Opinion of the Economic and Social Committee on the "Draft Commission Regulation on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle industry"
Date: 2002-05-29
Institutions: European Economic and Social Committee
Subjects: competition law, distributive trades, motor vehicle industry, sale, vertical agreement

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Opinion of the Economic and Social Committee on the ‘Draft Commission Regulation on the
application of Article 81(3) of the Treaty to categories of vertical agreements and concerted
practices in the motor vehicle industry’

(2002/C 221/04)

On 11 February 2002, the Commission decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned Draft
Commission Regulation (1).

The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 8 May 2002. The rapporteur was
Mr Regaldo.

At its 391st plenary session (meeting of 29 May 2002), the Economic and Social Committee adopted the
following opinion by 90 votes to one with three abstentions.

1.

Introduction

1.1.
Article 81(1) of the Treaty prohibits companies from
making agreements that restrict competition and distort
trade between the Member States. However, under Council
Regulation 19/65/EEC, the Commission may rule, on an
individual basis or by means of a regulation, that the prohib-
ition made in paragraph 1 is not applicable to a given
agreement or category of agreement between companies, by
virtue of paragraph 3, providing the four conditions specified
are met.

1.2.
As far as Article 81 of the Treaty is concerned,
vertical distribution and after-sales servicing agreements in the
automobile industry are currently governed by Regulation (EC)
No 1475/95, which expires on 30 September 2002.

1.3.
Experience acquired with this type of agreement,
starting back in 1974 with the BMW decision, continuing in
1985 with the adoption of Regulation (EEC) No 123/85, and
confirmed in 1995 by the current Regulation (EC) No 1475/
95, has enabled the Commission to define categories of vertical
agreement that have over time met the conditions laid down
in Article 81 (3).

1.4.
The Commission has raised questions about whether
the system, which combines selective and exclusive distribution
and provides a single model for motor vehicle distribution,
fulfils the requirements of Treaty Article 81 (3), which
authorises agreements between companies providing they
contribute ‘to improving the production or distribution of
goods or to promoting technical or economic progress, while
allowing consumers a fair share of the resulting benefit’.

least,

Developments

the importance of

1.5.
in the process of evaluating the
implementation of Regulation (EC) No 1475/95 described in
the Commission report (2), studies on the development of
techniques for managing the distribution structure (3) and on
consumer preferences in automobile distribution (4) and, last
but not
the new approach to
competition policy in the area of vertical restraints with the
adoption of Regulation (EC) No 2790/99, have led the
Commission to the conclusion that the current rules laid down
in Regulation (EC) No 1475/95 are out of date.
In the
Commission’s view, the current regulation can no longer
respond properly to the structural changes in the market.
Neither can it meet the needs of consumers, who will not
benefit fully from the advantages of the system until the
conditions are right for greater competition, allowing them to
exploit the single market by buying their cars in the Member
State where prices are lowest. Hence the need to draft a
new block exemption regulation on vertical agreements and
concerted practices in the motor vehicle industry for distri-
bution and customer services.

1.6.
Following the consultation procedure, and once it has
been adopted formally by the Commission, the new regulation
should come into force on 1 October 2002. A one-year
transition period ending in October 2003 is planned to allow
time for current contracts to be adapted. The regulation will
expire on 31 May 2010 in order to coincide with the expiry of
Regulation (EC) No 2790/99 governing the general block
exemption applicable to vertical agreements.

( 1) OJ C 67, 16.3.2002.

(2) COM(2000) 743 final of 15 November 2000.
(3) ‘Study of the impact of legislative scenarios about motor vehicle

distribution’, Andersen Consulting.

(4) ‘Customer preferences for existing and potential sales and servicing

alternatives in automobile distribution’, Dr. Lademann.

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2. The new legal framework for the distribution of

2.4.

In the area of after-sales services:

motor vehicles and related services

2.1.
The new draft regulation based on the new competition
policy regarding vertical restraints defined in the general
regulation (EC) No 2790/99 is radically innovative. While
being stricter, it is in fact less prescriptive and more flexible
than the previous regulation (EC) No 1475/99.

2.2.

The main innovations are the following:

— There will be differentiated market thresholds: 30 % for
exclusive distribution, 40 % for selective distribution, and
30 % for the distribution of spare parts and services.
There will be no single set model for distribution and it
will no longer be possible to combine exclusivity and
selectivity as under the current system.

— There will be a series of options for manufacturers,

distributors and resellers to choose from.

— Producers will be able to opt for agreements on:

— exclusive distribution;

— selective qualitative distribution;

— selective qualitative and quantitative distribution.

— A black list will be drawn up of hardcore clauses that
is
cannot be exempt, applying the principle that all
permitted except that which is specifically prohibited.

Other significant elements designed to further enhance

2.3.
competition and expand consumer choice are:

— Heightened (intra-brand) competition between distribu-
tors in the Member States and market integration in
selective distribution systems, through:

— freedom to carry out active sales (personalised

e-mails/Internet),

— the elimination of the location clause;

— The sales/after-sales link has been restructured in order to
allow distributors to choose whether to provide the
service or subcontract it to official repairers.

— Independent repairers may become official repairers,

providing they meet the manufacturer’s quality criteria.

— Official distributors (dealers and authorised garages) will
be obliged to provide warranties and services for new
vehicles throughout the EU.

— The location and non-compete clauses will not apply to

official repairers.

— Repairers that are part of the motor vehicle distribution
network, spare parts distributors, final users and indepen-
dent repairers will be free to acquire original parts from
the producer of those parts or from another third party
of their choice.

— The producers of original spare parts will be free to apply
their brand-name or logo to their products whether they
are supplied to the motor vehicle manufacturer or to the
repairers for replacements. The authorised repairers will
be able to use spare parts of equivalent quality for vehicle
repair and maintenance, although they will be obliged to
use original spare parts supplied by the manufacturer
during the warranty period.

— Manufacturers must give independent repairers access to
all technical information, diagnostic and other equipment
and tools, including all relevant software, and the training
necessary to repair the vehicles.

A manufacturer terminating a contract with a dealer
2.5.
must give reasons. Disputes between suppliers and distributors
must be referred to an independent arbitrator or expert third
party.

— the development of widespread multi-branding;

3. General comments

— expansion of the role of intermediaries and those acting

on behalf of consumers;

— an obligation on exclusive distributors to sell to indepen-
dent resellers that are not members of the network;

— no limits on passive sales and an availability clause for all
motor vehicles, setting of sales targets, product delivery
systems and bonuses based on EU rather than national
level.

3.1.
The Committee would note that the new proposal,
which is highly innovative, can be welcomed in principle as it
ties in with the scenario suggested by the Committee in its
previous opinions on Regulations (EEC) No 123/85 and (EC)
No 1475/95 (on automobile distribution), Regulation (EC)
No 2790/99 (on the general rules governing vertical agree-
ments) and lastly its opinion on the Evaluation Report on
Regulation (EC) No 1475/95, which it adopted on 30 May
2001.

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3.2.
In the conclusions of this last opinion, the Committee
declared itself to be in favour of the establishment of a block
exemption for motor vehicle distribution and recommended
that the Commission explore ways of modifying and extending
the current regulation. In addition, in the same opinion, the
Committee stressed that ‘The primary aim of the new Regu-
lation should be to raise the overall level of competition in
order to improve consumer well-being and safety, and the
operation of the single market. In order to achieve these
objectives, the new Regulation should have a practical impact
in providing greater protection for dealers and promoting the
SMEs operating in the European car sector’ (1).

3.7. More specifically, the introduction of market quota
thresholds, with percentages differentiated by the type of
distribution chosen in advance, will mean that vertical agree-
ments under the thresholds set can be presumed to be
compatible with the block exemption, whereas those above
the threshold, though not necessarily illegal, will be eligible for
an individual assessment based on the guidelines on vertical
restraints. However, regardless of thresholds, the block exemp-
tion will not be allowed if the black list of hardcore restrictions
that cannot be exempt (owing to serious adverse effects on
competition) is disregarded.

The Committee is pleased to note that the new

3.3.
Regulation responds in large part to these concerns:

— the interests of consumers are put first, giving them more
opportunities to choose from the entire common market;

— there are measures designed to heighten competition
between distributors in sales and after-sales services;

— there will be sharper competition in the production and

distribution of spare parts;

— and lastly, resellers are given more commercial indepen-
dence, essential to enable them to provide buyers with a
better service, through greater contractual protection in
the contract termination phase and greater recourse to
arbitrators to resolve disputes.

3.4.
The Committee also notes with satisfaction that the
Commission has taken up its recommendations on the need
to maintain a specific block exemption regulation for the car
sector and that it has recognised that the general competition
rules relating to vertical distribution agreements (Regulation
(EC) No 2790/99) were not in reality applicable to motor
vehicle distribution.

3.5.
The Committee would however note that the complex
system of measures foreseen in the new regulation, whether
interpreted narrowly or broadly, may reduce legal certainty and
lead to forms of concentration in the location of distributors, in
after-sales services and in the production of spare parts, with
the resulting disappearance from the market of a significant
number of SMEs and with negative effects on employment and
the expected benefits to the consumer.

3.6.
The Committee notes that the new regulation provides
for the introduction of market shares and provides business
operators in the motor vehicle sector with a wider choice of
distribution system.

( 1) OJ C 221, 7.8.2001.

The new regulation also provides (Article 7)

3.8.
for
decentralisation to national level of the application of the rules
set out in Article 81, providing the scope of the agreements is
limited to the national territory. The Committee would stress,
as it did in the above-mentioned opinions, the principle of the
European one-stop shop, which should always have priority in
cases of the decentralised application of antitrust rules, so as
to prevent non-uniform application of
the rules, market
fragmentation or possibly a differing application of compe-
tition policy.

3.9.
The Committee would also stress that the complexity
of the set-up under the new regulation necessitates the drafting
of specific guidelines to counterbalance the flexible and
pragmatic approach that the Commission wishes to pursue,
with the requirement of legal certainty for the economic
operators, most of which are small and medium-sized com-
panies (over 280 000).

4. Specific comments

4.1. The separation between exclusive and selective distribution

The Commission has decided that a single model for
4.1.1.
the distribution of motor vehicles consisting of a combination
of selective and exclusive distribution is no longer appropriate
for the industry. Instead it proposes to require undertakings to
choose between exclusive distribution or quantitative selective
distribution. This has been described as increasing flexibility of
choice for manufacturers.

4.1.2.
The Committee is doubtful that the proposals will
have that result. On the contrary, the Committee considers
that the terms proposed for exclusive and quantitative selective
distribution will lead to the great majority of manufacturers
opting for the quantitative selection distribution system. In
other words, it is quite possible that under the new BER, one
model for the distribution of motor vehicles will predominate.

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4.2. Non-compete obligation [Article 1(b)]

4.2.1.
The Committee notes that the new regulation reduces
to 50 % the annual total purchase obligation for contractual
goods and services, from the 80 % set by Article 1(b) of
Regulation (EC) No 2790/99 on which the regulation is based.
In order to allow access for new operators, multi-branding and
increased competition, the Committee believes that it makes
sense for that percentage to be set at at least 65 %.

4.2.2.
The Committee welcomes the clearer definitions of
‘original spare parts’ [Article 1(p)] and ‘spare parts of matching
quality’ [Article 1(r)]. This will make for greater transparency
and greater competition on the repairs market, which will
translate as benefits for the consumer/client in terms of both
price and safety.

4.3.

Scope of application (Article 2)

The Committee notes [Article 2(1)] that the scope of
4.3.1.
application of the new regulation is taken directly from the
regime provided for by the general regulation on vertical
agreements, Regulation (EC) No 2790/99. The scope of the
agreements is extended to include two or more companies
operating at different levels in the production or distribution
chain, increasing the opportunities for market operators to
buy, sell, or resell motor vehicles, spare parts or repair or
maintenance services.

4.3.2.
The Committee therefore welcomes the fact that the
new regulation includes vertical agreements made between
groups of retail dealerships and their members or between
such groups and their suppliers, bearing in mind the fact that
the Committee specifically requested this in its opinion on the
vertical restraints regulation.

4.4. Market share thresholds [Article 3 (1), (2) and (3)]

4.4.1.
The Commission has chosen to introduce market
share thresholds to reflect the fact that the efficiency-enhancing
effects of motor distribution agreements will outweigh the
anti-competitive effects only to the extent that the market
power of the undertakings is curbed by inter-brand compe-
tition in the industry. The Committee accepts the need for
market thresholds and quotas.

It welcomes the 40 % threshold for quantitative
4.4.2.
selective systems as well as the sensible decision not
to
introduce a threshold for qualitative selective distribution
agreements. It also accepts the logic of the 30 % market share
thresholds for exclusive distribution and exclusive supply
agreements.

4.4.3.
The Committee would however make the following
observation. The Commission uses market share thresholds as
an approximation of market power and not as a completely
reliable measure. It is a convenient approximation for the
Commission and an inconvenient one for the parties con-
cerned. They should be allowed some degree of flexibility at
the margins of the market share thresholds in recognition of
this fact.

4.5.
As already stressed in the previous opinions, on the
subject of market shares, the Committee believes it is essential
that companies have access to the necessary interpretative
instruments, such as special guidelines for the accurate identifi-
cation of the relevant product and geographical market, in
order to enable companies to conduct independent assess-
ments of the market effects of agreements with the highest
possible degree of legal certainty.

The guidelines should provide precise explanatory
4.5.1.
notes, including specific examples of market share calculations
for agreements at European, national and regional level, thus
increasing companies’ legal certainty.

4.6. With reference to the Communication on ‘agreements
of minor importance’ (1), the Committee invites the Com-
mission to clarify in the guidelines whether market share
thresholds should apply to motor vehicle distribution agree-
ments.

4.7. Termination of distributorships [Article 3 (5) and (6)]

4.7.1.
distributors in the event of termination by the supplier.

The Commission has proposed three safeguards for

4.7.2.
The first, described in Article 3(5), obliges the
supplier to agree in the contract to give detailed reasons for
termination. Those reasons cannot include reasons prohibited
by Articles 4 or 5.

The Committee agrees with this condition because
4.7.2.1.
it acknowledges the need for dealers to have the minimum
protection of being given detailed reasons for termination, and
above all because it prevents the supplier from terminating the
agreement because of practices that cannot be restricted within
the meaning of the regulation.

4.7.2.2.
The Committee recommends that, to avoid the
supplier using spurious reasons where adequate compensation
is not provided for, the supplier’s reasons must be objective,
non-discriminatory and transparent.

(1) OJ C 368, 22.12.2001.

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4.7.3.
The second safeguard [Article 3(6)] is that suppliers
must give two years notice of termination but may reduce that
period of notice to one year where they are required by law or
agreement to pay appropriate compensation on termination
or if they claim it is necessary to reorganise the whole or a
substantial part of the network.

4.7.3.1.
The Committee has grave reservations about
Article 3(6)(b). It would appear that the need to reorganise the
whole or a substantial part of the network is justification for
allowing one year’s notice without compensation and with
insufficient guarantees. This should possibly be limited to
substantial reorganisation. If not, why should the supplier be
freed from the obligation to give two year’s notice? The
distributor’s hold on a distributorship is precarious enough
and the investment in premises is usually sufficiently great that
the two years’ notice should be seen as the minimum
entitlement except in extreme circumstances or where pro-
vision is made by law or agreement for adequate compensation.

4.7.4.
The third condition is the requirement for arbitration
of disputes between supplier and distributor. The Committee
strongly supports the Commission’s proposal to increase the
scope of arbitration to include the issue of the termination of
distributorships. The Committee is particularly pleased that
the Commission responded to the Committee’s suggestion for
such a step in its last opinion (1).

4.7.4.1.
The Committee notes that the arbitration require-
ment must be written into the distributorship agreement and
it strongly supports that requirement since that gives some
legal weight to the arbitration entitlement.

5. Hardcore restrictions (Article 4)

5.1.

Location clauses [Articles 4 (d) and 5 (f)]

5.1.1.
For motor vehicles other than cars, the Committee
welcomes the Commission’s move. However it questions the
advisability of eliminating the location clause for the selective
distribution of cars, as this raises significant problems of
interpretation. It is difficult to see how the manufacturer can
monitor adherence to the qualitative criteria regarding the
establishment by the distributor of sales or delivery outlets or
warehouses in other EU locations, or how this interpretation
could be combined with quantitative selective distribution,
which would be seriously prejudiced, if not totally undermined.

( 1) Point 5.11 of the ESC opinion, OJ C 221, 7.8.2001.

5.1.2.
In addition, it cannot be ruled out that removing the
clause would distort competition to the detriment of small and
medium-sized companies, which would find it difficult to
make use of the opportunity to locate additional sales outlets
in the common market, while also encouraging the concen-
tration of major companies, which would locate mainly in
major urban areas. All this could lead manufacturers to base
their distribution networks on branch offices in order not to
lose control of them (Lademann study).

5.1.3.
All these elements could reduce the geographical
density and necessary spread of companies and lead to the
creation of a genuine oligopoly in distribution with potentially
distorting effects on competition and on the high quality of
client/consumer relations that is characteristic of SMEs.

The Committee wonders whether the Commission
5.1.4.
has applied the indispensability criterion appropriately to the
location clause [Treaty Article 81(3)(a)].

5.1.5.
In fact, the Committee believes that the Commission’s
objectives of increased cross-border sales, price convergence
between Member States and greater competition between
distributors could be largely secured — without the addition
of the location clause restriction — by the major innovations
already introduced by the new regulation, namely: the liberalis-
ation of active sales by the dealer (including Internet sales), the
complete liberalisation of sales between intermediaries, the
detachment of sales objectives from the individual country and
dealers’ freedom to treat ‘corresponding goods’ in the same
way as goods designed for their own market [Article 4(f)].

5.1.6.
Only if the major innovations mentioned above do
not produce the desired effects of price convergence, market
integration and intra-brand competition should the Com-
mission reserve the right to conduct a further examination as
part of the periodic evaluation of the working of the new
regulation, and then at that stage if necessary introduce a ban
on location clauses and thus the possibility for distributors to
locate their sales outlets away from their place of establish-
ment.

5.2.

Intermediaries

5.2.1.
Taking on board the request made by the Committee
in last year’s opinion, the Commission plans to bolster the
role of intermediaries (Recital 14) by opening up to new
instruments (Internet) to allow consumers to benefit from
price differences in the common market.

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5.2.2.
The Committee is clearly pleased with this approach.
It would note however that the abolition of the current ‘notices’
on the role of intermediaries (1) creates a legal void that the
Commission will have to fill by adopting guidelines to define
procedures for Internet use, where e-commerce is concerned,
and the mandate and role of intermediaries, so as not to
adversely affect the Commission’s aim of stimulating active
sales and the integration of markets by means of parallel trade,
and also to prevent the illegal use of producer and distributor
brands by intermediaries.

— the loss of dealers’ control over the fragile after-sales
services sector and of their direct responsibilities regard-
ing the consumer and the manufacturer;

— the demand for constant improvement of the quality of

the service product;

— the implementation difficulty arising from the seller’s
responsibility within the meaning of Directive 99/44/EC,
should the dealer lose control over servicing;

6. After-sales services [Article 4 (1)(g)]

— the risk of free-riding;

6.1.
The Committee notes that the new regulation allows
the dealer to choose whether to provide after-sales services or
to subcontract them, informing the consumer of the address
of the authorised garage.

— and above all, to conclude, the loss of the benefits of
consumer protection, and technical/safety and commer-
cial efficiency provided by a network that makes the most
of the sales/after-sales link for new vehicles.

6.2.
On this note, the Committee would point out that it
addressed this issue in its opinion of last year (points 6.4.6 and
6.4.7) and came to the conclusion that the best way of
protecting consumer interests was the necessary sales/after-
sales service link for new vehicles, owing to the necessarily
high levels of service in terms of quality and safety provided
free of charge during the warranty period throughout the EU.

6.3.
The Committee notes that Recital 18 of the new
regulation repeats the obligation for dealers and repairers to
provide services free of charge during the warranty period. It
would also point out that the Lademann and Andersen studies
confirmed that the natural place for after-sales services is with
the seller.

6.4.
The Committee is however concerned by the negative
consequences that could arise from the Commission proposal
as a result of:

— the abolition of the location clause and the resulting risk
of a concentration of servicing centres in large urban
areas;

— the failure to provide services in proximity to consumers;

— the loss of the broad geographical spread of companies

nationally and on the road network;

the Committee is convinced that

In view of these dangers and in line with its previous
6.5.
opinions,
it would be
preferable for dealers to maintain responsibility for the sales/
after-sales services link at least for the warranty period for new
vehicles. Those services should be supplied to all European
consumers throughout the EU in line with common quality
standards for each brand, by evenly spread networks of
distributors and authorised repair garages. The best way would
be to allow manufacturers to choose where to locate service
plants for dealers and repairers,
in accordance with the
selective, qualitative and quantitative distribution system.

that

However,

6.6.
independent
the Committee feels
repairers (Article 4(2)) should have access to all the technical
information necessary, diagnostic and other equipment, tools,
including all relevant software, and the training necessary to
provide high-quality services in order to raise competition
levels on the service market for cars in use, as an alternative to
the post-warranty services offered by the official network.

6.7.
On the subject of spare parts [Article 4(1) (i)(j) and (k)],
the Committee welcomes the provisions made in the new
regulation as they strengthen the conditions for improving
transparency and access to the market for original spare parts
and equivalent products. This should entail greater competition
on the market between producers, and official and independent
repairers, which will inevitably be reflected in the final prices,
to the benefit of the consumer.

( 1) OJ C 17, 18.1.1985 and OJ C 329, 18.12.1991.

The Committee would recommend using the guide-
6.7.1.
lines to clarify the concept of equivalence, who is responsible
for certifying it and how to proceed.

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7. Multi-branding (Article 5 (a), Recital 26)

10. Conclusions

The new regulation promotes the right conditions for
7.1.
nurturing the establishment of multi-brand sales outlets. The
Committee supports this initiative, which should be designed
to strengthen the position of the distributor and benefit
consumer choice. It is nevertheless necessary to provide for
measures to properly safeguard brand identity, a vital asset for
the European industry in competition on the global market.

8. Non-application (Article 8)

8.1.
In view of the nature of the motor vehicle distribution
system, cumulative effects will be a distinguishing feature of the
sector. The Committee would recommend using appropriate
guidelines to clarify the anti-competitive elements that would
justify non-application of the regulation.

9. Transitional period (Article 12)

The Committee recognises that

the Commission
10.1.
intended the new block exemption regulation to give the
motor vehicle system a new innovative tool, to improve its
interpretation and anticipation of changes in the market and
consumer requirements.

10.2.
The Committee is glad to see that many of the
suggestions it made in its previous opinion on the subject have
been taken up in the new proposal, which recognises, beyond
the goal of promoting efficient competition on the markets,
the need to provide consumers with proper safeguards in
relation to the special nature of motor vehicles as goods, which
as an instrument of mobility, must provide quality, reliability
and safety over time.

10.3.
The comments made in this opinion are designed to
adjust, better define and flesh out the legislative framework for
this complex regulation, which governs a sensitive area of
Europe’s social and economic life.

The Committee believes that,

9.1.
in view of the new
legislative set-up and the changes required of manufacturers
and distributors, the planned one-year transition period should
be extended to 18 months and the new rules on the
termination of contracts should apply, not least to avoid large-
scale network restructuring on the part of manufacturers and
a consequent increase in disputes.

10.4.
The goal is a tool that should benefit consumers in a
practical way, offering them greater freedom to choose
products and services from throughout the common market;
to this end, it should enable companies, and SMEs in particular,
to operate with a high level of legal certainty on a market
where sustainable competition conditions encourage growth
and employment.

Brussels, 29 May 2002.

The President

of the Economic and Social Committee

Göke FRERICHS