Commission staff working document accompanying the Communication from the Commission - The Future Competition Law Framework applicable to the motor vehicle sector : summary of the impact assessment {COM(2009) 388 final} {SEC(2009) 1052}
Date: 2009-07-22
Institutions: European Commission
Subjects: activity report, competition law, competition policy, free competition, motor vehicle, motor vehicle industry, restriction on competition

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 22.7.2009 
SEC(2009) 1053 final 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying the  

COMMUNICATION FROM THE COMMISSION  

The Future Competition Law Framework applicable to the motor vehicle sector 

SUMMARY OF THE IMPACT ASSESSMENT 

{COM(2009) 388 final} 
{SEC(2009) 1052} 

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EXECUTIVE SUMMARY 

BACKGROUND 

Motor  vehicle  manufacturers  usually  distribute  and  ensure 
the  repair  and 
maintenance of their products through authorised dealer and repairer networks, based 
on bundles of similar vertical agreements which may require assessment pursuant to 
Article  81.  Block  exemption  regulations  create  safe  harbours  for  categories  of 
agreements that are caught by the prohibition in Article 81(1), relieving parties from 
the need to individually assess whether they can benefit from the exception provided 
for  in  Article  81(3).  They  also  contribute  to  the  coherent  application  of  EU 
competition rules. 

"WHY" – THE PROBLEM TO BE ADDRESSED 

Motor  vehicle  distribution  and  after-sales  agreements  are  subject  to  sector-specific 
block  exemption  Regulation  (EC)  No  1400/2002  will  expire  on  31  May  2010.  The 
Commission  now  has  to  take  position  as  to  what  legal  framework  should  apply  to 
vertical agreements in the sector after that date. 

Almost  all  stakeholders  agree  on  the  continued  need  for  a  block  exemption 
regulation,  whether  general  or  sector-specific,  since  this  allows  them  to  enter  into 
agreements that they can assume to be in line with EU competition law.  

The IA Report takes into account market developments since the current Regulation 
came into force, and in particular, the current crisis. It shows that conditions in the 
vehicle  sales  markets  differ  from  those  in  the  aftermarkets.  The  former  are  highly 
competitive, while there are barriers to effective competition in the latter which may 
work against consumers' interests. To improve the efficiency of the supply chain, the 
sector  should  benefit  from  a  block  exemption  reflecting  the  different  conditions  on 
these to markets. 

“WHAT”- OBJECTIVES OF COMPETITION POLICY FOR THE SECTOR 

The general objective of the Commission's policy towards vertical agreements is to 
ensure  effective  supervision  of  markets,  while  simplifying  administration  and 
reducing firms' compliance costs, in accordance with Article 83(2)(b) of the Treaty.  

regards  effective  market  supervision, 

Impact  Assessment  Report 
As 
acknowledges that the specific objectives underlying Regulation (EC) No 1400/2002 
remain valid. These can be summarised as follows: 

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•  Preventing  foreclosure  of  competing  vehicle  manufacturers  and  safeguarding 

their access to the market; 

•  Ensuring competition between dealers of the same brand;  

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•  Enabling  independent  repairers  to  compete  effectively  with  the  manufacturers' 
networks of authorised repairers by ensuring undistorted access to technical repair 
information  as  well  as  to  original  and  matching  quality  spare  parts  by  all 
aftermarket operators;  

•  Protecting  competition  between  authorised  repairers  by  ensuring  access  to  the 

manufactures networks on the basis of qualitative standards;  

•  Protecting  competition  on  the  spare  parts  markets  by  preventing  restrictions 

inhibiting spare part producers' access to the aftermarket;  

•  Preserving  the deterrent  effect of  Article 81 so as to avoid the block exemption 
being used by manufacturers to inhibit independent pro-competitive behaviour by 
authorised dealers and repairers.  

Any  policy  option  should  only  block  exempt  agreements  which  fulfil  the  four 
conditions  of  Article  81(3),  taking  into  account  the  above-mentioned  specific 
objectives. At the same time, the scope of the safe harbour should not be narrowed 
down to such an extent that administrative costs for enforcers and compliance costs 
for  firms  would  be  unduly  increased  by  the  need  to  individually  assess  agreements 
with no net anti-competitive effects. 

POLICY OPTIONS − THE “HOW” 

The  Impact  Assessment  does  not  consider  options  which  would  either  worsen  the 
drawbacks  of  the  current  regime  or  would  not  respect  Article  83(2)(b).  It  therefore 
does  not  assess  the  potential  impact  of  a  more  detailed  block  exemption,  which 
would inhibit diversity in retailing formats, widen the gap with its general policy in 
the field of vertical restraints, place unjustified constraints on carmakers, and lead to 
increased  compliance  costs  for  firms.  Nor  has  it  considered  not  having  any  block 
exemption  regulation  covering  the  motor  vehicle  sector.  This  option  would  seem 
prima  facie  undesirable  given  the  existence  of  more  than  120 000  vertical 
agreements  for  motor  vehicle  distribution  and  after-sales  services  that  would 
otherwise have to be individually assessed by the parties. 

Instead,  the  Commission  has  focused  on  four  policy  options  which  entail  the 
adoption  of  a  block  exemption  regulation  covering  all  types  of  vertical  agreements 
for motor vehicle distribution and after-sales services and which make the benefit of 
the exemption dependent on market share threshold(s) reflecting the parties' market 
power.  

In all four options, the exemption would not apply to agreements containing certain 
hardcore restrictions (i.e. resale price maintenance, restrictions on passive sales into 
territories or to customer groups allocated to other distributors, restrictions on active 
and/or  passive  sales  to  end  users  in  markets  where  selective  distribution  is  used, 
restrictions  on  the  ability  of  original  equipment  suppliers  to  sell  spare  parts  to 
independent  repairers).  Similarly,  all  four  would  contain  specific  conditions 
excluding  the  benefit  of  the  block  exemption  from  non-compete  obligations  lasting 
more than five years, from obligations preventing authorised distributors from selling 

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products  of  particular  suppliers,  as  well  as  certain  post-term  non-compete 
obligations.  

However, the four options differ in several ways. 

Option 1 is the continuation of the status quo, and is particularly strict as concerns 
the primary market. It would contain sector-specific clauses removing the exemption 
from  obligations  restricting  dealers’  ability  to  subcontract  repair  services,  single-
branding  obligations  irrespective  of  their  duration  and  preventing  dealers  from 
selling up to three competing brands from the same showroom, obligations limiting 
dealers'  ability  to  establish  additional  outlets  or  to  transfer  their  dealership  to  other 
dealers within the same network, non-respect of certain minimum contract durations 
and/or minimum notice periods, and the obligation to provide for arbitration.  

Option 1 would grant a very wide exemption for the aftermarket, covering qualitative 
selective  distribution  systems  irrespective  of  the  parties'  market  share.  All  such 
agreements  affecting  competition  in  the  aftermarket  would  be  considered  legal, 
unless  they  contained  restrictions  set  out  in  a  “black  list”  (e.g.  practices  restricting 
access by independent repairers to technical information, restrictions on OES' ability 
to sell spare parts to authorised repairers, restrictions on authorised repairers' ability 
to  sell  parts  to  independent  repairers,  obligations  making  authorised  repairers  also 
sell new vehicles). 

Option 2 envisages letting the sector-specific regime lapse, and applying the general 
rules applicable to vertical restraints, currently laid down in Regulation 2790/1999. 
While the current draft1 of the replacement regulation keeps most of the provisions of 
Regulation (EC) No 2790/1999, including all five restrictions by object, it introduces 
a number of improvements, (including a 30% threshold also applicable to the market 
share  of  the  buyer,  and  specific  guidance  for  e-commerce),  which  would  not 
substantially change the analysis of Option 2. 

Option  2  would  reflect  the  approach  that  vertical  restraints  may  lead  to  consumer 
harm only in certain circumstances, in particular when inter-brand competition in the 
relevant  market  is  weak,  barriers  to  entry  are  high  and  contracting  parties  enjoy 
significant market power. It would therefore imply a less rigid approach in respect of 
the highly-competitive primary market. For example, non-compete obligations would 
only  be  excluded  if  they  lasted  longer  than  five  years  and  prevented  dealers  from 
selling  a  second  brand.  Any  foreclosure  problems  could  also  be  dealt  with  by 
withdrawing the benefit of the block exemption.  

Location  clauses  would  be  covered  by  the  exemption,  and  issues  of  contractual 
“fairness” would not be covered by additional conditions. 

In the repair and spare parts distribution markets, manufacturers’ networks generally 
have market shares well above Option 2's single market share threshold of 30%. This 
would  imply  that  competition  authorities  could  investigate  a  wider  number  of 
potentially  anti-competitive  practices  (including  practices  restricting  independent 
operators'  access  to  technical  information  or  original  and/or  matching  quality  spare 
parts).  The  approach  would  not  be  by  “by  object”  (i.e.  based  on  the  hardcore  list 

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Preliminary draft adopted by the Commission on 8 July 2009  

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approach)  but  rather  “by  effect”  (i.e.  requiring  empirical  evidence  of  actual  or 
potential consumer harm).  

Option 3 builds on option 2, but also provides for sector-specific Guidelines on how 
the  general  rules  would  apply  to  the  sector.  These  would  deal  with  restrictions 
affecting  competition  in  the  repair  and  spare  parts  distribution  markets  (e.g. 
availability  of  technical  repair  information  to  independent  operators,  access  to  the 
authorised  repair  networks,  access  to  competing  brands  of  spare  parts),  but  would 
also give certain clarifications concerning the primary market.  

Option  4  also  builds  on  Option  2  but  involves  the  adoption  of  a  more  focussed 
sector-specific  block  exemption,  which  would  contain  all  the  hardcore  provisions 
aimed  at  protecting  aftermarket  competition  currently  set  out  in  Regulation 
1400/2002.  

In  essence,  Options  2-4  differ  from  Option  1  by  taking  the  differing  competitive 
conditions on the primary and aftermarkets into account. They therefore provide for 
a) a less-restrictive approach as concerns the exemption of agreements in the highly 
competitive  primary  market  and  b)  a  narrower  exemption  in  the  after-markets 
through a single market share threshold of 30%. 

ANALYSIS OF IMPACT 

Each option has been assessed against four groups of criteria. The first relates to the 
specific  policy  objectives  mentioned  above  in  section  3,  and  measures  the  options' 
ability to ensure effective protection of competition.  

The second group of economic criteria ascertains each option's impact in relation to 
(i)  firms'  foreseeable  compliance  costs,  (ii)  SMEs'  investment  levels  and  access  to 
finance, (iii) the European automotive industry's competitiveness and (iv) benefits for 
consumers and households.  

The  third  group  of  criteria  is  designed  to  assess  options'  likely  impact  on  public 
administration as regards (i) the use of enforcement resources, and (ii) consequences 
for the EU budget.  

The final group reflects the potential impacts of each option on (i) employment and 
job quality, (ii) public safety and (iii) health and the environment.  

The expected impact has been assessed mainly in qualitative terms, with options 2-4 
scoring  from  minus  three  to  plus  three  in  respect  of  each  criterion,  the  point  of 
reference  being  the  baseline  scenario  (Option  1).  Weightings  were  also  used  to 
reflect the importance of each criterion. 

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SUMMARY OF THE ASSESSMENT OF IMPACTS 

The main findings of the Impact Assessment Report can be summarised as follows. 

Economic impacts: criteria related to the protection of effective competition 

Options  3  and  4  would  improve  on  Option  1  in  addressing  competition  problems, 
whereas Option 2 would worsen the situation. 

In  particular,  Option  1  and  Option  3  score  the  same  as  regards  the  objective  of 
protecting competition in the primary market for the sale of new motor vehicles, with 
Option  1  having  a  slight  advantage  due  to  its  specific  treatment  of  single-branding 
obligations,  but  lagging  slightly  behind  as  regards  innovation  and  diversity  of 
distribution formats. Options 2 and 4 show a weaker performance due in particular to 
reduced legal certainty as to how certain restrictions on parallel trade would be dealt 
with. 

Both Option 3 and 4 would improve the current level of protection of competition on 
the  aftermarkets,  by  enabling  more  focused  enforcement  in  respect  of  certain 
practices risking the foreclosure of independent repairers (e.g. misuse of warranties 
by  vehicle  manufacturers),  while  offering  sustained  protection  against  practices 
limiting  independent  operators'  access  to  technical  information.  Option  4  scores 
better than Option 3 as regards protecting competition in the spare parts markets. By 
contrast, Option 2 gives less legal certainty as to how the competition rules will be 
enforced  against  restrictions  on  access  to  authorised  repairer  networks,  and  on  the 
supply of competing spare parts. 

Other economic impacts 

Options  2-4  score  better  than  the  baseline  option  with  regard  to  other  economic 
impacts, with Option 2 lagging somewhat behind Options 3-4.  

Options  3  scores  best  with  regard  to  impacts  on  SMEs  and  on  firms'  compliance 
costs. By applying the general rules, which are far simpler than those in Regulation 
(EC) No 1400/2002, Option 2 would reduce the risk of firms incurring unnecessary 
costs  through  under-  or  over-compliance.  Option  3  would  improve  on  Option  2  by 
giving  firms  guidance  as  to  where  the  boundaries  of  the  safe  harbour  lay,  thereby 
decreasing error and litigation costs. Option 4 would score between Options 2 and 3, 
since  although  the  over-complex  primary  market  provisions  would  not  be  carried 
over, there would be a certain lack of legal certainty. Error and litigation costs would 
also be reduced to an extent comparable to Option 3.  

None of the options would significantly affect the position of SMEs or the promotion 
of entrepreneurism. Options 3 and 4 would have a positive impact as regards access 
to  essential  inputs  such  as  spare  parts  and  technical  information.  Option  3  would 
address new issues which may affect SME independent repairers, such as the misuse 
of  warranties  by  car  manufacturers,  while  Option  4  scores  slightly  better  on 
improving access to spare parts. 

By providing for a more flexible regime, Options 2-4 would allow a broader range of 
thus  giving 
distribution  agreements 

the  block  exemption, 

to  benefit  from 

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manufacturers  more  room  to  adjust  to  changing  economic  circumstances,  and 
enhancing the overall competitiveness of the EU car industry. 

Options 2-4 would be unlikely to raise barriers to entry for competing manufacturers. 
In-store multi-branding would also bring negligible benefits for consumers. Options 
2-4 would increase consumers' choice of repairers, since they would make it easier 
for  the  Commission  to  examine  practices  that  risked  foreclosing  independent 
repairers.  Option  4  would  improve  on  Options  2  and  3  by  including  hardcore 
provisions  that  would  allow  authorised  repairers  to  offer  a  choice  of  spare  parts  to 
consumers.  

Impact on public administration 

Options  2  to  4  score  higher  than  the  baseline  option  with  regard  to  public 
administration, since they would enable resources to be better focussed on the most 
serious infringements of EU competition rules.  

Option  3  scores  highest,  since  guidelines  would  avoid  confusion  as  to  how  certain 
issues  specific  to  the  motor  vehicle  sector  would  be  dealt  with  under  the  general 
rules. Option 4 would also have a moderately better impact than the baseline scenario 
as it would enable the Commission to better focus its enforcement activities on more 
problematic aftermarket issues.  

Options 2-4 would have no impact on the Community budget, since any fines arising 
from better enforcement would simply reduce Member States' contributions. 

Social and environmental impacts 

Options  3  and  4  would  improve  on  the  baseline  scenario  as  regards  social  and 
economic impacts. No option would have more than a minor impact on employment, 
given  the  loose  link  between  changes  in  the  competition  law  framework,  and  any 
possible  variations  in  the  number  of  employees  in  the  motor  vehicle  sale  and  after 
sale service sectors. 

By  facilitating  access  to  technical  information  in  particular,  Options  3  and  4  could 
improve public safety and help reduce pollution. 

THE PREFERRED OPTION 

The Impact Assessment shows that Option 3 has the greatest potential for achieving 
the objectives identified, and appears to be the option best able to meet the general 
objective  of  balancing  the  effective  supervision  of  markets  against  the  need  to 
simplify administration and minimise compliance costs. It also best meets the sector-
specific  objectives,  and  has  the  most  favourable  impact  as  regards  the  ensemble  of 
the other impact criteria. However, Option 4 comes quite close to Option 3 in terms 
of overall scoring; and it is therefore not possible to state definitively that Option 3 
would  have  a  better  impact  than  Option  4.  Either  option  would  have  positive 
implications for competition and ultimately for consumers. 

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MONITORING AND EVALUATION 

Following  the  adoption  of  the  Communication  setting  out  the  basic  orientation  for 
the  future  competition  law  regime  applicable  to  the  motor  vehicle  sector,  the 
Commission  will  continue  the  consultation  process  with  private  and  institutional 
stakeholders and with expert practitioners, and will then draft the legal framework. 

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