COMMISSION DECISION of 07.11.1990 declaring a concentration to be compatible with the common market (Case No IV/M.0004 - RENAULT / VOLVO) according to Council Regulation (EEC) No 4064/89

(Only the English text is authentic)

The paper version of the decision is available through the sales offices of the Office of Official Publications of the European Communities.

PUBLIC VERSION

MERGER PROCEDURE

ARTICLE 6(1)(a)-(b) DECISION

Registered with advice of delivery

To the notifying party

Dear Sirs,

Subject:<ind> Case No IV/M.004 - RENAULT/VOLVO

<ind> <ind> Your notification of 4 October 1990 pursuant to Article 4 of Council Regulation No 4064/89

Renault and Volvo have notified an operation involving their car activities and their truck and bus activities. As regards cars the parties exchange shareholdings of up to 25%. As regards trucks and buses, they acquire reciprocal shareholdings of 45%. They have also entered into agreements by which they set up three joint committees: one General Policy Committee, one Joint Car Committee and one Joint Truck and Bus Committee. These committees may decide on all matters from research and development to production and purchasing, including cooperation with third party producers.

The Commission has come to the conclusion that the notified operation does not fall within the scope of application of Council Regulation No 4064/89 ("the Merger Regulation") as regards the parties' cooperation in respect of cars but that it does fall within the scope of application of the Merger Regulation as regards trucks and buses/coaches. To the extent that it is a concentration, it does not raise serious doubts as to its compatibility with the common market under that Regulation.

I.<tab> THE COOPERATION ON CARS IS NOT A CONCENTRATION

1.<ind> The parties' cooperation on cars does not at present constitute a concentration within the meaning of Article 3 of the Merger Regulation and thus remains subject to the competition rules of Articles 85 and 86 of the EEC Treaty.

2.<ind> The reasons for the Commission's conclusion in respect of cars are the following:

<ind> -<ind> Renault and Volvo only acquire 20 to 25% of the shareholdings of the other party, which does not in itself either give sole control of one party over the other or create a situation of common control making it impossible for each party to act independently; sole or common control within the meaning of Art. 3(3) of the Merger Regulation requires "the possibility of exercising decisive influence on an undertakings"; the rights attached to these minority shareholdings do not confer such a decisive influence. It is therefore necessary to examine whether the contract signed between the parties or any other means of fact or law, taken separately or jointly, would create a situation of sole or common control between Renault and Volvo;

<ind> -<ind> the shareholder agreements contain an express provision prohibiting the parties to increase their shareholdings in the car business above the level of 25%; this prohibition in fact secures the majority position of each party in its own business;

<ind> -<ind> the sharing of profits and losses in proportion to their respective shareholdings of 25% and 75%, does not create a sufficiently strong common interest between the parties so as to force them to reach common decisions on a permanent basis in respect of all their car activities, which characterises a single economic entity; the interests of the respective shareholders of Renault and Volvo can be divergent, if not conflicting, in particular in fields where their products are overlapping;

<ind> -<ind> given this situation of potential divergent interests, the reciprocal directorships which leave the majority in the boards of management in the hands of the majority owner, will not materially change the nature of the notified operation;

<ind> -<ind> the "Technical and Industrial Cooperation Agreement" does not confer decisive influence to one or both parties by way of sole or common control on a permanent basis : that agreement sets up a Joint Car Committee which has the power to take decisions binding on the companies of each group; however, there is nothing in the agreement which forces the parties to reach common decisions or to integrate all product ranges of their respective car businesses. On the contrary, the agreement expressly provides that the Joint Committee must safeguard the interests of the respective shareholders of Renault and Volvo and that in case of conflicting interests where no agreement can be reached "any party shall have the right to proceed with such matter independently, as it may decide, except in relation to cooperation with third parties ...";

<ind> -<ind> finally, as of today there are no concrete decisions which would show that for their car activities the parties would have decided to integrate the full range of their car products and to commit themselves to an irreversible situation which would bring about a de facto common control.

3.<ind> Consequently, none of the presently existing considerations of law or fact enable the Commission to hold that the cooperation of the parties for their car activities creates a situation of sole or common control within the meaning of Art. 3(3) of the Merger Regulation.

II.<ind> THE OPERATION ON TRUCKS AND BUSES/COACHES IS A CONCENTRATION

4.<ind> The operation on trucks and buses/coaches is a concentration within the meaning of Article 3 of the Merger Regulation.

5.<ind> The cumulation of the following factors is the basis for the commission's conclusion in respect of trucks and buses/coaches :

<ind> -<ind> Renault and Volvo acquire respectively 45% of the shareholdings of the other party : these share acquisitions are substantial interests resulting in an almost equal sharing of losses and profits. The economic interests involved create a strong situation of common interests which, together with the other factors mentioned hereafter, lead to a de facto permanent common control situation and thus establish a single economic entity between the two parties;

<ind> -<ind> the "Technical and Industrial Cooperation Agreement" sets up a Joint Truck and Bus Committee which has the power to take decisions binding on the companies of each group; that agreement provides for the same "escape" clause as for the Joint car Committee. However, this "escape" clause does not put at stake the permanent common control and common management resulting from the parties" substantial cross- shareholdings because it is reasonable to believe that their strong common interests will force Renault and volvo to reach common decisions; furthermore, for the reasons explained hereafter, it will not be possible for the parties to act independently;

<ind> -<ind> the concentrative nature of the truck and bus/coach operation is further confirmed by the fact that the parties have submitted to the Commission evidence of legally binding commitments which put into practice the proposed integration of their respective businesses : all activities from development to production and purchasing and all product and market strategies will be integrated. The effect of the operation will be full range complementarity and commonality with the result that each party will specialise on interdependent functions in research and development and production and each party will produce and sell products of which all the key mechanical components will be common components. This specialisation and commonality will lead to an irreversible reciprocal dependency between renault and Volvo because any splitting of the alliance would cause an excessive economic cost and a competitive setback of at least two to three years vis-a-vis competitors in the market. Therefore, in spite of the "escape" clause ion the technical and Industrial Cooperation Agreement, the operation on trucks and buses/coaches is conducted in a way which does not permit the parties to act independently without substantially affecting their own interests in this business activity;

<ind> -<ind> finally, the fact that Renault and Volvo will keep their marketing and distribution activities separate does not in this case deny the concentrative nature of the proposed operation; firstly, all strategic decisions relating to marketing and distribution will be subject to common decisions by the Joint Truck and Bus committee; secondly, the parties' position on the market can only be maintained if they keep separate their tradenames and their distribution networks. This corresponds to established practice in the automobile industry and odes not jeopardise the new economic entity created between Renault and Volvo.

6.<ind> In conclusion, all the above factors indicate that the notified operation on trucks and buses/coaches involves a joint control. The operation in effect amounts to a durable change in the structure of the undertakings concerned and thus qualifies as a concentration under the Merger Regulation.

7.<ind> The notified operation is also a concentration with a Community dimension. In the financial year preceding notification the combined aggregate worldwide turnover of the parties and the aggregate Community- wide turnover of each of them exceeded the thresholds laid down by Article 1(2) of the Merger Regulation. neither company achieves more than two thirds of its aggregate Community-wide turnover within one and the same Member State. Henceforth, the notified operation falls within the scope of application of the Merger Regulation.

III.<ind> THE NOTIFIED OPERATION DOES NOT RAISE SERIOUS DOUBTS AS TO ITS COMPATIBILITY WITH THE COMMON MARKET

8.<ind> The markets affected by the notified operation which constitutes a concentration are trucks, buses and coaches.

a)<ind> THE TRUCK MARKET

9.<ind> The truck market is commonly subdivided into three sub-markets : segment below 5 tons, segment between 5 and 16 tons and segment above 16 tons. The segment below 5 tons is not affected because Volvo does not manufacture or retail trucks of that category. Renault and Volvo are however competitors in the other two segments.

10.<ind> The view of the parties that the market of trucks above 5 tons is a single market cannot be accepted. The technical configuration of the trucks of 5 to 16 tons (the intermediate range) and of the trucks above 16 tons (the upper range) is very different as regards the key components such as the type of engine, the number of axles, the trailer, etc. The technical aspects of the upper range are more sophisticated because the requirements of durability (length of life) and operating costs are greater than for the intermediate range. Trucks above 16 tons are vehicles which are used in long haul, construction and long distance distribution traffic.

<ind> The marketing of trucks is influenced by these technical differences which have a great importance for the buyer. Therefore, the technical frontier between the two product groups corresponds to a commercial frontier which permits to differentiate between two groups of customers. The intermediate range trucks and the upper range trucks are not normally considered by the customers as interchangeable or substitutable product. These two categories of trucks thus constitute two different relevant product market.

11.<ind> It is not necessary to determine whether or not the geographic market for trucks is a Community market or is still composed of several national markets. The position of Renault and Volvo does not create or strengthen a dominant position within the meaning of Article 2(3) of the Merger Regulation.

12.<ind> At EEC level, the combined market share of Renault and Volvo will amount to 24,5% in the intermediate range and 25,9% in the upper range. There remain at least 5 major suppliers which are present in every EEC country among which Mercedes and Iveco who hold comparable market shares. The major suppliers are Man, Daf and Scania.

13.<ind> At national level, Renault and Volvo reach higher market shares :

<ind> -<ind> for the intermediate range : 54,3% in France, 36,4% in Denmark and 31,8% in Belgium; in addition, Volvo holds 43,3% market share in Greece (no addition through Renault);

<ind> -<ind> for the upper range : 51% in France; 48,9% in Portugal; 37,5% in Denmark and 31,6% in Spain; in addition, Volvo holds 40,7% market share in Greece (no addition through Renault).

14.<ind> However, these higher market shares will not create a position which would enable Renault and Volvo to prevent effective competition from other major suppliers on these national markets such as Mercedes, Iveco, Man, Daf and Scania. These suppliers are already established on these national markets with distribution and service networks and have market shares which are not insignificant (intermediate range : in France : Mercedes 18.1%, Iveco 21.2%; in Greece : Mercedes 45.2% - upper range : in France : Mercedes 17.9%, Iveco 11.9%; in Portugal : Daf 12.4%, Scania 11%, Iveco 10.1%, Man 9.4% and Mercedes 7.1%). It appears therefore unlikely that Renault and Volvo will have the power to behave to an appreciable extent independently of these competitors or to gain an appreciable influence on the determination of prices without losing market shares.

<ind> In addition, the truck market is a market which is performing in a highly competitive way both as regards innovation and prices. Particularly in France the prices seem to be among the most competitive of all EEC markets. Finally, in the truck market the buyers are increasingly fleet buyers which move towards a European purchasing policy. These buyers can exercise a considerable downward pressure on prices by transferring their demand to the countries with the lowest prices. Taking account of these dynamics in the truck market, there is no serious probability that the alliance between Renault and Volvo would create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it.

b)<ind> THE BUS AND COACH MARKETS

15.<ind> It is generally accepted that there are two distinct markets : one for buses which is the public transport vehicle market where the public sector is the main purchaser and one for coaches which is the tourist car market where the private sector is the main purchaser. The technical requirements for these two types of products are also very different.

16.<ind> The coach market has similar characteristics to the truck market and thus does not need to be examined in any further detail.

17.<ind> The bus market appears to maintain for the time being the characteristics of a national market rather than a Community market. This market is still characterised by strong national buying preferences which constitute a high barrier of entry for competitors from other Member States. In addition, there are local specification requirements which can considerably impede transferability of supply.

18.<ind> The position of Renault and Volvo on the bus market of 6 tons and above is without doubt a strong position in two national markets :

<ind> -<ind> In France : Renault holds 69.7% market share

<ind> -<ind> In the United Kingdom : Volvo holds 64% market share

<ind> However, these market shares are not increased by the alliance between Renault and Volvo because neither is present on the market of the other in those two countries. To the extent that national markets will develop towards an opening to foreign competitors, particularly as a result of the Community's public procurement policy, Volvo and Renault can be regarded as potential competitors of each other. However, in such a case, there remain several other major potential suppliers for buses amongst which Mercedes, Iveco, Man, Daf, Scania, Kaessbohrer, Van Hool, Pegaso and Jonckheere. The French and UK markets are therefore not shielded against competition from strong competitors who could bring their power to bear on Renault and Volvo if these companies were particularly possible since these other potential suppliers can use their established truck distribution and service networks for the distribution of buses in these countries.

<ind> In addition, on the bus market the purchasers are virtually all large fleet buyers who can at any time start asking for offers from suppliers other than national suppliers with the result that there will be price pressure on national suppliers. Considering all these factors, the Commission has come to the conclusion that the alliance of Renault and Volvo on the bus market does not create or strengthen a dominant position as a result of which effective competition would be significantly impeded.

IV.<ind> COMMENTS OF THIRD PARTIES

19.<ind> The notification of the proposed operation was published in the Official Journal of the European Communities of 9 October 1990. No comments from third parties were received following that publication.

For the above reasons, the Commission has decided :

1.<ind> that the operation on cars does not constitute a concentration within the meaning of Article 3 of the Merger Regulation

2.<ind> that the operation on trucks and buses/coaches constitutes a concentration within the meaning of Article 3 of the Merger Regulation and that this operation is compatible with the common market

This decision is adopted in application of Article 6(1)(a) and (b) of the Merger Regulation.

For the Commission