Motor vehicle distribution and after-sales service

New rules for the motor vehicle sector designed to enhance competition between distributors in relation to the sale of new motor vehicles, notably by facilitating cross-border purchases, and also between providers of motor vehicle maintenance and repair services.

ACT

Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector.

SUMMARY

In the Member States of the European Union (EU) motor vehicle manufacturers and spare parts manufacturers distribute their products via networks of distributors ("dealers") and set up networks of authorised repairers. For purposes of competition law, the relevant agreements rank as vertical agreements since the manufacturer and distributor or the repairer each operate at a different level of the production or distribution chain.

Article 81 of the Treaty establishing the European Community prohibits agreements that are likely to significantly affect trade between Member States and thus to restrict or appreciably distort competition. This provision does not apply, however, when the economic advantages of the agreement outweigh its anticompetitive effects (Article 81(3)).

Commission Regulation (EC) No 1400/2002, which regulates block exemptions, defines the categories of vertical agreement in the motor vehicle sector which can be considered as meeting the conditions set out in Article 81(3).

SCOPE

The Regulation applies to vertical agreements concluded in the motor vehicle sector at all stages of the trade in and supply of new vehicles or spare parts, including repair and maintenance services.

The Regulation applies notably to vertical agreements entered into between:

• a motor vehicle manufacturer and independent importers or wholesalers that are not subsidiaries of that manufacturer and can be entrusted with the task of supplying and managing the latter's distribution and repair network in one or more Member States;
• a motor vehicle manufacturer and members of its network of distributors and authorised repairers taken individually, including with regard to intellectual property rights held by the manufacturer;
• a motor vehicle manufacturer, a main distributor and a sub-distributor in multi-level distribution networks;
• a motor vehicle manufacturer and an association of dealers or authorised or independent repairers that sell vehicles or spare parts where no individual member of the association has an annual turnover exceeding 50 million;
• a supplier of spare parts and the members of a network of independent or authorised repairers who use these parts for repair and maintenance.

In principle, the Regulation does not apply to vertical agreements entered into between competing undertakings. Only agreements that a motor vehicle manufacturer selling direct to end users can conclude with the individual members of its distribution network are exempt.

GENERAL CONDITIONS FOR EXEMPTION

With the exception of qualitative selective distribution, to qualify for exemption, vertical agreements on the sale of new motor vehicles must not represent more than a certain market share. The limit is in principle 30%, and 40% for quantitative selective distribution agreements.

Consequently, application of the Regulation entails, first, definition of the relevant market followed by calculation of the market shares. Agreements representing less than the threshold limit fall within the scope of de minimis regulation and are exempt as agreements of minor importance.

With a view to maintaining a relatively stable contractual framework and enhancing competition, the Regulation also requires the parties to a vertical agreement to comply with the following additional contractual conditions:

• the right of the dealer or authorised repairer to sell his business and all the associated rights and obligations to another member of the brand network;
• the obligation to state the reasons for terminating an agreement;
• the right to arbitration in the event of a dispute relating to the agreement;
• the obligation to conclude agreements of limited duration for a minimum period and to require a period of notice in the event of non-renewal or termination of the agreement.

LOSS OF ENTITLEMENT TO THE EXEMPTION

The Regulations lists certain severely anticompetitive restraints (Article 4, Hardcore Restrictions) which, if included in a vertical agreement, result in the loss of entitlement to the block exemption for the agreement as a whole.

These hardcore restrictions are provisions that, directly or indirectly, in isolation or in conjunction with other factors under the control of the parties, are intended to restrict a certain entitlement or a certain type of sale. They may take the form of straightforward prohibitions, but they can also be limits, dissuasive financial requirements, pressures or obstacles applied to certain activities or operations, e.g. a clause restricting the ability of the distributor or repairer to fix the selling price, a clause limiting the territory within which the distributor or repairer can sell vehicles, spare parts or vehicle repair and maintenance services, or a clause indirectly limiting a distributor's active or passive sales.

The Regulation also lists a number of specific conditions (Article 5) which cannot benefit from the exemption. It does not, for example, apply to any direct or indirect non-compete obligations concerning the sale of vehicles, repair and maintenance services or spare parts. This is intended to ensure access to markets and to promote multibranding (i.e. allowing distributors and repairers to sell and repair vehicles supplied by different suppliers). Nor does it apply, after 1 October 2005, to "territorial clauses", i.e. restrictions intended to prevent dealers from setting up additional sales outlets outside the geographical area assigned them by the manufacturer, notably in other EU Member States.

If the specific conditions that are barred from the exemption can be separated from the rest of the agreement, then the remainder of the agreement continues to benefit from the block exemption.

The Commission and, in certain cases, the competent authority in a Member State may withdraw the benefit of the exemption where it finds that the conditions laid down in Article 81(3) are not met by a particular agreement on account of special circumstances.

TIMETABLE

The Regulation is applicable from 1 October 2002 to 31 May 2010. In order to give all operators time to adopt vertical agreements that are compatible with the new provisions, however, there is a transitional period until 30 September 2003 for agreements that are compatible with Regulation (EC) No 1475/95 and were concluded before 30 September 2002. As the final stage in this reform of the competition rules applicable to the motor vehicle sector, the exemption of Regulation (EC) No 1400/2002 as of 1 October 2005 no longer applies to "territorial clauses".

The Commission is required to monitor the application of the Regulation on a regular basis and to draw up a report on it not later than 31 May 2008.

CONTEXT

Commission Regulation (EC) No 1400/2002 replaces Regulation (EC) No 1475/95, which expired on 30 September 2002.

RELATED ACT

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 [Official Journal L 336, 29.12.1999].

See also

For any further information, consult the following page on the Motor Vehicles website of the Directorate-General for Competition.

Last updated: 15.06.2007