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It’s time to eliminate unfair trading practices in Europe’s automotive sector

With ‘block exemption’ protection a thing of the past, the EC must act to defend the interests of the auto industry’s SMEs, writes Bernard Lycke

Over the past three years, the European Council for Motor Trades and Repairs (CECRA) has been assisting the European Commission’s Directorate-General for Internal Market and Services in its efforts to eliminate unfair trading practices (UTP) in business-to-business relationships in Europe. Despite an overwhelming body of evidence provided during this period, the Commission’s attention will at this stage only be focussed on addressing practices in the food sector, and not in all non-food sectors – including the automotive sector.

Background

Since 1985, the automotive industry has enjoyed a number of specific block exemption regulations, the most recent one being Regulation 1400/2002 on vertical agreements for the purchase, sale or resale of new motor vehicles, otherwise known as the Motor Vehicle Block Exemption Regulation (MVBER). Although it was initially set to expire on 31 May 2010, the Commission extended the MVBER for another three years until the end of May 2013.

In June 2011, CECRA issued a position paper on unfair commercial and contractual practices, in which it warned that car dealers, who are predominantly small and medium-sized enterprises, will become increasingly dependent on car manufacturers following the expiry of MVBER, as their rights will no longer be protected by the specific legislation. As a result, CECRA predicted there would be more and more instances of unfair contractual conditions being imposed on dealers by manufacturers.

mechanic inspects car

The following month, the European Business Test Panel consultation was launched by the Commission’s Directorate-General for Internal Market and Services, with the aim of collecting information on unfair business-to-business commercial practises and examining possible options to improve the status quo. In response, CECRA urged its members to use this occasion to inform the Commission about the existence of unfair practices in the automotive sector.

The Commission received 746 responses from EU businesses from different sectors, including 250 responses from dealers reporting on the practices of their vehicle manufacturers. The unfair practices experienced by respondents in the automotive retail sector were so widespread and pronounced that the Commission devoted separate sections of its report, published in early 2012, to focus on unfair practices in this sector.

In January 2013, the Commission again launched a consultation on UTPs, this time focusing on the business-to-business food and non-food supply chain in Europe. In the document accompanying the consultation, the Commission made an initial assessment of the problems posed by unfair trading practices along the retail supply chain, including the lack of efficient enforcement of existing national rules and the resulting impact on the Single Market. In order to evaluate this assessment and to determine what measures could be used to tackle the problems identified by the Commission, stakeholders from both the food and non-food retail sectors were invited to send their feedback. In response to the consultation, the Commission received a total of 200 contributions, 34 of which came from automotive retailers.

In September 2013, the Commission published a summary of the responses which revealed that unfair trading practices are still a major problem for car dealers in various EU countries. In particular, the Commission’s summary took note of the fact that automotive retailers do not see self-regulation as an adequate means to address unfair practices in their sector. The main reason for this is the lack of progress in negotiations with car manufacturers concerning a meaningful code of conduct that would safeguard the rights enjoyed by dealers under the former MVBER, which expired in May 2013. In their contributions, car retailers explained that the creation of a voluntary code of conduct at EU level is blocked by manufacturers who are unwilling to enter into negotiations on certain key points.

The Commission’s summary also revealed that fear is the principal reason why car dealers would not take a manufacturer to court over unfair trading practices. It was explained that “their long term commercial relationship with their suppliers is characterised by significant relationship-specific investments by retailers resulting in a fear of repercussions (including contract termination) which thus dissuade them from pursuing complaints. As a result of [unfair trading practices], retailers in the car sector will not sell cross-border against the wishes of the car manufacturers out of fear for reprisals.” As for the possible solution to this situation, the Commission noted that car retailers do not consider national regulatory systems or self-regulatory frameworks to address these problems sufficiently. Instead, they made it clear that a solution must be found at EU level as this is an issue which concerns dealers from all corners of Europe.

Nevertheless, despite the overwhelming amount of evidence provided in response to the latest consultation, on 15 July the Commission decided to restrict its response to a communication encouraging Member States to look for ways to improve protection of small food producers and retailers, leaving the problems of various non-food industries unsolved.

A solution needed for all

Irrespective of the merits of further investigation and regulation of unfair trading practices in the food sector, CECRA believes that evidence collected by the Commission from a range of non-food businesses and organisations across Europe clearly demonstrates a wider need for a clear, consistent and balanced system of UTP regulation.

With the right input from stakeholders, the Commission can achieve a workable and proportionate system of cross-sector regulation, which supports the competitive independence of smaller parties in each supply chain (whatever the sector); encourages innovation, investment and employment; and ensures that consumers receive a fair share of the resulting benefits.

In order to ensure that unfair trading practices in various non-food sectors remain on the Commission’s radar, CECRA has been contacting the newly-elected members of the European Parliament, urging them to highlight this issue during the new legislative term.

In addition to its actions vis-à-vis the European Parliament, CECRA has also been reaching out to other European trade associations representing non-food industries with the aim of building an alliance on the issue of unfair trading practices. Together with FIGIEFA, CECIMO and UEIL, we intend to address our concerns to the new Commission cabinet, which will take office in October this year.

CARS 2020

Bernard Lycke is the Secretary General of CECRA, the European Council for Motor Trades and Repairs
Bernard Lycke, Secretary General, CECRA

It is worth noting that action on unfair trading practices and the Commission’s CARS 2020 process are linked in the sense that they could help dealers fill the gap left by the expiry of the MVBER. As the sole representative of car dealers and repairers at European level, CECRA is part of CARS 2020, an expert group created by the Commission to ensure the competitiveness and sustainability of the automotive industry in Europe. While the initiative on unfair trading practices is prepared by DG MARKT, CECRA is also working closely with the Commission’s Directorate-General for Enterprise and Industry (DG ENTR) to regulate relations between dealers and manufacturers via a sector-specific approach. Therefore, both of the aforementioned initiatives could possibly give rise to a legal framework for improving relations between dealers and manufacturers in the automotive sector.

This article appeared in the Q3 2014 issue of Automotive Megatrends Magazine. Follow this link to download the full issue.

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