Wednesday, June 23, 2010
Posted by D. Daniel Sokol
Gregory Pelecanos (Ballas, Pelecanos & Associates) discusses Europe’s Reform of the Regulatory Framework of Motor Vehicle Distribution.
ABSTRACT: On May 27, 2010 the Commission adopted Regulation (EU) No. 461/2010 "on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector." In so doing, it extended the life of Reg. 1400/ 2002 which was due to expire on May 31, 2010, until May 31, 2013 with regards to vertical agreements relating to the conditions under which the parties may purchase, sell or resell new motor vehicles (primary market). Additionally, article 101 (3) of the Treaty, Reg. 461/2010 exempted, from the application of article 101(1), vertical agreements relating to the conditions under which parties may purchase, sell, or resell spare parts for motor vehicles or provide repair and maintenance services for motor vehicles, (the aftermarket) which fulfill the requirements for an exemption under Regulation (EU) No. 330/2010 on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (the VBER), and also do not contain any of the hardcore clauses listed in Article 5 of Reg. 461/2010.
In short, the Commission extended the life of and did not, at least until 2013, reform that part of Reg. 1400/2002 relating to the primary market. Indeed, it has kept the regime unchanged despite admitting that it did not work as intended in crucial areas and had little, if any, beneficial effect on competition. With regard to the primary market, reform has been postponed at least until June 2013. On the other hand Reg. 461/2010 carried over and added the essential provisions of Reg. 1400/2002 referring specifically to the aftermarket to the new VBER. In reality however, the effect of Reg. 461/2010 is to remove the benefits of automatic exemption under art.101 (3) for the agreements between vehicle manufacturers and their networks of authorized repairers and spare parts dealers. In as much as it deals with the aftermarket, this removal of exemption benefits does not bring about as substantive changes to existing structures as those developed under the previous Reg. 1400/2002.
The wrongs perpetrated on the primary market by the previous Reg. 1400/02 have not been corrected in the short term, although there are no reasons for delay. Chronic pathologies and distortions in the aftermarket are not dealt with, and systemic difficulties in the proper application of competition rules to the sector as a whole are not dealt with sufficiently.
Indeed, in contrast to the rush caused in 2002 when the now defunct Reg. 1400/2002 was adopted as well as during its annual transition period and the robust pro-competitive assertions of the Commission, Reg. 461/2010 was adopted without any fanfare and has received only little industry attention. Notably, partly because of delayed impact on the primary market, and in contrast to 2002/2003, motor vehicle' manufacturers have not proceeded with wholesale changes to their downstream distribution and service contracts.
It is not possible to deal extensively with the new regime in this article. Our emphasis is on whether certain unintended consequences of Reg. 1400/02 have been remedied for the short term in the primary market and whether certain structural problems of the aftermarket have been adequately dealt with.