Reed Smith Client Alerts

Authors: Edward S. Miller Marjorie C. Holmes

The sustained financial crisis has altered the landscape of the automotive market. The weak economy has led to consumers choosing to keep their cars for longer, leading to a decrease in new car sales, and a correlative increase in repairs and sales of spare parts on the automotive aftermarket. Car manufacturers are suffering from overcapacity in the new cars sector, meaning that sales of spare parts in the aftermarket sector have become all the more important to the profitability of car manufacturers. Given the pressures of the current climate, is it now time to reconsider whether the unequal treatment of manufacturers and independent repairers under the Motor Vehicle Block Exemption is justified?

Since 1 June 2010, whether or not an agreement between a motor vehicle manufacturer on the one hand and a spare parts distributor and/or authorised repairer on the other, can be automatically exempt from the prohibition on anti-competitive agreements1 has been determined by reference to both the Verticals Block Exemption (Regulation (EU) No 330/2010) (the “VBE”) and the Motor Vehicles Block Exemption (Regulation (EU) No 461/2010) (the “MVBE”). Article 4 of the MVBE provides that the prohibition on anti-competitive agreements:

“…shall not apply to vertical agreements relating to the conditions under which the parties may purchase, sell or resell spare parts for motor vehicles or provide repair and maintenance services for motor vehicles, which fulfil the requirements for an exemption under… [the VBE] and do not contain any of the hardcore clauses listed in Article 5 of this Regulation”.

Amongst the requirements for an exemption to apply under the VBE, both the supplier and the buyer must have market shares of below 30% of their respective relevant markets. How the markets for the sale of spare parts and repair and maintenance services are defined is therefore a crucially important factor in determining whether or not these thresholds are exceeded, and ultimately whether a particular agreement within the aftermarket segment will benefit from automatic exemption under the MVBE.

The European Commission’s supplementary guidelines to the MVBE define the markets for repair and maintenance services and for the distribution of spare parts as being brand-specific:

“Insofar as a market exists for repair and maintenance services that is separate from that for the sale of new motor vehicles, this is considered to be brand-specific”; and

“In most cases, there is likely to be a brand-specific aftermarket, in particular because the majority of buyers are private individuals or small and medium-sized enterprises that purchase motor vehicles and aftermarket services separately and do not have systematic access to data permitting them to assess the overall costs of motor vehicle ownership in advance.”

Is it correct to define the aftermarket to be brand-specific on the basis that buyers do not have access to the overall costs of vehicle ownership in advance? It is hard to see the logic in defining the market to be brand-specific for this reason. Whilst some consumers might opt for branded parts to be used, virtually all know of the availability of generic versions. Generic spare parts distributors in fact sell a full range of generic spare parts including brakes, engine parts, suspension and steering parts, transmission parts, cooling and heating parts, electrical and lighting components, and exhaust parts. In relation to the majority of car models, only a small proportion of the overall spare parts available for a particular car could be said to be “captive”, i.e. truly brand-specific.

As manufacturers necessarily have a particularly large share of the market for their own branded spare parts, defining the market to be brand-specific precludes the requirements for exemption under the VBE from being met in relation to agreements between motor vehicle manufacturers and authorised repairers and/or spare parts distributors—an observation which is noted by the European Commission itself in its guidelines to the MVBE:

“In particular, agreements entered into between a motor vehicle manufacturer or its importer, on the one hand, and spare parts distributors and/or authorised repairers, on the other, will fall outside the Block Exemption Regulations when the market shares held by the parties exceed the 30% threshold, which is likely to be the case for most such agreements”.

As a result, agreements between manufacturers and authorised repairers and/or spare parts distributors almost always have to be individually assessed for whether or not they are caught by the prohibition on anti-competitive agreements. Whether those agreements can benefit from an individual exemption2 has to be determined in the individual circumstances by reference to whether or not there are any overriding efficiencies which are passed on to the consumer.

The European Commission’s favouritism of independent repairers and its interference in the ability of manufacturers to organise their networks in this way has been widely criticised since the 2010 reform of the MVBE. The economic crisis and resultant decline in sales of new cars makes the unequal treatment of manufacturers all the more keenly felt since they are restricted from recouping in the aftermarket sector, the profits lost from reduced new car sales. Added to this, independent repairers and generic spare parts retailers appear to be going from strength to strength, with one UK-based generic spare parts retailer recently reported as being sold for £225 million. Surely if the spare parts market were indeed correctly defined as being brand-specific, such high-value generic spare parts retailers would not exist. Given the apparently substantial value of generic spare parts retailers, the protection afforded to independent repairers and generic spare parts distributers appears to be out of date. As such, and particularly given the current economic pressures on manufactures, reconsideration of the unequal treatment of manufacturers under the MVBE already appears overdue, despite the fact that the current MVBE is not due to expire until 31 May 2023.

1 Under Article 101(1) of the Treaty on the Functioning of the European Union

2 Under Article 101(3) of the Treaty on the Functioning of the European Union

Client Alert 12-083