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 (presented by the Commission)

Report on the evaluation [1] 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

[1] Article 11(3), OJ L 145, 29.6.1995, p. 25.

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EUROPEAN COMMISSION

TABLE OF CONTENTS

1 Introduction

2 The Block Exemption rationale and recent developments concerning the new block exemption Regulation dealing with vertical restraints

3 Background for Specific Rules for Motor Vehicle Distribution

3.1 Characteristics of motor vehicle distribution agreements

3.2 Comparable products and existing distribution modes

3.2.1 Tractors, agricultural machines, and construction and earthmoving equipment

3.2.2 Motorcycles

3.2.3 Medical equipment

3.2.4 Computers

3.3 Regulatory framework for motor vehicle distribution and servicing

3.3.1 The legal framework until 30 June 1985

3.3.2 Regulation 123/85

3.3.3 Regulation 1475/95

3.3.3.1 The essential aims of the new Regulation

3.3.3.2 Clarification of prohibited restrictive practices

3.3.4 Notice on Regulation 123/85

3.3.5 Notice on intermediaries

3.4 Further Commission action in the area of motor vehicle distribution with a view to promoting parallel imports and the achievement of an Internal Market

3.4.1 Explanatory brochure

3.4.2 Hotlines

3.4.3 The Commission's car price report

3.5 Alleged benefits of the existing regulatory framework governing car distribution and servicing agreements for manufacturers, dealers and consumers and other parties

4 Motor Vehicle distribution: The Facts

4.1 Structure of EU car and spare-parts distribution

4.1.1 Car manufacturers: description of the market, market shares and brands

4.1.2 Manufacturers' distribution networks

4.1.3 Multi-brand dealerships

4.1.4 Spare parts

4.2 After-sales servicing

4.2.1 Structure

4.2.2 Manufacturers' warranty

4.3 Current and future developments

4.3.1 Introduction

4.3.2 Development of "lean distribution"

4.3.2.1 The traditional "stock-push" supply system

4.3.2.2 The new system of lean distribution

4.3.3 Internet - a new marketing method

4.3.4 New formats for sales and service channels

5 Enforcement of Regulation 1475/95 by the Commission

5.1 Letters from consumers and intermediaries

5.2 Formal procedures involving Regulations 123/85 and 1475/95

5.2.1 Major proceedings against car manufacturers

5.2.2 Formal complaints

5.2.3 Notifications of distribution agreements

6 Assessment of the application of Regulation 1475/95

6.1 Assumptions underlying Regulation 1475/95: are they still valid-

6.1.1 Does effective competition exist in the motor vehicle industry-

6.1.1.1 Intra-brand competition in car distribution

6.1.1.2 Intra-brand competition within a Member State

6.1.1.3 Intra-brand competition across the EU

6.1.1.4 Inter-brand competition in car distribution

6.1.1.5 Competition in after-sales servicing

6.1.2 Are motor vehicles technical consumer goods whose maintenance and repair require brand specialists-

6.1.3 Is the tying of sales of new vehicles and after-sales services still justified-

6.2 Has the commercial independence of dealers become greater-

6.2.1 Introduction

6.2.1.1 Use of spare parts of matching quality

6.2.1.2 Longer period for terminating dealer contract

6.2.1.3 Sufficient margin to preserve dealers' independence

6.2.1.4 Leeway in dealers' pricing policy

6.2.1.5 Role of dealers as to sales targets

6.2.1.6 Right of dealers to sell more than one make (multi-make, multi-marketing or multi-brand)

6.2.1.7 Arbitration

6.2.2 Has the access of spare-part producers to dealer networks improved-

6.2.3 Has the position of independent repairers been strengthened-

6.2.3.1 Access to original spare parts

6.2.3.2 Access to technical information

6.3 Is there a benefit for consumers as to the purchase and servicing of motor vehicles in the single market-

6.3.1 Are prices for new motor vehicles offered in the single market satisfactory-

6.3.2 Can the availability of new vehicles be considered satisfactory-

6.3.2.1 Local availability

6.3.2.2 Availability of new motor vehicles for cross-border sales

6.3.2.3 Availability of cars via resellers

6.3.3 Is there a benefit for consumers as regards the honouring of the warranty and after-sales services-

6.3.3.1 Is the honouring of the manufacturer's warranty satisfactory-

6.3.3.2 Can after-sales service be considered satisfactory-

7 Assessment of future developments under Regulation 1475/95 - Introduction

7.1 Internet sales

7.2 Sales via supermarkets

LIST OF DIAGRAMS

Diagram 1: Comparison of cars with other technical products

Diagram 2: Market shares

Diagram 3: Distribution demands in the automotive industry

Diagram 4: Principles of car distribution in the EU, the US and Japan

Diagram 5: Percentage of exclusive main dealers

Diagram 6: Production of spare parts

Diagram 7: Distribution of spare parts

Diagram 8: Shares of the different after-sales service providers for brake pad fitment, 1997

Diagram 9: Specifications of the different providers of after-sales services

Diagram 10: Diminishing service requirements

Diagram 11: Trend in service needs of new cars

Diagram 12: Internet users in the EU

Diagram 13: Car taxation in the EU Member States

Diagram 14: Car manufacturers market shares

Diagram 15: Characteristic features of the different providers of after-sales services

Diagram 16: Car price differentials net of taxes and including taxes

Diagram 17: Comparison of price differentials in 7 left-hand-drive countries having low car taxes with price differentials in 12 or all 15 Member States

Diagram 18: Development of the exchange rate of the pound sterling against the euro and UK car prices in sterling and euro.

Diagram 19: Development of price differentials in countries with low car taxes without the UK and same including UK prices

Diagram 20: Price differentials for right-hand-drive cars in 7 countries with low car taxes compared to average right-hand-drive prices in the United Kingdom and Ireland

Diagram 21: Service retention of dealers in different Member States

1 Introduction

(1) This is the report which the Commission is required to draw up by 31 December 2000. [2] The report evaluates the application of Regulation 1475/95, particularly as regards the impact of the exempted system of distribution on price differentials of motor vehicles between the different EU Member States, [3] and on the quality of service to final consumers. The report also takes account of the two Commission notices which are relevant to motor vehicle distribution [4] and which complement or clarify issues involved in the Regulation.

[2] See Article 11 of Commission Regulation (EC) No 1475/95 of 28 June 1995 on the application of Article 81(3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements, OJ L 145, 29.6.1995, p.25, hereinafter referred to as Regulation 1475/95 or the Regulation.

[3] Pursuant to EEA Joint Committee decision 46/96 of 19 July 1996 amending Annex XIV (Competition) to the EEA Agreement (OJ L 291, 14.11.1996, p. 39-40), Regulation 1475/95 is also applicable in the EEA Member States. This report therefore covers the EEA even if normally reference is made only to EU Member States.

[4] Commission notice concerning 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 C 17, 18.1.1985, p. 4 (hereinafter referred to as the notice on Regulation 123/85), and Clarification of the activities of motor vehicle intermediaries, OJ C 329, 18.12.1991, p. 20 (hereinafter referred to as the notice on intermediaries).

(2) The Regulation is applicable to the distribution and the servicing of new motor vehicles which are intended for use on public roads and have three or more road wheels. [5] It consequently covers cars, trucks and buses and the servicing of such vehicles.

[5] See Article 1 of Regulation 1475/95. Used motor vehicles are thus not covered by the Regulation. The same applies to tractors as their main use is not on public roads. The separate distribution of spare parts or the provision of servicing without any connection to the distribution of vehicles is not covered either.

(3) A number of technical terms used in the report are explained in Annex I.

(4) In order to know the views of interested parties, the Commission sent 8 different questionnaires [6] to more than 110 undertakings and associations of parties interested in motor vehicle distribution and servicing. [7] The facts and findings of the report are based on the replies given by these parties, [8] on the Commission's own experience and on studies.

[6] These questionnaires have also been published together with a press release on the Commission's web site under:

[7] This report covers in principle the distribution and servicing of all types of motor vehicle. It is, however, more specifically focused on passenger cars in view of the replies received following the sending of the questionnaires. Moreover, most of the issues identified by the Commission in the application of the Regulation also concerned passenger cars. If the findings concern something specific related to commercial vehicles, such as trucks or buses, this will be specified.

[8] See Annex VIII of the report for further details.

(5) On 10 April 2000, the Secretary for Trade and Industry published the UK Competition Commission's report. [9] The report evaluates the supply of new motor cars within the United Kingdom. Although the UK Competition Commission's report mainly focuses on high prices for new cars sold in the United Kingdom, it also evaluates many aspects of Regulation 1475/95. The Competition Commission comes to the conclusion that Regulation 1475/95 permits restrictive practices which work against the public interest. In contrast to the present evaluation report of the European Commission, the UK Competition Commission's report also contains recommendations as to the future of Regulation 1475/95: it recommends inter alia that selective and exclusive distribution of new motor cars should be prohibited and that Regulation 1475/95 should be changed or at least allowed to expire. [10]

[9] Competition Commission, New cars, A report on the supply of new motor cars within the UK, presented to Parliament by the Secretary of State for Trade and Industry by Command of Her Majesty, April 2000, 737 pages (hereinafter referred to as the UK Competition Commission report).

[10] UK Competition Commission report, pt. 1.20.

(6) The purpose of the present report is to evaluate Regulation 1475/95 and the two notices. It does not contain any proposals as regards the situation after the expiry of Regulation 1475/95 on 30 September 2002.

2 The Block Exemption rationale and recent developments concerning the new block exemption Regulation dealing with vertical restraints

(7) The internal market represents an opportunity for EU firms [11] to enter new markets that may have been previously closed to them because of regulatory barriers. Such penetration of new markets takes time and investment and is risky. It is often facilitated by agreements between producers who want to break into a new market and local distributors. Efficient distribution with appropriate pre- and after-sales support is part of the competitive process that brings benefit to consumers.

[11] Following the termination of the EU-Japan consensus at the end of 1999, Japanese suppliers are now also free from quantitative restrictions on their supplies to the EU car market.

(8) However, arrangements between producers and distributors can also be used to continue to partition the market and exclude new entrants - both at the production and distribution level - who would intensify competition and lead to downward pressure on prices. Agreements between producers and distributors (vertical restraints) can therefore be used pro-competitively to promote market integration and efficient distribution, or anti-competitively to block integration and competition. The price differences between Member States that still exist provide the incentive for companies to enter new markets as well as to erect barriers against new competition. [12]

[12] Commission Green Paper on vertical restraints in EC Competition policy, COM(96)721, p.1.

(9) In this respect, Article 81(1) of the EC Treaty, which prohibits restrictive agreements and concerted practices in the field of vertical restrictions - as in other types of relationship between economic operators - may be declared inapplicable if the agreement as a whole brings about overall economic advantages which outweigh the disadvantages for competition. Such exemption under Article 81(3) is possible if an agreement contains only indispensable restrictions, does not eliminate competition and promotes production, distribution or technical improvements, while granting a fair share of the gains to consumers.

(10) Exemptions may be granted on a case-by-case basis or by a regulation for certain categories of agreements. Such a block exemption regulation is the consequence of the experience gained in dealing with many similar or identical agreements; such experience allows a category of agreements to be defined which can generally be regarded as satisfying the four conditions of Article 81(3).

(11) In an exercise of rationalisation and modernisation of its policy concerning vertical restraints, the Commission recently adopted a general block exemption Regulation. [13] It replaces three block exemptions relating to exclusive distribution agreements, [14] exclusive purchasing agreements [15] and franchise agreements. [16]

[13] 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. 21-25, hereinafter referred to as the new block exemption on vertical restraints.

[14] Commission Regulation (EEC) No 1983/83 of 22 June 1983 on the application of Article 85(3) of the Treaty to categories of exclusive distribution agreements, OJ L 173, 30.6.1983, p. 1; Corrigendum OJ L 281, 13.10.1983, p. 24.

[15] Commission Regulation (EEC) No 1984/83 of 22 June 1983 on the application of Article 85(3) of the Treaty to categories of exclusive purchasing agreements, OJ L 173, 30.6.1983, p. 5; Corrigendum OJ L 281, 13.10.1983, p. 24.

[16] Commission Regulation (EEC) No 4087/88 of 30 November 1988 on the application of Article 85(3) of the Treaty to categories of franchise agreements, OJ L 359, 28.12.1988, p. 46.

(12) From the very outset of its reform of vertical restraints, the Commission specified that this new block exemption would not cover motor vehicles. [17] The Commission stated that, as regards its proposals for the future treatment of motor vehicle distribution, it would re-examine this sector in accordance with the provisions of the Regulation before deciding on the future regulatory framework.

[17] IP/99/286, 7.5.1999. See also the Green Paper on vertical restraints in EC competition policy, COM/96/0721 FINAL - Executive summary p.ii, footnote 2.

3 Background for Specific Rules for Motor Vehicle Distribution

3.1 Characteristics of motor vehicle distribution agreements

(13) Most [18] motor vehicles are distributed via dealer networks which combine selective and exclusive features.

[18] In most countries, a limited number of new vehicles are also distributed to final consumers by the manufacturers themselves (so-called direct sales), by sales outlets connected to the manufacturer or via commercial agents.

(14) Selectivity means that each manufacturer or importer sets criteria for the selection of its distributors. They can be firstly qualitative criteria. [19] Such performance-related criteria are, for example, an obligation to employ specialists, to design the retail space according to the manufacturers' directives, to provide after-sales services according to certain standards, to meet certain stock requirements and standards for advertising. Distributors belonging to the network are not allowed to sell goods on to resellers not belonging to the distribution network. A selective distribution system thus creates a network which excludes all undertakings which do not meet the specified criteria from the distribution of the relevant goods. [20] However, in a distribution system solely based on qualitative criteria, the manufacturer/importer is obliged to appoint as distributor every undertaking which meets these criteria. Indeed, the manufacturer cannot be subjective in the application of these standards. Moreover, in order to limit the number of official dealers, manufacturers and importers carry out a further quantitative selection amongst those distributors who meet the qualitative criteria. Such quantitative criteria are, for example, the number of dealers acting in the same sales territory or the imposition of quantitative sales targets. As a consequence, each manufacturer has a large leeway in organising its distribution network, in particular as to the place where the dealer has to run his business as well as to the number of dealers belonging to its network which is sufficient to pursue its marketing strategy [21] As has been noted, manufacturers in this industry can consequently effectively dictate to their retailers both the type and the location of their customers. [22]

[19] Purely qualitative selective distribution is in general considered to fall outside Article 81 (1) for lack of anti-competitive effects. For the conditions under which this is true see Commission Guidelines on vertical restraints, pt. 185; adopted by the Commission on 24 May 2000, Official Journal C 291 of 13.10.2000, page 1.

[20] See e.g. Article 1(d) of Commission Regulation (EC) No 2790 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.

[21] See, for example, the Fourth Report on Competition Policy, 1974, point 87.

[22] International Car Distribution Programme (ICDP), Research Paper 6/99, "Beyond the block exemption II, the build-up to 2002", by Dr. A. Tongue, September 1999, (hereinafter ICDP, "Beyond the block exemption II" 6/99, p. 8-11.

(15) Under a selective distribution system there is, however, no provision for exclusive sales territories. The manufacturer is not entitled to split up a market and assign defined territories of this market on an exclusive basis to its distributors. This is the main feature of an exclusive distribution system.

(16) As to exclusivity, most manufacturers use the possibility granted by Regulation 1475/95 to appoint only one dealer for a geographically limited territory - the contract territory - on which the dealer has to concentrate his marketing efforts [23] and endeavour to sell contract products in accordance with the sales targets he has agreed with the manufacturer. Therefore, dealers are not allowed to open sales outlets or to appoint sub-dealers or sales agents outside their contract territory. Nearly all car manufacturers also undertake to prohibit their dealers from selling actively by means of personalized advertising within the territory of any other dealer.

[23] This is even a stronger restriction in comparison to quantitative selection of the number of dealers in a given sales territory (see above pt. 0).

(17) However, most manufacturers do not give their dealers the exclusive right to supply new vehicles to all consumers in the dealer's territory: they retain the right to sell new vehicles to certain categories of consumers (so called "reserved consumers or customers") in competition with their dealers. [24]

[24] See Article 2 of Regulations 123/85 and 1475/95.

(18) Most car dealers in the European Union only sell cars from one manufacturer, even if these cars are sold under different brands. Selling a make produced by a different manufacturer is only permissible where the seller is a separate legal entity run by separate management, and where the sale is made in separate premises. In practice this amounts to excluding multi-branding to a large extent. [25]

[25] See below 0 on page 89 of this report.

(19) The obligation on dealers to provide after-sales services, which manufacturers have to impose on them pursuant to Regulation 1475/95, ties the sales of new cars to the after-sales service activities, which are two different types of businesses.

(20) Such agreements may fall under the prohibition of Article 81 since they have as their object or effect the prevention, restriction or distortion of competition within the common market if they are liable to affect trade between Member States. [26] In addition, the Commission considered that the restrictions contained in these agreements were made more severe by the fact that all manufacturers use the same or similar agreements throughout the common market (so-called cumulative effect). [27] Neither of the two Regulations [28] further specify what are the results of this effect. Applying traditional EU competition case law, [29] it would appear that the cumulative effect resulting from the use of similar vertical distribution agreements containing single branding clauses is that market access for new manufacturers becomes considerably more difficult: they might not find distributors for their products, because all of them are bound to their existing supplier by an exclusivity clause. [30] However, due to the EU-wide quantitative selection and/or the territorial exclusivity of all dealers, new distributors might not find a manufacturer who is willing to sell new cars to them. [31]

[26] See also UK Competition Commission report, pt. 2.10 et seq., in particular pt. 2.14 and pt. 2.38.

[27] See recital 3 of Commission Regulation (EEC) 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 15, 18.1.1985, p. 16 (hereinafter referred to as Regulation 123/85) and recital 3 of Regulation 1475/95, which call the use of similar networks of vertical agreements containing restrictions of competition "cluster".

[28] See in particular recital 3 of Regulation 123/85 and of Regulation 1475/95.

[29] See Judgment of the Court of 28 February 1991, Delimitis Henninger Bräu, [1991] ECR I-935; Judgment of the Court of 12 December 1967, Brasserie de Haecht, [1967] ECR 421; Judgment of the CFI of 8 June 1995 [1995] ECR II-1533, paragraphs 99-104, 119; Judgment of the Court of 1 October 1998, Langnese, [1998] ECR I-5609, paragraphs 44-46. Bundeskartellamt v Volkswagen AG and VAG Leasing, [1995] ECR I-3477, paragraph 23 regarding the access of car leasing companies to Volkswagen dealers.

[30] It is true that in Europe e.g. Korean car manufacturers were able to increase their market share from 0.1% in 1990 to 2.7% in 1998 (see ACEA position paper regarding the European Commission's questionnaire on the application of the automobile block exemption, page 12, published in the internet under: http://www.acea.be/acea/BEMVD.pdf). As regards the UK market, since 1990, notably Chrysler and Daewoo have entered the market and took between them about 2% of the market in 1999 (see UK Competition Commission report, pt. 2.89.). However, see also ICDP, "Multi-franchising, Developments and Impact of Sales Channel Management of Automobile Manufacturers", by M. Hoffmeister and R. Heinerberg, Research Paper 1/98, (hereinafter: ICDP, "Multi-franchising" 1/98), p. 60: ICDP underlines that the speed of penetration is much faster, when existing dealers are used to access a new market. Therefore it was relatively easy for Korean and Malaysian makes to cover the entire United States of America, where multi-marketing is more widespread than in Europe, without investing heavily in brand exclusive new car dealerships.

[31] See recital 13 and Article 6 of Commission Regulation 2970/1999 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.

CONCLUSION:

The block exemption of motor vehicle distribution and servicing agreements permits the combination of selective (with qualitative and quantitative criteria) and exclusive distribution.

As a result of the combination of these two types of vertical restraints, motor vehicle manufacturers are entitled to impose high quality criteria on their dealers, but are not obliged to supply any new potential dealer who meets these criteria. They can also close their sales network by restricting sales to independent resellers. However, they may not restrict sales to final consumers and their intermediaries, or other dealers of the network. For consumers, there is no real alternative source of supply for purchasing motor vehicles other than via the dealer networks.

Motor vehicle manufacturers are also allowed to divide up a market into exclusive sales territories.

3.2 Comparable products and existing distribution modes

(21) Why are motor vehicles distributed in a certain way and quite similar products in other ways- The purpose of this section is to put into perspective different ways of distributing products that have some common characteristics with motor vehicles. Motor vehicles may be compared to some of these products in relation to their technological content, their price, the need for advice on sale, the need for after-sales services, brand image and safety issues.

(22) It is worthwhile noting that products that have in common one or more of the above-mentioned features are distributed through one or sometimes various distribution systems having different characteristics.

(23) Four examples [32] of such products are:

[32] All these products are covered as from 1 June 2000 with regard to their distribution agreements by the new block exemption on vertical restraints.

1. Tractors, agricultural machines, construction and earthmoving equipment

2. Motorcycles

3. Medical equipment

4. Computers

Diagram 1: Comparison of cars with other technical products

>TABLE POSITION>

3.2.1 Tractors, agricultural machines, and construction and earthmoving equipment

(24) These products are commonly distributed and serviced through exclusive dealerships. The dealer has an exclusive territory where he is the sole authorised seller for one particular brand. [33] These products are technologically complex products, although not as much so as cars. The purchaser needs advice on the product when the sale is being made, and after-sales services are very important for safety and commercial reasons. The cost of after-sale services may represent, during the lifetime of such a machine, an equivalent amount to the purchase price. The price of such products is generally higher than the price of a car. Brand image is very strong. The products are mostly not built to circulate on public roads.

[33] For specific reasons, dealers in Finland may sell different brands in their exclusive territory.

3.2.2 Motorcycles

(25) Motorcycles are normally distributed through selective distribution. A dealer has no exclusive territory and may sell competing motorcycle brands. These products are also technical products which require the same advice when the sale is being made and the same level of after-sales services by brand specialists as for cars. Motorcycles circulate on public roads and therefore raise safety issues. The average price is generally lower than that of cars, although purchase of a motorcycle still represents an important investment. Brand image is as important as it is for cars.

3.2.3 Medical equipment

(26) Medical equipment is usually distributed through selective distribution. These products are highly complex products. They integrate electronics and software. Sales personnel must be well trained, advice on the product and training are essential for the use of the equipment, and after-sales requirements are vital. Malfunction may cause huge damage to human health, and prices are also considerable.

3.2.4 Computers

(27) Computers are distributed through selective distribution networks and many of them directly via Internet [34] or via other types of distributors such as supermarkets. The technological complexity of computers and related equipment is evident. Manufacturers place great emphasis on product advice during sale. Computers need specialised after-sales assistance as the typical user does not possess the necessary knowledge and expertise to repair the product or to properly install additional devices. Brand image is important in this sector.

[34] Dell and Gateway computers, for example.

CONCLUSION:

Cars are similar in certain aspects to the above-mentioned products. Nevertheless, the products are distributed through different and less restrictive distribution channels than the ones used for cars.

3.3 Regulatory framework for motor vehicle distribution and servicing

3.3.1 The legal framework until 30 June 1985

(28) Since the former block exemption Regulation 67/67 [35] did not cover these agreements, the Commission adopted, in 1974, its first exemption decision [36] in the field of motor vehicle distribution and servicing agreements in the so called "BMW" case. This decision was designed as a landmark decision [37] and it was hoped that manufacturers would adapt their distribution systems accordingly. However, this was not the case. Many car manufacturers continued to notify their agreements to the Commission in order to obtain individual exemption decisions. In order to solve this problem of handling a mass of individual notifications and to give more guidance and legal security to the car industry, the Commission decided to adopt a block exemption regulation, Regulation 123/85, along the lines set out in the BMW decision.

[35] Commission Regulation 67/67EEC of 22 March 1967 on the application of Article 85 (3) of the Treaty to certain categories of exclusive dealing agreements, as amended by Regulation (EEC) 2591/72 of 8 December 1972 and by Regulation (EEC) 3577/82 of 23 December 1982, OJ 57, 25.3.1967, p. 849 (Special Edition 1967, p. 10).

[36] Commission decision of 13 December 1974 - Bayerische Motoren Werke AG - OJ L 29, 3.2.1975, p. 1.

[37] See Fourth Report on Competition Policy, 1974, point 86.

(29) Agreements which fulfil the conditions set out in this Regulation are automatically exempt without notification. Firms in the sector are, however, still free to enter into other types of agreements that they can notify on an individual basis and request a negative clearance or exemption decision.

3.3.2 Regulation 123/85

(30) As from 1 July 1985 until 30 June 1995, distribution and servicing were covered by a sector-specific block exemption, Regulation 123/85. In this Regulation, the Commission had to find a reasonable compromise between the many interests involved:

* the manufacturer's interest in designing its distribution network in an efficient way;

* the interest of the dealers regarding the supply of new vehicles and spare parts and their interest in getting an exclusive contract area, in keeping their economic independence and in being able to make a sufficient return on their investment;

* the interest of independent resellers in the availability of spare parts;

* the interest of spare-part producers in having access to dealer's networks,

* and, most importantly, the interest of consumers in having the possibility of sourcing new vehicles and after-sales services throughout the common market and of acquiring quality products and after-sales services at a competitive price.

(31) Regulation 123/85 covered selective and exclusive distribution and servicing agreements. The block exemption of such restrictive agreements was based on the following considerations:

(32) Due to the nature of the product concerned, it was considered that a number of restrictions placed on distributors were indispensable in order to allow some rationalisation and, as a result, better motor vehicle distribution and servicing. The restrictions were the following:

Selective distribution:

(33) Regulation 123/85 explicitly mentions that the manufacturer may impose minimum standards as regards in particular his business premises, technical facilities, training of staff, advertising, collection, storage and delivery of vehicles and services and as to the repair and maintenance services with a view to the safe and reliable functioning of the vehicles. [38]

[38] Article 4 (1)(1) of Regulation 123/85.

(34) In order to protect the selective character of a motor vehicle distribution system, a prohibition placed on distributors not to supply contract goods to independent resellers was accepted. [39] Under Regulation 123/85 manufacturers could consequently stipulate who their distributors may sell on to. They could impose on their dealers a requirement that they sell only to end-customers and to other dealers within a manufacturer's distribution system. [40] The sale of spare parts to independent resellers who needed them for repairs or maintenance of vehicles had to be permitted. [41] More importantly, the supply of a vehicle to a final consumer who used the services of an intermediary which had received a written authorisation from the consumer did not put into question the selectivity of a distribution system and could not be restricted by manufacturers. [42]

[39] Recital 5 of Regulation 123/85.

[40] Article 3(10)(a).

[41] Article 3(10)(b).

[42] Article 3(11) and the end of recital 5.

(35) The exclusion of wholesalers not belonging to the distribution system of a manufacturer or importer from the distribution of spare parts originating from the manufacturer was also exempted. It was held that otherwise rapid availability of original spare parts, including those with low turnover, would not be possible and this would then not be in the interest of consumers. [43]

[43] Recital 6 of Regulation 123/85.

(36) Moreover, manufacturers were allowed to oblige their dealers to offer after-sales services [44]. They were thus able to tie two different types of commercial activities: the sales of new motor vehicles and the provision of after-sales services.

[44] See article 4 (1)(1)(e) of Regulation 123/85; however, according to article 5 (1)(1)(a), 2nd indent of Regulation 1475/85, manufacturers are obliged to request from their dealers to offer after sales services in order to benefit from the block exemption.

(37) As regards the limitation of the number of dealers and repairers due to quantitative selection and exclusivity, the Commission considered this to be indispensable in view of the characteristics of motor vehicles. They are expensive and complex consumer durables which at both regular and irregular intervals require expert maintenance and repair, not always at the same place. To provide specialised servicing, manufacturers had to co-operate with dealers and repairers in order to ensure that they were fully informed of technical problems and maintenance instructions and that they were well trained. [45] However, on grounds of capacity and efficiency, the Commission held that such cooperation in the field of servicing could not be extended to an unlimited number of dealers and repairers. [46] On the basis of the circumstances prevailing at that time, the Commission also regarded the linking of servicing and distribution of new vehicles as more efficient than a separation of both activities, particularly as the distributor must give new vehicles a technical inspection according to the manufacturer's specifications before their delivery to final consumers. [47]

[45] Commission Decision of 13 December 1974 - Bayerische Motoren Werke AG - OJ L 29, 3.2.1975, p. 1, point 24.

[46] Recital 4, 1st to 3rd sentences, of Regulation 123/85.

[47] Recital 4, 4th sentence, of Regulation 123/85.

Territorial protection:

(38) The obligations upon distributors to concentrate on the contract territory i.e. the obligation that dealers must not maintain branches or depots or even seek customers outside their contract territory and that they may not entrust third parties with the distribution of goods outside this area [48] was also considered indispensable for an improvement in motor vehicle distribution and therefore exempted. It was held that such restrictions on the dealer's activities outside the allotted area led to more intensive distribution and servicing efforts, to a better knowledge of the market based on closer contacts with consumers and to a more "demand oriented" supply. [49]

[48] Article 3(8) and (9).

[49] Recital 9 of Regulation 123/85.

(39) However, unlimited territorial protection was not recognised as indispensable since it would exclude the European consumer's freedom to buy anywhere in the common market. [50] Therefore, under the Regulation dealers had to be able to meet demand from final consumers in other areas of the common market. Moreover, dealers were not to be prevented from advertising in media which covered a wider area than their own contract territory. [51] This amounted to a prohibition of active sales outside the contract territory. In order to ensure that consumers could exercise their right to source their vehicles anywhere in the common market, dealers had inter alia the right to order from the manufacturer "corresponding" motor vehicles [52] (so-called "availability clause"). [53] These are vehicles which are similar to those distributed by the dealer but which are produced with different technical specifications, such as right-hand drive. Manufacturers had also to impose on their network of dealers a number of obligations relating to after-sales services: dealers had to provide free servicing and repair in the context of warranty and recall operations wherever in the common market cars have been purchased. [54]

[50] Recital 12, last sentence, of Regulation 123/85.

[51] Recital 9 of Regulation 123/85. This possibility is generally referred to as passive sales.

[52] Article 13(11) of Regulation 123/85.

[53] Article 5(1)(2)(d).

[54] Article 5(1)(1)(a) and (b).

Non-compete clauses:

(40) Non-compete clauses [55] without any time limit which prohibited the sale of vehicles from other manufacturers (so-called "multi-marketing") and of spare parts which do not match the quality of spare parts of the contract range, or the sale of vehicles of the same manufacturer but outside the dealer's product range at stated premises, were also exempted by Regulation 123/85. It was held that these clauses contribute to the concentration of the distributors on products supplied by the manufacturer and thus ensure appropriate distribution and servicing for vehicles. [56]

[55] Article 3(2) to (5).

[56] Recital 7 of Regulation 123/85.

(41) However, the exemption of non-compete clauses was not completely unlimited. If dealers were able to show that there were objectively valid reasons for the sale of one or more other makes, [57] the manufacturer had to lift the ban on selling other makes. As regards spare parts, dealers were free to source spare parts which matched the quality of contract goods [58] ("spare parts of matching quality") from other suppliers [59] and to use them for the repair of vehicles, unless for repair work within the warranty period or in the context of a recall operation.

[57] Article 5(2)(1)(a).

[58] This quality standard can be imposed in view of the importance of vehicle safety; see recital 8 of Regulation 123/85.

[59] Article 3(4) and recital 8 of Regulation 123/85.

Rules ensuring dealers' economic independence:

(42) Regulation 123/85 also tried to protect the dealer's economic independence from the supplier. Accordingly, obligations imposed on dealers to apply minimum resale prices or maximum trade discounts ruled out an application of the Regulation. [60] Furthermore, the supplier could only appoint new dealers within the contract territory or alter the territory if he showed that there were valid reasons for doing so. In contrast, as regards the dealer's wish to appoint a sub-dealer inside his contract territory or to alter or end such a contract, the supplier was not allowed to withhold approval arbitrarily. [61] Moreover, dealer contracts concluded for a definite period had to be for at least four years; the standard period of notice for the termination of an agreement concluded for an indefinite period was one year. [62] The aim of these rules was to protect the dealer's investments. In order to protect the dealer's right to purchase spare parts of matching quality from other suppliers, and to allow these producers to compete on equal terms with the manufacturer's supplies of original spare parts, the Regulation prohibited cumulation of discounts. [63]

[60] Article 6(2) and recital 23 of Regulation 123/85.

[61] Article 5(1)(2)(a) and recital 13 of Regulation 123/85.

[62] These periods could be shorter if a dealer was a new entrant to the distribution system and the period of the agreement or the period of notice for termination of the agreement was the first agreed by the dealer.

[63] Article 5(1)(2)(c) and recital 15 of Regulation 123/85.

(43) Dealers' economic independence was, however, limited. Under the Regulation, each manufacturer had the possibility of deciding unilaterally, on the basis of estimates, on the dealer's potential sales, on sales targets, stock quantities and numbers of demonstration vehicles. [64]

[64] Article 4(1)(3) to (5).

Withdrawal of the block exemption:

(44) Article 10 of Regulation 123/85 gave the Commission the right to withdraw the benefit of the Regulation if a distribution system did not fulfil the criteria of Article 85(3) (now Article 81(3)). The Regulation mentioned in particular four specific cases where such withdrawal would apply:

* the products covered by the distribution system were not subject to competition from competing products (withdrawal due to lack of competition);

* a manufacturer or an undertaking within the distribution system continuously or systematically made it difficult for final consumers or distributors to purchase contract goods or corresponding goods, or to obtain servicing for such goods within the common market by means not exempted by Regulation 123/85 (withdrawal due to obstacles to parallel trade);

* prices and conditions differed substantially between Member States for a considerable period and these differences were chiefly due to obligations exempted by the Regulation (withdrawal due to price differentials chiefly due to Regulation);

* when prices and conditions applied for the supply of passenger cars corresponding to a car within the dealer's contract range (e.g. the supplement for a right-hand-drive car delivered to a dealer in mainland Europe) were not objectively justifiable and had the object or effect of partitioning the common market (withdrawal due to objectively unjustified prices or conditions for corresponding passenger cars).

3.3.3 Regulation 1475/95

(45) In 1995, the Commission adopted a new block exemption, Regulation 1475/95, for motor vehicle distribution and servicing agreements. Although the basic principles of Regulation 123/85 remained unchanged, i.e. the maintenance of an exclusive and selective distribution system, the Commission amended the formal Regulation on the basis of the experience it had gained with its application and also in response to complaints it had investigated. The adjustments are aimed at improving the functioning of an internal market in cars and intensifying competition at the stage of car distribution by re-balancing the various interests involved, in particular by strengthening the dealers', spare-part producers', independent repairers' and consumers' rights and freedoms.

3.3.3.1 The essential aims of the new Regulation

(46) The following section will briefly list the essential aims pursued by Regulation 1475/95, some of which were taken over from Regulation 123/85. These aims will be discussed in greater detail in section 0 (page 54) of this report.

(47) The first aim of Regulation 1475/95 is to make sure that motor vehicle distribution and servicing takes place in an efficient way to the benefit of consumers and that effective competition exists between manufacturers' distribution systems and, to a certain extent, within each system. [65]

[65] See recitals 4 and 25 of Regulation 123/85 and recitals 4, 7 and 30 of Regulation 1475/95.

(48) The second aim of Regulation 1475/95 is to further increase the consumer's choice in accordance with the principles of the internal market. [66] These changes are aimed at creating an environment which improves the possibilities for inter- and intra-brand competition and for parallel imports.

[66] See recital 26 of Regulation 1475/95.

(49) To achieve this aim, it is made clear that dealers' remuneration may not depend on the final destination of a vehicle. [67] Dealers may now also actively promote the final sale of new vehicles outside their contract territory by advertising, the only restriction being that personalised advertising remains prohibited. [68] Furthermore, under the new Regulation, manufacturers have to impose on dealers an obligation to carry out repair and maintenance work also on vehicles which have been sold by another dealer within the distribution network. [69]

[67] Article 6(1)(8).

[68] Article 3(8)(b) of Regulation 1475/95.

[69] Second indent of Article 5(1)(1)(a) of Regulation 1475/95. This obligation was not explicitly mentioned in Regulation 123/85, although difficulties in obtaining after-sales services from network dealers was mentioned as one reason for withdrawing the benefit of the former Regulation; see Article 10(2) of Regulation 123/85.

(50) The third aim pursued by the new Regulation is to strengthen the dealer's independence from manufacturers with the aim of increasing the dealer's competitiveness. [70] To this end, the scope of the non-compete clauses exempted by Regulation 123/85 was reduced and dealers are now, under certain conditions, allowed to sell motor vehicles of other manufacturers (multi-marketing). [71] Dealers are now also allowed to use a common workshop for the servicing of the makes they are selling. [72]

[70] See recital 17 of Regulations 123/85 and 1475/95.

[71] Pursuant to Article 3(3) of Regulation 1475/95, multi-marketing is permissible although it is subject to the condition imposed by the car manufacturers that it is done on separate premises, under separate management, in the form of a distinct legal entity and in a manner which avoids confusion between makes.

[72] Pursuant to Article 3(4) of Regulation 1475/95, this is only permitted if a third party cannot benefit unduly from investments made by a supplier, notably in equipment or the training of personnel.

(51) Although the exclusion of sales to non-authorized resellers was maintained, dealers are clearly permitted to engage in any type of transaction (sale, leasing, and hire purchase). [73] The major changes to strengthening the dealer's economic independence concern a prohibition on the manufacturer unilaterally modifying the status of the dealer or the allotted territory. [74] Furthermore, an extension of the minimum duration of distribution agreements with limited duration from 4 to 5 years and an extension of the period of notice for termination of agreements concluded for an indefinite period from 1 to 2 years [75] were introduced in order to better protect dealers' investments. Finally, sales targets and requirements regarding stocks and demonstration vehicles have now to be agreed, or in the event of disagreement, decided by an independent expert third party.

[73] See Article 10(13) of Regulation 1475/95.

[74] Article 6(1)(5) of Regulation 1475/95.

[75] Article 5(2)(2) and (3).

(52) The fourth aim pursued by the Regulation concerns the protection of competition in the after-sales service market. In this respect, the Regulation wanted to first of all increase spare-part manufacturers' access to dealers. Although the right to use spare parts of matching quality for after-sales services existed already under Regulation 123/85, [76] the new Regulation strengthens this right of dealers and it introduces a possibility for spare-part manufacturers to supply spare parts to dealers. [77] In order to render this right more effective, spare-part producers are allowed to place their trade mark or logo on parts which they supply to a manufacturer for the assembly of a vehicle or for repair and maintenance of such vehicles. [78] This provision is aimed at creating transparency regarding the identity of the producer of a specific part. Based on this information it was assumed that dealers, independent repairers and consumers are in a better position to find out who produced a given part of a vehicle and who could be a supplier of spare parts in addition to the vehicle manufacturer.

[76] Article 3(3) of Regulation 123/85.

[77] Article 6(1)(9) and (10) of Regulation 1475/95.

[78] Article 6(1)(11) of Regulation 1475/95.

(53) Secondly, the new Regulation aims to give independent repairers better opportunities to compete with network dealers in the after-sales service market: manufacturers have to supply repairers not belonging to their network with technical information necessary for the repair or maintenance of cars. The supply of this information may only be refused if it is covered by intellectual property rights or constitutes identified, substantial secret know-how. However, an improper refusal is not permissible. [79]

[79] Article 6(1)(12) of Regulation 1475/95.

(54) A further, more legalistic, aim of the new Regulation was to further clarify the distinction between admissible and non-admissible agreements and behaviour. Therefore, the list of so-called "black clauses" was amended and considerably extended. [80]

[80] Article 6 of Regulation 1475/95. By contrast, Regulation 123/85 contained only three black clauses in Article 6.

3.3.3.2 Clarification of prohibited restrictive practices

(55) Regulation 1475/95 [81] establishes a "black list" comprising two types of behaviour::

[81] See Article 6 of Regulation 1475/95

The first concerns "black clauses" which should not be used in agreements. If they are included, this leads to an automatic loss of the benefit of the block exemption. Such a loss takes place if: [82]

[82] See Article 6(1)(1) to (5) of Regulation 1475/95.

* the two parties to the agreement are motor vehicle manufacturers;

* the obligations of the agreement are extended to products and services other than motor vehicles or spare parts;

* the agreement contains obligations for the manufacturer or the dealer which are more far-reaching than those permitted under the Regulation;

* the parties agree restrictions permitted under Regulations 1983/83 on exclusive distribution agreements or 1984/83 on exclusive purchasing agreements which go further than those permitted under Regulation 1475/95;

* the manufacturer is given the right to alter the contract territory during the period of the agreement, or to conclude distribution and service agreements with other companies in the contract territory.

(56) The loss of the benefit of the Regulation in these cases means that all restrictive clauses contained in the agreement are automatically and without any declaration from the Commission or from a national authority no longer exempted, and Article 81 is applicable.

(57) The second type is the list of "black practices" which also lead to the automatic loss of the exemption if the behaviour is systematically or repeatedly committed. [83] "Black practices" occur where:

[83] See Article 6 (1)(6) to (12) and recital 20 of Regulation 1475/95.

* the manufacturer, the supplier or another undertaking within the network fixes resale prices or discounts;

* one of these undertakings directly or indirectly impedes final consumers, their intermediaries or authorised dealers from buying a vehicle where they consider it to be most advantageous;

* the dealer's remuneration depends on the final destination of a vehicle;

* the manufacturer or supplier interferes with the dealer buying spare parts of equal quality from a spare-part supplier of his choice;

* these undertakings interfere with sales by a spare-part supplier although the latter offers spare parts of matching quality;

* the manufacturer hinders spare-part producers from affixing their trade mark or logo on parts supplied for the initial assembly or for the repair or maintenance of vehicles;

* the manufacturer does not pass on technical information necessary for the maintenance of the manufacturer's vehicles to independent repairers without objectively justified reasons for such a refusal.

(58) The "black practices" can be unilateral and may be adopted by the manufacturer, importer or even by dealers. They have consequences only for the undertaking engaged in the practice: restrictive clauses agreed in favour of this undertaking which appear in the distribution and servicing agreements of that party, in the geographic area in which the objectionable practice distorts competition, are automatically and without any action on the part of the EU Commission or national authorities no longer block exempted.

3.3.4 Notice on Regulation 123/85 [84]

[84] Notice on Regulation 123/85, see footnote 4, page 7.

(59) This notice was adopted by the Commission together with Regulation 123/85. It has not been modified since and is still in force [85] and therefore also clarifies issues of relevance to Regulation 1475/95.

[85] See Commission press release IP(95) 648, 21.6.1995, p. 3.; since the entry into force of Regulation 1475/95 the clarification however only concerns those provisions which on substance have been left unchanged by this Regulation. This is not the case for example for Article 10 (4) of Regulation 123/85: see Article 8 (3) of Regulation 1475/95.

(60) At the request of the commercial sectors involved in car distribution, the notice was intended to construe rights and obligations contained in Regulation 123/85. It also sets out certain administrative guidelines for the withdrawal of the benefit of the block exemption.

(61) The notice highlights and tries to make workable the consumer's basic "right" [86] to buy a motor vehicle and to have it maintained or repaired wherever prices and conditions are most advantageous to him. In this respect, a number of key issues relating to parallel trade and competition within the Community are clarified.

[86] The word "right" in this context may give rise to misunderstandings, because neither Regulation 123/85 nor Regulation 1475/95 creates any obligation for dealers to sell a vehicle to a consumer which could be enforced by a consumer against a dealer.

* This "right" of a consumer exists, pursuant to the notice, first of all as regards the normal product range that the dealer offers to his incumbent customers. For passenger cars, this right [87] also exists as regards cars which correspond to vehicles distributed by a dealer but with the specifications marketed by the manufacturer in the Member State where the consumer wants to register the vehicle. [88] An example of such a car is a passenger car with right-hand drive. In order to allow British or Irish consumers to buy such cars from dealers in mainland Europe, the latter can order such cars from their manufacturers with the specifications of cars which are sold in the United Kingdom or in Ireland. [89]

[87] Article 5(1)(2)(d) of Regulations 123/85 and 1475/95 contains the so-called "availability clause".

[88] See Article 13(10) of Regulation 123/85 and Article 10(10) of Regulation 1475/95.

[89] Article 6(7) of Regulation 1475/95, leads to a similar result as Article 5(1)(2)(d) which concerns passenger cars. Pursuant to Article 6 (7) a manufacturer looses the benefit of the block exemption if it systematically or repeatedly refuses to deliver to its dealers, commercial vehicles, trucks or buses corresponding as regards their specifications to those in the country where the vehicles will be registered. The notice on Regulation 123/85 is therefore not up to date as regards this point. See also the section 6.3.2.2., page 110, of this report on the availability of vehicles for cross-border sales.

* The notice also makes it clear that the European consumer's freedom to source a vehicle or after-sales services wherever it is most advantageous may also not be jeopardised by direct or indirect bilateral or unilateral measures on the part of manufacturers or distributors. Examples of such actions are longer delivery times, a refusal to carry out warranty work or lack of cooperation in the event of difficulties with the registration of a new vehicle.

* As regards the possibility for consumers to purchase a new vehicle using the services of a mandated intermediary, the notice makes it clear that it is for the consumer or intermediary to give documentary evidence that the intermediary is acting on behalf and for the account of the consumer.

* As regards price differentials in Europe, the Commission may withdraw the benefit of the Regulation if prices differ substantially between Member States, and if these price differentials are chiefly due to obligations exempted by the Regulation [90]. However, the Commission declares in the notice that it will not investigate price differentials if they are not above 12% or if they do not exceed either a further 6% over a period of 12 months or if only an insignificant portion of motor vehicles is concerned. The same is true if taxes, charges or fees for a new vehicle amount to more than 100% of the net price or if the level of resale prices is subject to state measures for more than one year. The Commission will also take account of exchange rate fluctuations when investigating price differentials.

[90] See also recital 31 of Regulation 1475/95.

* As regards the sale of passenger cars corresponding to a model within the normal contract programme of a dealer, an objectively justifiable supplement can be charged in addition to the price for a similar product of the contract programme. This supplement has to be based on special distribution costs and differences in equipment and specification. Today such a supplement is charged if a British or Irish consumer purchases a right-hand-drive car in a left-hand-drive country, where that car corresponds to a left-hand-drive model within the normal contract programme of a dealer. The dealer may charge an objectively justifiable supplement (the so called right-hand-drive supplement) in addition to the normal price for the corresponding left-hand-drive product. The same principle applies where left-hand-drive cars are sold in a right-hand-drive country.

* In countries where taxes are above 100% of the net price of a car or where prices are subject to national measures, the notice also allows the charging of a "further supplement" for a passenger car due to be parallel exported. This "further supplement" can increase prices up to the prices in the cheapest country where no such taxes or price regulation exists [91].

[91] The text of the notice states that this supplement has to be a "further supplement" to the one charged for passenger cars corresponding to a model within the normal contract programme (see previous bullet point). This could be interpreted as meaning that no such supplement can be charged if a consumer buys a car out of the normal product programme of the dealer (for further details see also below pt. 0 on page 102).

3.3.5 Notice on intermediaries [92]

[92] Notice on intermediaries, see footnote 4, page 7.

(62) A basic objective of Regulations 123/85 and 1475/95 is to give consumers a real possibility of purchasing a new vehicle wherever they like in the single market. In order to facilitate such cross-border purchases, the Regulations consider it desirable for consumers to be able to appoint an intermediary to purchase and take delivery of a vehicle on their behalf. Accordingly, dealers have the right to sell and deliver a vehicle to final consumers who have appointed an intermediary. [93]

[93] Article 3(11) of Regulation 123/85 and Regulation 1475/95.

(63) However, experience showed that the scope of Regulation 123/85, as it relates to intermediaries, required further clarification. In 1991, therefore, the Commission adopted the notice on Regulation 123/85. Such clarification is important because dealers are not allowed to supply new motor vehicles to independent resellers.

(64) In its Decision in the Ecosystem [94] case, the Commission provided further clarification in 1991 of what is permitted to intermediaries and distiguished their activity from that of independent resellers. In order to give further guidance to all involved in motor vehicle distribution and to allow intermediaries to play their role in promoting trade in the single market, the Commission adopted its "notice on intermediaries" in 1991, based on the principles developed in the Ecosystem case. The notice is still valid today. [95]

[94] Commission Decision of 4 December 1991 ECO System v Peugeot, OJ L 66, 11.3.1992, p. 1, upheld by the Court of First Instance judgment of 22.4.1993 Peugeot v Commission, Case T-9/92 [1993] ECR II-0493, and the Court judgment of 16.6.1994 Peugeot v Commission, Case C-322/93P [1994] ECR I-277.

[95] See Commission press release IP(95) 648, 21.6.1995, p. 3.

(65) The notice describes the leeway that intermediaries have for the provision of their services to final consumers who have given them written authority to purchase a vehicle. The notice in essence sets out the following:

* Intermediaries have to avoid creating the impression, if they advertise, and in their contacts with consumers, that they are independent resellers. To this end, they have to clarify, for example, that prices quoted are best estimates, and they have to pass on to the customer all advantages obtained in the negotiations carried out on behalf of the purchaser.

* They may not assume risks of the ownership of the vehicles, but may provide other services in the context of the purchase of a new vehicle, such as the risk of financing the purchase of a motor vehicle in another Member State.

* Intermediaries may not establish a privileged relationship with dealers which is contrary to the obligation of the dealer not to appoint distributors or agents outside his contract territory or to actively seek customers outside his contract territory [96] or which undermines the dealer's obligation to endeavour to sell within his contract territory a minimum quantity of vehicles in line with his sales targets. In view of this, intermediaries may not receive higher discounts than those which are customary on the market (which would indicate that the intermediary acts as a sort of sub-distributor outside the dealer's allotted area and thereby undermines the exclusive character of the distribution system). Moreover, a dealer may not sell more than 10% of his sales through any one intermediary since it is said that this would jeopardise and run counter to the dealer's obligation to fulfil his sales targets.

[96] Article 3(8)(b) of Regulation 123/85; this prohibition has been limited in scope by Regulation 1475/95, Article 3(8)(b) which only prohibits personalised advertisements outside the contract territory.

3.4 Further Commission action in the area of motor vehicle distribution with a view to promoting parallel imports and contributing to the completion of an Internal Market

3.4.1 Explanatory brochure

(66) In order to specify the regulatory framework amended by Regulation 1475/95, the Commission published a brochure in 1995 in all Community languages. [97] This legally non-binding guide to the Regulation explains the rights and obligations of manufacturers, dealers, spare-part producers and independent repairers. It also provides consumers with detailed information on their freedom to buy a new motor vehicle directly or via an intermediary in another Member State of the European Union, to claim the producer warranty and to have the vehicle serviced anywhere in the Community from a dealer belonging to the network of a manufacturer.

[97] Document IV/9509/95; available on the Internet under: http://europa.eu.int/comm/dg04/aid/en/car.htm.

3.4.2 Hotlines

(67) Consumers often face problems when buying a car in another Member State. They tend to turn to the Commission first, which refers them to the manufacturer or importer concerned. One of the Commission's instruments in dealing with such consumer letters has been the establishment, at the Commission's request, of telephone "Hotlines", also known as "Help Lines", by most car manufacturers. [98] Where consumers experience problems in buying a car abroad, they may directly contact the car manufacturer concerned, who can supply the requested information or refer them to a dealer.

[98] See: http://europa.eu.int/comm/dg04/aid/en/car_hotlines_en.htm.

3.4.3 The Commission's car price report

(68) Since 1993, the Commission has published a report on car prices within the EU every six months (on 1 May and 1 November, respectively). [99] These reports, [100] of which currently more than 4 000 copies are sent out, attract a large degree of interest from consumers and their associations.

[99] Pursuant to Article 11 of the Regulation, the Commission has to evaluate on a regular basis the application of the Regulation with a particular focus on price differentials between the different Member States. Such is the purpose of this report.

[100] An extract of each report, which figures among the most popular publications of the Directorate-General for Competition, is also made available on the Competition Directorate-General website: http://europa.eu.int/comm/dg04/aid/en/car199911.pdf.

(69) Until 1998, prices were published for only twelve of the fifteen Member States, excluding Denmark, Finland and Greece by reason of the high taxes imposed on car purchase in those countries. With the introduction of the euro, it was decided from 1 May 1999 to include car price data for all fifteen Member States, with a distinction being made between, on the one hand, the eleven participants of the euro zone and, on the other hand, the four non-participants.

(70) Prices for the 75 most frequently sold car models are expressed in euro and national currencies, excluding and including taxes. The report also contains prices for some major specifications and for the right-hand-drive supplement requested for such right-hand-drive cars sold in mainland Europe.

(71) The prices published in each car price report are analysed as regards the development of price differentials within the European Union. The result of this analysis is published in press releases [101] which accompany the publication of the report.

[101] For the most recent press release on car prices on 1.5.2000, see IP/00/781 of 13 July 2000; also published on the Internet under: http://europa.eu.int/comm/dg04/aid/en/car.

(72) The report has created greater price transparency on recommended retail prices and induced consumers to acquire cars in another Member State where prices are lower. Such parallel trade, if substantial enough, should be an important market-related factor for reducing price differentials.

3.5 Alleged benefits of the existing regulatory framework governing car distribution and servicing agreements for manufacturers, dealers and consumers and other parties

(73) It is generally argued [102] that the current distribution system operated in the single market has brought benefits for parties involved in motor vehicle distribution and servicing. Annex II lists the benefits generally cited.

[102] See e.g. ICDP, Research Report 4/98, "Beyond the block exemption, an analysis of vertical restraints and retail competition in the European Car Industry" by A. Tongue and J. Brown, hereinafter: ICDP "Beyond the block exemption", 4/98. On pages 25 and 27, this paper lists in more detail the benefits that it believes the current system of distribution has brought to the various categories of operators concerned. It also explains the burdens that the system creates for dealers.

4 Motor Vehicle distribution: The Facts

4.1 Structure of EU car and spare-parts distribution

4.1.1 Car manufacturers: description of the market, market shares and brands

(74) A large number of manufacturers are active on the European market: there are eight large groups and a number of Japanese, Korean and smaller European suppliers (see diagram below). In 1998, motor vehicle production in the European Union amounted to 16.6 million units, of which 14.5 million were passenger cars.

(75) Trade in motor vehicles between the European Union and other countries is substantial. Major destinations for exports are the NAFTA zone, western and eastern European countries and Japan, while imports are mainly from Japan and eastern European countries. The trade balance in motor vehicles shows a currently high export surplus for the European Union, amounting to EUR20.1 billion in 1998.

(76) New passenger car registrations amounted to 14.37 million in 1998, and rose by 4.9% to 15.08 million in 1999. [103]

[103] See also, for further details, ACEA, www.acea.be.

(77) The western European car market is very close to maturity [104] and new car sales generally serve to replace old cars. Moreover, the import limitations for Japanese cars introduced in 1989 have been abolished as of 1.1.2000. [105] The industry is characterised in general by persisting excess production capacity and, consequently, unsatisfactory capacity utilisation. [106] However, this varies from one manufacturer to the other and may also depend on the lifecycle of a car model; in particular a temporary lack of capacity may occur if the production of a new car model starts. In recent years, the industry has also been characterised by an accelerating process of restructuring, including take-overs, mergers, as well as cooperation in various areas between car manufacturers. [107]

[104] See ICDP "Future of the dealer- the evolving retailer", 4/99, p. 10; ICDP "Beyond the block exemption", 4/98, p. 10; A. Card in: OECD Proceedings, "Market Access Issues in the Automobile Sector", July 1997, by M. Harbour, (hereinafter: OECD, "Market Access Issues in the Automobile Sector"), p. 95.

[105] The import limitations for Japanese cars still existed when Regulation 1475/95 was adopted in 1995.

[106] See, for example, ICDP , "Beyond the block exemption"", 4/98, p. 43; ICDP ,Revenue management - how the car industry can learn from airlines" by Jonathan Brown, Managment Briefing n° 2, p. 8.

[107] See, for example, for mergers/take-overs BMW/Rover (Commission Decision M.416, 14.3.1994), Ford/Mazda (Commission Decision M.741, 24.5.1996), Toyota/Daihatsu (Commission Decision M.1326, 6.11.1998), Daimler-Benz/Chrysler (M.1204, 22.7.1998), Renault/Nissan (Commission Decision M.1519, 12.5.1999), and Ford/Volvo (Commission Decision M.1452, 26.3.1999).

(78) There are more than 40 brands with a total of about 250 models, including an increasing number of "niche" products [108] competing for customers in the European Union. Product cycles are becoming increasingly shorter, since the industry is under pressure to offer improved products. Moreover, car manufacturers are tending to increase product differentiation.

[108] For example, multi-purpose vehicles, off-road vehicles, convertibles, coupés.

(79) In fact, as indicated below, the six leading manufacturers with market shares above 10%, representing about 20 brands, together have a market share of 74%. [109] The rest of the car market is shared between two other European car manufacturers (+/- 11%), Japanese manufacturers (+/- 12%) and Korean manufacturers (+/- 3%) (see following diagram). Although the European car market is characterised by the presence of only few large suppliers, market concentration is less advanced than in the US and Japan. [110]

[109] As to the car market in the United Kingdom, see UK Competition Commission report, pt. 2.82 et seq.

[110] While in the European Union, the three largest car manufacturers (Volkswagen group, PSA group and General Motors group) had a combined market share of 41% (1998), the three major groups in the USA (General Motors, Ford and DaimlerChrysler) attained a combined market share of 72% (1998; source: www.autofacts.com), and the three major groups in Japan (Toyota, Nissan and Honda) had a combined market share of 59% (1998; source: www.japanauto.com).

Diagram 2: Market shares

>TABLE POSITION>

* New car registrations; source: ACEA (Association des Constructeurs Européens d'Automobiles), www.acea.be

4.1.2 Manufacturers' distribution networks

General structure of the network:

(80) Several different types of operators are involved in the distribution of new vehicles. The following diagram gives an overview of existing distribution channels:

(81) The vehicles are supplied to consumers in the following ways by manufacturers or, where relevant, by the national importers:

* directly by using subsidiaries/agents; or

* indirectly by using dealers; or

* through combined systems using subsidiaries and/or agents and also dealers.

Diagram 3: Distribution demands in the automotive industry

>REFERENCE TO A GRAPHIC>

Based on: ICDP, Multi-Franchising, Research Paper No 1/98, exhibit 2.

(82) As described earlier, [111] retail distribution of cars is based on exclusivity and selectivity. It follows that manufacturers either entrust a limited number of undertakings with the distribution of cars within a given contract territory or appoint importers with a dealer network. As each car manufacturer applies the same principles, car distribution as a whole is characterised by a system of almost identical distribution networks (also referred to as the "cumulative effect"). [112]

[111] See subsection 0, page 10, of this report.

[112] See pt. (20) of this report.

(83) In general, except for their home country, manufacturers appoint one supplier for each Member State (generally referred to as the wholesaler or the importer), who concludes individual distribution contracts with dealers located in this Member State. [113] Importers are in most cases directly owned by the manufacturers. [114]

[113] The following exceptions have been found: Fiat has appointed two importers respectively in Greece and Portugal; in a number of cases (in particular Japanese manufacturers), Luxembourg is handled by the Belgian importer, and in one case (Rover) imports into Finland and Sweden are handled by the importer of its parent company (BMW). The German importer of Honda also handles distribution in Belgium, Luxembourg, the Netherlands and Austria, while its French importer also serves the Italian and Spanish markets. General Motors Europe performs a co-ordinating role in distribution throughout Europe, while actual distribution is undertaken by National Sales Organizations primarily owned by General Motors Corporation (GMC, USA); Adam Opel (D), Vauxhall (UK) and GM Espana are all directly owned by GMC and have significant manufacturing operations. A comparable situation prevails for Ford of Europe.

[114] Only a small number of dealers are owned by a manufacturer or a supplier. However, a small number of producers rely on independent importers for distribution of their brand; this is true in particular in the case of Volkswagen and some Japanese manufacturers.

(84) Manufacturers generally sell cars either to their dealers, or to their respective importers located in other Member States. The importers sell the cars they have purchased from their manufacturer on to their dealers. The bulk of the cars delivered to dealers are usually sold to final consumers. The remaining cars are sold on to sub-dealers or distributed by dealers' agents to final consumers.

(85) Retail distribution is assumed by a large number of mostly independent, small and medium-sized dealers. [115] In addition to entering contractual relationships with their manufacturer or importer, main dealers may be allowed to conclude contracts with sub-dealers. Certain manufacturers also use subsidiaries or agents for distribution of their cars; these may order cars either directly from their manufacturer or importer, or indirectly through a main dealer. [116]

[115] In particular the French producers PSA and Renault control a more significant number of their dealers, and DaimlerChrysler realise a great deal of its sales in Germany through wholly-owned "Niederlassungen" and independent undertakings called "agents".

[116] In Germany, Volkswagen and Audi service outlets act as commercial agents for a main dealer or for a sub-dealer. Also in Germany, DaimlerChrysler is distributing its cars through affiliates ("Niederlassungen") and "agents", which order cars from one of the affiliates or from another "agent". In Italy, DaimlerChrysler uses some of its service outlets as "agents", which order cars from a main dealer. Other Italian service outlets of DaimlerChrysler are sub-dealers. DaimlerChrysler "agents" sell in the name and act on behalf of the manufacturer or importer with whom he has concluded an agreement.

(86) Manufacturers generally reserve certain customer groups for direct selling with or without involvement of a dealer. [117] For these sales, manufacturers grant high rebates normally well above the rebates granted to their dealers for individual orders.

[117] A great part of direct sales generally concerns the manufacturers' staff, in particular in Member States where the manufacturer has production facilities, and other reserved customer groups such as armed forces, diplomats or employees of suppliers, who normally submit individual orders. In addition to that, manufacturers supply - either directly or assisted by a dealer - to fleet owners, such as national authorities, leasing and rental companies, and other undertakings which normally order larger quantities. The proportion of direct sales in manufacturer's total sales varies with the Member State concerned and may attain 20% of total sales. A particular situation occurs in the United Kingdom, where up to 80% of all sales are so-called "direct" and "assisted" fleet sales, while in Germany, as the next most important market for fleet sales, they account for about 40% of total sales; see: Consumers' Association 2000, "The forecourt revolution: the future of the car industry", Policy Report (hereinafter: CA 2000 "The forecourt revolution").

(87) The following diagram compares the main characteristics of the car distribution systems prevailing in the US and in Japan, which are also based on a manufacturer/dealer relationship with the following features:

Diagram 4: Principles of car distribution in the EU, the US and Japan

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Based on ICDP, "Beyond the block exemption", Research Report 4/98, p. 21 - 24; OECD Proceedings, "Market Access Issues in the Automobile Sector", 1997, p. 158 ss; information supplied by ICDP, manufacturers or their associations.

(88) As may be seen from the above diagram, the characteristics of the European and US systems of car distribution are largely comparable, while certain differences exist between them and the car distribution system in Japan. However, American dealers are said to be in a much stronger position towards car manufacturers e.g. as regards the termination of dealers' contracts, which is very difficult and costly for the manufacturer. Moreover the rules on multi-marketing are less strict. Manufacturers are also obliged by law to provide dealers with a fair supply of new vehicles or face penalities. In the USA guaranteeing the independence of dealers is seen as a means of protecting consumer choice. [118]

[118] ICDP "The US Legal Framework for Car Distribution" by Philip Wade, Executive Briefing, 9/2000. In the USA the key laws affecting automotive distribution are mostly state laws. In Japan the Antimonopoly law does not contain detailed rules on motor vehicle distribution like in the EC block exemption regulation.

Retail distribution:

(89) In 1998, a total of 113 400 distributors existed in the European Union, [119] of which 66 100 were main dealers. Between 1996 and 1998, the car industry reduced the number of dealerships across the Community by about 6%.

[119] ACEA; European Car Distribution Handbook 1998; CECRA (European Council for Motor Trades and Repairs) estimates that currently about 100 000 dealerships (including sub-dealers) are involved in car distribution.

(90) The dealership structure in many Member States has in the past been characterised by a "two-tier" dealer network with main dealers and sub-dealers. The importance of this aspect varies substantially, however, with the brand and the Member State concerned. [120] The proportion of secondary dealers is relatively high in countries such as France, Italy and Spain, whereas in countries such as Germany, the United Kingdom and the Netherlands, they play only a minor role. [121]

[120] Few sub-dealers, or none at all, are involved in the distribution of the Seat, Citroën, Honda, BMW and Renault brands. Sub-dealers are much more frequently made use of in the distribution of the Mercedes-Benz, Fiat, Volkswagen and Toyota brands. See also ACEA / European Car Dealer Handbook 1998; M. Habour in: OECD, "Market Access Issues in the Automobile Sector" p. 155; Financial Times Automotive, "The Future of Automotive Distribution, Evolution or Revolution-, A.T. Kearney, 1998, p. 12, which, however, gives a different picture.

[121] In most southern European markets such as France, Italy and Spain, the number of sub-dealers in comparison to main dealers is particularly high, while in other markets, such as Denmark, Greece, Ireland, the Netherlands, Portugal and the United Kingdom, sub-dealers play a very limited role; see also: CA 2000, "The Forecourt Revolution", p. 22.

(91) Many manufacturers have started to eliminate smaller dealers from their distribution networks in order to better control service standards and brand image. They have an incentive to rationalise their networks to ensure the viability of the remaining dealers and to facilitate contacts and negotiations with the networks. Consequently, dealers' contract territories will be larger in the future. At the same time, however, the dealers want to remain close to the customer. [122]

[122] An example of this development is Ford, which has converted its smallest dealers into pure service outlets. The declared objective was to provide better quality, consistent servicing across the network and a more professional overall brand image.

Features and economic situation of dealerships:

(92) In Europe, distribution costs, which include advertising, marketing support, transport and other costs, are often said to represent up to 30% of a vehicle's retail price before tax, a percentage which is higher than the figure for vehicles sold in the United States (25-27%) but similar to that for the Japanese car market (29-31%). [123] This relatively high proportion for the European market indicates that there is, in principle, real scope for cost reduction through network consolidation and distribution efficiency improvements in the context of the move towards "lean distribution" systems for new motor vehicles. However, the consolidation of the European dealership structure has so far been rather moderate.

[123] FT "The Future of Automotive Distribution, Evolution or revolution-", 1998, p. 33; CA 2000, "The Forecourt Revolution", p. 20.; in this context, see also the overview: ICDP, "Beyond the block exemption", 4/98, p. 16, Chart: "Car Advertising Expenditure in France - 1996".

(93) The average number of annual sales per dealer varies considerably between Member States. In the European Union in 1998, a dealer (including main dealers and sub-dealers) sold on average 137 cars, while a main dealer sold 223 cars. [124] While dealers in the United Kingdom, Ireland, Italy, Portugal and Spain generally sell much more than the average, sales in Germany and the Netherlands correspond to the average. Sales per dealer in all the Nordic countries, Greece, France, Belgium and Austria are below the average. [125] Sales per main dealer outlet vary considerably across the European Union and range from 422 in Italy to only 95 in Sweden.

[124] ACEA.

[125] See ACEA / European Car Dealer Handbook, 1998 (sales per dealer outlet in Germany and the Netherlands of 133 corresponded to the average); ICDP, "Multi-franchising, Developments and Impact of Sales Channel Management of Automobile Manufacturers", by M. Hoffmeister and R. Heinerberg, Research Paper 1/98, (hereinafter: ICDP, "Multi-franchising" 1/98), p. 24.

(94) There are also big differences as to the number of dealerships in relation to population and size of the Member State (dealership density). While the density is relatively high in the geographical centre of the European Union, [126] it is much lower in other countries. [127]

[126] Austria, Belgium/Luxembourg, Germany, Denmark, France, Netherlands.

[127] Spain, Finland, Greece, Ireland, Sweden, United Kingdom.

(95) Profitability of dealerships relies on new car sales margins which are relatively low and are often supplemented by additional manufacturer bonuses. Other linked activities - sales of used cars and credit broking - can add significant extra revenue to dealers. Currently, after-sales service is - as a rule - more profitable than new car sales activity. [128] However, in comparison with other forms of retailing, car dealer groups' profitability is said to be rather low. [129]

[128] See OECD, "Market Access Issues in Automobile Sector" points 7-11.

[129] ICDP, "Beyond the block exemption", 4/98, p. 29-30.

(96) The wholesale price is the recommended retail price determined by the manufacturer, the supplier or the importer, less the margin. The main element of the margin granted to dealers for each car to be sold is the difference between the recommended retail price [130] of a car and the price which dealers pay to their supplier. It generally ranges from 10 to 18%. [131] One particular feature of this main element of the margin is that it is identical for all dealers of a given Member State for a specific model, irrespective of their size or the volumes ordered. This is recognised as a distinctive practice in car retailing in contrast to retailing of other consumer products. The margin allows the dealer to cover his administrative and operating cost, and to grant discounts to his customers.

[130] The so-called "list prices".

[131] OECD "Market Access Issues in the Automobile Sector", p.8. Section 6.2.1.3 of this report gives more precise figures provided by car manufacturers.

(97) As another element of the margin dealers are generally granted bonuses by their manufacturers or importers for achievement of sales targets and other, mostly customer-related, objectives. Bonuses are fixed either as a percentage or as an absolute amount for each car sold. Bonuses are granted upon achievement of certain quantitative objectives (generally sales volume or market share) and other, qualitative objectives (for example, customer satisfaction and quality of service or premises). Bonus payments to dealers can attain the equivalent of 1 to 4% of a new car selling price. [132]

[132] See also OECD, "Market Access Issues in the Automobile Sector ", points 7 to 11.

(98) As regards the proportion of both elements of the margin in the total remuneration, substantial differences exist in the systems applied by manufacturers. This can be true for different makes of the same manufacturer, and also for the systems applied in different Member States for the same brand. [133]

[133] CA 2000, "The Forecourt Revolution".

(99) A similar system of margins applies to spare parts, which the dealer purchases from his supplier. Margins for spare parts are generally higher than for new cars, and the granting of discounts to customers is not common practice.

(100) New sources of revenue are also emerging for dealers (selling of insurance, financing, leasing etc.), which are liable to improve dealers' profitability.

4.1.3 Multi-brand dealerships

(101) Since 1995, manufacturers have had to allow dealers to sell a second (or more than one) brand, generally from separate premises. [134] However, true multi-brand dealerships, where dealers sell brands from different manufacturers not belonging to a same group, are rare. In most cases where a dealer sells a second brand, this brand belongs to the same manufacturer, the most significant examples being Volkswagen/Audi and Fiat/Alfa Romeo/Lancia.

[134] Articles 3 and 4 of Regulation 1475/95.

(102) Across the European Union, 75 to 80% of all main dealers sell only one brand. The following diagram gives an idea of the proportion of exclusive main dealers in different Member States:

Diagram 5: Percentage of exclusive main dealers

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Sources: ICDP, "Multi-Franchising" p. 36 (for 1997); European Car Distribution Handbook 1998 (for 1998).

(103) While these proportions have been relatively stable over the years, distribution networks in the Nordic countries [135] are traditionally much more open to multi-brand arrangements than other markets. More frequently, dealers whose first brand has a low market share tend to take on a second brand, even from another manufacturer.

[135] Because these countries are large and thinly populated, single-brand dealerships are not a viable economic option.

(104) In Sweden, before 1970, a system consisting of mutual exclusive distribution contracts combined with territorial clauses between the dealers was applied for car distribution as well as in neighbouring industries. However, this situation was dissolved by the Competition Ombudsman in Sweden in 1970. The landmark case was BIVA, [136] where the Competition Ombudsman initiated proceedings under the 1953 Competition Act against Volvo, Saab and Volkswagen because of their refusal to supply the co-operative owned car (department) store called BIVA with new cars due to fear of multi-dealership. As a result of the arrangements between the Ombudsman and the undertakings concerned, car dealers were allowed to sell competing car brands from the same sales premises and to pursue passive sales outside their territory. [137]

[136] NFR 1970:2.

[137] See also (NO 1972:24, 1973:36) Bernitz, Ulf, Marknadsrätt p. 86, Juristförlaget, second edition 1986.

(105) In the United States, multi-brand dealerships are more common. The analysis shows, however, that dealers are taking complementary franchises rather than franchises for products which directly compete with the products they are already distributing. Typically, one US dealer will sell one of the big three American car makes and add one European or Asian make. However, only 2% of US dealers are "duals" with competing American makes. [138]

[138] OECD, "Market Access Issues in the Automobile Sector", p. 11 and 12.

4.1.4 Spare parts

Production of spare parts:

(106) Spare parts used for the maintenance and repair of vehicles are primarily original spare parts (original equipment supplies) or spare parts of matching quality (independent after-market - IAM -), which are products corresponding in quality with those produced by the car manufacturer. [139]

[139] The commercial policy followed to date by car manufacturers and component manufacturers aims to promote high quality parts. Thus, sales of spare parts of non-corresponding quality with the original ones are considered negligible.

(107) Original spare parts account for approximately 49% of total spare-part production. They can either be produced directly by car manufacturers (19% of total production), or be purchased by the car manufacturers for the equipment of their new vehicles from independent producers. Outsourcing accounts for 30% of total spare-part production. [140] In this case, spare-part producers co-operate with the car manufacturer in the development of parts and components, and, to this end, invest in research and development programmes, the cost of which can attain 5 to 10% of their annual sales. It is expected that in the near future, in order to counterbalance the contractual power of car manufacturers, suppliers of spare parts will merge and will become system integrators, providing complete systems for each commodity area (chassis, body, powertrain and interior). Recently, some car manufacturers have introduced on the market new brands for their spare parts, which are characterised by a low price and are to be installed on old vehicles. [141]

[140] The trend towards outsourcing has become very common among car manufacturers; for more details see D. Audet: "L'accès au marché dans le secteur automobile," p. 30, published in l'Observateur of l'OECD, December 1999.

[141] In particular, Renault introduced the new brand "Motrio" and Ford the brand "Motorcraft". "La pièce adaptable detrônera-t-elle l'origine -", Auto Info, 1099, 21.1.2000, p. 34; Guaranteeing Survival of the Independent Aftermarket, PriceWaterhouseCoopers for FIGIEFA - FMA/FAM, May 2000, slides 36 et seq. (hereinafter PriceWaterhouseCoopers, "Guaranteeing Survival", May 2000).

(108) Non-original spare parts account for 51% of total production, and they are frequently priced up to 30% below prices of corresponding original spare parts. This percentage includes spare parts matching the quality of original spare parts and other spare parts of lesser quality. [142]

[142] "La pièce adaptable détrônera-t-elle l'origine -", Auto Info, 1099, 21.1.2000, p.34; For example, Lear Corporation Plc manufactures spare parts both for Fiat Auto SpA and for the independent after-market - IAM -, UNIPART manufactures spare parts both for Honda and for the IAM. This element is underlined by several Commission decisions regarding merger operations between spare-parts producers, Decisions of 31 July 1991, Case IV/M012 Varta v Bosch (OJ L 320, 22.11.1991, p. 26) and of 29 May 1991, Case IV/M043 - Magneti Marelli v CEAc. (OJ L 222, 10.8.1991, p. 38) and Commission Decision of 15 October 1993, Case IV/M.337 - Knorr-Bremse v Allied Signal (OJ C 298, 4.11.1993)..

Distribution of spare parts:

(109) The distribution of original spare parts and that of non-original spare parts differ in some respect:

* original equipment is sold by car manufacturers through their official networks. This distribution organisation is very accurate and requires a rapid delivery system which necessitates stockholding, marketing support, packaging, additional sales personnel and technical training in maintenance and repair;

* non-original equipment is sold to dealers, in particular as regards spare parts of matching quality, but it is mainly supplied to other repairers as well as to distributors who can be generalists or specialists as well as "do-it-yourself" outlets, which directly supply the consumer for work he can carry out himself. The distribution chain of non-original spare parts involves distributors acting at different levels (national, regional, local). The current distribution chain contains some inefficiencies in terms of time of delivery and costs, which will be avoided in the near future with the introduction of new technologies, the reorganisation of the distribution system and the offer of new services to independent repairers.

(110) Spare parts manufactured by independent producers are usually sold to independent garages for price and competitiveness reasons. Supplies from independent producers to car manufacturers' official networks are said to consist almost exclusively of parts for vehicles of other brands. Dealers, although they could potentially purchase parts from other sources than the car manufacturer, [143] would be reluctant to do so because of their dependency on the vehicle manufacturer.

[143] Recital 27 and Article 6(1)(9) and (10) of Regulation 1475/95; see also section 0, page 82 and section 0, page 93 of this report.

(111) The production of the various types of spare parts can be illustrated by the following diagram:

Diagram 6: Production of spare parts

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(112) The distribution system can be illustrated by the following diagram:

Diagram 7: Distribution of spare parts

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Source: CLEPA (Comité de Liaison de la Construction d'Equipements et de Pièces d'Automobiles, European Association of Automotive Suppliers, Automotive Aftermarket in Europe, 5 November 1999. (N.B. Dotted arrow ( ) added by the Commission).

(113) Figures provided by CLEPA in the above diagram concerning distribution of spare parts partially differ from those provided by car manufacturers in their replies. Car manufacturers estimate that spare parts of matching quality represent from 5% to 20% of their official networks' requirements, while CLEPA said that this portion is limited to 8%. FIGIEFA, the association of automotive after-market distributors, estimates that this percentage amounts to +/- 15%.

4.2 After-sales servicing

4.2.1 Structure

(114) After-sales servicing is carried out by:

* network dealers belonging to the network of vehicle manufacturers;

* service outlets (about 119 000 in 1998) established by manufacturers;

* independent repairers;

* "fast-fit" repair chains, some of which are owned by car manufacturers.

(115) Dealers and service outlets focus mainly on after-sales services for vehicles of one make; in contrast, the independent repairers and fast-fit chains generally provide repair and maintenance for cars of different brands. [144] However, repair and maintenance under the manufacturer's warranty period is in principle executed by dealers of the make concerned, while after this period, customers use independent repairers for repair and maintenance. For certain routine work, customers also turn to fast-fit chains, auto centres or similar. The importance of the different players in the after-sales market is illustrated by the following diagram.

[144] This is also true for authorised dealers, who have to prepare for resale second-hand cars taken in with the sale of a new car.

Diagram 8: Shares of the different after-sales service providers for brake pad fitment, 1997

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Source: Autopolis (GIPA)

(116) The following diagram illustrates the specifications of the different providers of after-sales services:

Diagram 9: Specifications of the different providers of after-sales services

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(117) It has been observed that there is an overall trend towards a reduction in the number of service points (down 6% during the period 1996 to 1998), [145] partly as a response to longer service intervals and greater reliability of cars in general, a phenomenon which may increasingly affect dealers' commercial situations. [146]

[145] ACEA / European Car Dealer Handbook, 1998.

[146] ICDP, "Beyond the block exemption II", 6/99, p. 15-18; CA 2000, "The Forecourt Revolution" p. 28.

(118) The following diagrams show that the after-sales-service requirements of newly launched cars are on a decreasing trend. This is true for the number of inspections made [147] as well as the time needed for them.

[147] Cars sold in the 1970s had to be serviced every 5 000 km; today the service