Fasten your seatbelts as the Competition Commission revs up the motor industry

The Competition Commission (Commission) has released draft guidelines for competition in the automotive aftermarket industry (Guidelines) for public comment. The Guidelines have been labelled as controversial by some bodies, with some claiming that the Guidelines could have serious negative consequences for consumers and the country’s road safety initiatives. Below, we unpack the Guidelines and what they could mean for businesses and customers.

2 Mar 2020 3 min read Competition Alert Article

Whilst the Guidelines are not binding, they seem to stipulate a set of “rules” that will apply to Original Equipment Manufacturers (OEMs), Service Providers (i.e. those who service and maintain motor vehicles); Dealers; (i.e. OEM appointed franchises or subsidiaries); Insurers; and Independent Service Providers or ISPs (i.e. those service providers not appointed by an Insurer or OEM). It is however, yet to be seen how market participants will respond to these Guidelines.

Firstly, the Guidelines aim to create choices for consumers when selecting a Service Provider to carry out in-warranty services and repairs. In terms of the Guidelines, OEMs and Insurers must approve any Service Provider who applies to the OEM/Insurer for the right to carry out any in-warranty repairs if that Service Provider meets the OEM’s/Insurer’s standards and specifications. Further, the Dealers and Service Providers approved by OEMs/Insurers must not be prohibited from carrying out work for other OEMs/Insurers. OEMs must also inform customers that they can conduct in-warranty services at ISPs, but the OEMs are not obligated to pay for in-warranty services at ISPs.

The draft Guidelines may thus see the rise of Dealerships and Service Providers who offer sales of and service, maintenance and repairs to multiple different brands and who can carry out repairs for many different Insurers.

In respect of Spare Parts (i.e. replacement parts for worn, defective or damaged components of a motor vehicle), OEMs and Dealers must allow customers to fit Spare Parts which are not manufactured by the OEM (so called “non-original Spare Parts”) in instances where the warranty on that specific part has expired. In such situations, the use of non-original Spare Parts may not void the warranty on other parts in the vehicle which are still under warranty. OEMs and Approved Dealers must also make original Spare Parts available to other Service Providers and ISPs (unless those items are related to the vehicle’s security systems) and OEMs cannot restrict the ability of Service Providers to resell Spare Parts. This will require OEMs and Service Providers to closely examine their existing supply agreements to ensure that there is no exclusivity provision and will require OEMs and Service Providers to enter into new supply agreements with other ISPs.

The Guidelines also restrict the “bundling” of value-added products (such as maintenance plans, service plans and extended warranties) with the sale of new motor vehicles. This means that when purchasing a new motor vehicle, a consumer can opt not to take out a maintenance plan or can opt to purchase any maintenance plan or value-added products from another Service Provider, without voiding the warranty on the vehicle. Consumers must also be allowed to select the duration of a value-added product and must be free to purchase such products at any time after the purchase of a motor vehicle. Therefore, someone purchasing a vehicle may elect to only purchase a maintenance plan a year after purchasing the vehicle. This may result in many new providers of maintenance and service plans entering the market.

The Guidelines also provide that Dealers will be required to set out separately the costs of the motor vehicle from the cost of each separate value-added product as well as the information regarding the service and maintenance for that motor vehicle. In addition, the Dealers must disclose their sales commissions with the OEMs and other third parties. These provisions will require Dealers to ensure that all the necessary information is disclosed to the consumer.

Finally, OEMs are required to make available to ISPs the OEM technical information (excluding security related information) relating to the OEM’s motor vehicles on the same terms offered to its approved Service Providers. This information must include amongst other things, technical manuals, diagrams, diagnostic codes, software, handbooks and equipment. This extends to proprietary information which the OEM must disclose to the ISP. In such instances, the OEM can, however. impose confidentiality requirements on the ISP. Furthermore, the OEM and Dealer must provide product specific training and training on the methods used to service and maintain the OEM’s motor vehicle, to the ISP’s employees who have requested such training. These obligations may be perceived to be quite onerous on OEMs and Dealers.

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