In 2002 around 100,000 main dealers1 were involved in the distribution of 14 million new registered passenger cars2 throughout the European Union. This impressive fact describes only a small part of one of the biggest industries in the EU. The European car industry is described as a “national champion” among EU competition law experts. However, even the best industry is nothing without an efficient distribution system. Distribution of motor cars in the EU has been governed for nearly 20 years by the legal device of block exemption regulations. The latest block exemption, Regulation 1400/023, came into force on 01 October 2002 and brought fundamental changes. This essay intends to analyse these changes and to predict their likely impact on the car distribution sector. For that purpose it is first necessary to describe the present distribution systems used by car manufacturers throughout the EU (A.I.), to outline the approach of EC competition law towards these specific distribution systems and to explain the Commission’s general policy of granting block exemptions (A.II.). Part B of this paper is concerned with specific issues regarding the new block exemption. Major changes are highlighted and compared with the former regulation. The likely impact of the new regime on the distribution systems in the EU will be evaluated in part C. By taking into account current available data and trends in the motor industry I will give a projection of what outcome the new regulation may lead to.
Table of Contents
INTRODUCTION
A. THE CAR INDUSTRY IN THE EUROPEAN UNION
I. The Structure of Passenger Car Distribution in the EU
II. Applicability of EC Competition Law to the Car Manufacturers’ Distribution Scheme
1. Particularities of Motor Car Distribution
2. Detrimental and Beneficial Effects of Vertical Agreements
3. The EC Policy of Granting Block Exemptions
B. Article 81(3) EC and Motor Vehicle Distribution
I. Block Exemptions in the Automotive Sector –a Historical Outline
II. The New Regulation 1400/02 –General Remarks
III. The Changes of Regulation 1400/02 in Detail
1. The Distribution System Issue
2. Abolishment of the Sales-Service Link
3. Abolishment of the “Location Clause” and other Changes in Favour of the Distributor
4. Introduction of Market Share Thresholds
5. Multi-Branding
6. Changes for so-called "Intermediaries"
7. Distribution and Access of Spare Parts
C. THE LIKELY IMPACT OF THE NEW REGIME
I. The Necessity of a Block Exemption in the Automotive Industry
II. Future Developments of the Retail Distribution Structure
1. Distribution of New Cars
i) Selectivity or Exclusivity?
ii) Danger of Repetition
(A) The Selective Distribution Scenario
(B) The Exclusive Distribution Scenario
2. Changes in the After-Sales Market
3. The Impact on the Distribution of Spare Parts
4. Benefits for the Consumer?
5. Other Factors
CONCLUSION
Objectives and Topics
This essay evaluates the impact of European Commission Regulation (EC) No. 1400/2002 on the automotive retail and distribution sector. It aims to determine whether the new regulatory framework successfully addresses past competition issues, fosters market integration, and delivers tangible benefits to consumers compared to previous regimes.
- Analysis of EC competition law in the automotive sector.
- Evaluation of the changes introduced by Regulation 1400/02 regarding distribution models and spare parts.
- Assessment of the shift from the sales-service link and the abolishment of the location clause.
- Projection of future retail distribution structures and their potential effect on inter-brand and intra-brand competition.
- Investigation into consumer benefits, including price transparency and access to independent repairers.
Excerpt from the Book
A. THE CAR INDUSTRY IN THE EUROPEAN UNION
Car producers do not carry out the distribution of their products by themselves, but they organise the distribution through a dense network of authorised dealers whose function is to resell the products to the final consumer. For this purpose, car producers appoint one supplier for each Member State, the so-called importer, which is directly owned by the manufacturer. The importer’s task is to conclude individual distribution agreements with dealers located in the Member State where he operates. The appointed dealer carries out the retail distribution to the final consumer. However, in their home country the carmakers conclude agreements with appointed dealers directly themselves.
Despite these contractual bindings and huge efforts of the car producers to maintain and develop an integrated distribution strategy and to exercise absolute control over their networks, car dealers themselves act independently and form several legal and economic entities. As a result of this structure which separates the functions of production and sales, the distribution model used by the car manufacturers for the distribution of passenger cars throughout the EU cannot be considered as a typical form of absolute vertical integration in the downstream market of car sales, but characterises the distribution model as formed by so-called vertical agreements. Parties of such vertical agreements operate at different economic levels of the market, and the respective agreement between them lays down the conditions under which they may supply, purchase and resell certain goods or services.
Summary of Chapters
INTRODUCTION: The introduction sets the scene by describing the importance of the European car industry and the shift from the previous regulation to Regulation 1400/02.
A. THE CAR INDUSTRY IN THE EUROPEAN UNION: This chapter details the existing structure of passenger car distribution and how EC competition law applies to vertical agreements.
B. Article 81(3) EC and Motor Vehicle Distribution: This section provides a historical outline of block exemptions and analyzes the specific reforms brought by Regulation 1400/02, including the distribution system changes and market share thresholds.
C. THE LIKELY IMPACT OF THE NEW REGIME: The final analytical chapter forecasts the future of retail and after-sales markets, evaluating the potential for increased competition versus the risks of continued market foreclosure.
CONCLUSION: The conclusion summarizes the expected outcomes, suggesting that while the new regime introduces positive changes, it may not fully deliver the intended benefits to consumers due to persisting industry practices.
Keywords
Competition Law, Regulation 1400/2002, Automotive Industry, Vertical Agreements, Block Exemption, Car Distribution, Selective Distribution, Exclusive Distribution, Spare Parts, After-Sales Market, Intra-brand Competition, Inter-brand Competition, European Union, Dealer Network, Market Integration
Frequently Asked Questions
What is the primary subject of this essay?
The essay focuses on the critical evaluation of the European Commission Regulation (EC) No. 1400/2002 and its effects on how motor vehicles are distributed and sold within the European Union.
What are the core thematic areas covered?
The core themes include the legal framework of vertical agreements, the transition from old block exemption rules to the new regime, and the resulting dynamics in both new car sales and the after-sales repair market.
What is the main goal of the research?
The goal is to assess whether the new regulation will effectively improve competition, reduce price differentials between Member States, and ultimately provide better value and choice for consumers.
What scientific or legal methodology is employed?
The paper utilizes a legal and economic analysis, comparing the provisions of Regulation 1400/02 with predecessor regulations and examining industry trends, market data, and Commission reports.
What does the main body of the work address?
The main body examines specific changes such as the abolishment of the sales-service link, the removal of the location clause, the introduction of market share thresholds, and the impact on spare parts distribution.
Which keywords best characterize this work?
The work is characterized by terms such as Competition Law, Block Exemption, Vertical Agreements, Automotive Distribution, and Market Integration.
How does the regulation address the "sales-service link"?
The new regulation eliminates the mandatory sales-service link, allowing for a separation of these functions to promote greater competition in the after-sales market and permit independent repairers to compete more effectively.
What are the identified dangers regarding the "Selective Distribution Scenario"?
The author identifies a risk of a "cumulative effect" where, if most manufacturers opt for selective distribution, there could be a significant loss of inter-brand competition and possible foreclosure of non-authorised distributors.
- Quote paper
- Rechtsanwalt Karsten Keilhack (Author), 2003, Critically evaluate Commission Regulation (EC) No. 1400/2002 and its likely impact on the system for retailing and distribution of motor vehicles in the European Union, Munich, GRIN Verlag, https://www.grin.com/document/22897
