “doing away with overly restrictive rules,” he adds.

Costs also may fall because of the second tranche of the new rules that takes effect in May 2013 that will allow auto makers to insist on single-brand showrooms at dealerships, rather than the multi-brand stores encouraged by the previous block-exemption regulation, which provoked hostility from the OEMs.

As a result, car makers increased the “investments required from the dealers in terms of separating the brands, presentation, etc,” a Commission note says. “Manufacturers also started to contribute less to dealers’ investment costs,” forcing distribution costs to rise 20%.

Says Greven: “The Commission had this idea that multi-branding was a silver bullet. That has not happened. There are relatively few dealers who have different brands of cars in their showrooms. Some manufacturers reacted in a defensive way. It was counterproductive.”

The new rules reflect a view the EU auto industry is competitive across the continent, he adds, with prices far closer between member states.

This has been a key issue since the euro’s introduction in 1999, which enabled consumers to pay for cars with the same currency.

Nikki Rooke, chief spokeswoman for the U.K.’s Society of Motor Manufacturers and Traders (SMMT), notes the revised competition rules give “motorists the widest possible choice” regarding aftermarket and retail.

“The franchise network is there, and we think it gives good service, but we are not against competition,” she says.