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

Term Paper (Advanced seminar), 2003

27 Pages, Grade: 74% with Distinction




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 Distrib utor
4. Introduction of Market Share Thresholds
5. Multi- Branding
6. Changes for so- called "Intermedia ries"
7. Distribution and Access of Spare Parts

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


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 de- scribed 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 im- pact 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 Commis- sion’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.


I. The Structure of Passenger Car Distribution in the EU

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 re- sell 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.4 However, in their home country the carmakers conclude agreements with ap- pointed dealers directly themselves.

Despite these contractual bindings and huge efforts of the car producers to maintain and develop an integrated distribution strategy5 and to exercise absolute control over their networks,6 car dealers themselves act independently and form several legal and economic entities.7 As a re- sult 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.

It must be noted that apart from the sales of new cars through their distribution network, car manufacturers also sell a certain quantity of cars directly without involvement of a dealer to special customer groups such as armed forces, huge fleet operators (e.g. car rental agencies) or public services (fire department, police etc.). These groups are generally reserved by the car- maker for such direct sales.8

II. Applicability of EC Competition Law to the Car Manufacturers’ Distribution Scheme

The basis provision in EC competition law concerned with vertical agreements between undertakings is Article 81(1) EC. This provision prohibits agreements which are anti- competitive and for this reason may affect trade between Member States. Article 81(2) EC renders such agreements void, provided that they do not have beneficial effects and therefore satisfy the con- ditions for an exemption either on an individual case- by case basis or en bloc as set out in Article 81(3) EC.9

1. Particularities of Motor Car Distribution

In order to be caught by Article 81(1) EC, the agreement between manufacturer and dealer must further have either the object or effect of preventing, restricting or distorting compe- tition within the Common Market.10 In the case of vertical agreements, the Community Courts considered in particular provisions which fix minimum resale prices,11 confer absolute territorial protection on distributors12 or impose export bans on distributors13 as such obvious restrictions of competition.

In Consten and Grundig v. Commission the European Court of Justice (EJC) decided, that Article 81(1) EC is applicable to vertical agreements.14 However, the provision does not cover agreements within a corporate group.15 Indeed, agreements between car manufacturers and car dealers cannot be regarded as such intra- corporate group agreements because of the car deal- ers’ economic and legal independence which qualifies him as undertaking in terms of Article 81(1) EC. Nevertheless, it is not obvious in every case, that the agreement in question is not a mere intra- corporate one. This is illustrated by the Commission’s recent decision against Daim- ler- Chrysler,16 where the car manufacturer argued that its sales in Germany are mainly realised by independent “agents“. Article 81(1) EC is not applicable to such agency agreements, because agents are regarded as auxiliary organs which form an integral part of the principal’s undertak- ing.17 The Commission, however, rejected this argument by pointing out, that in this case Daim- ler- Chrysler’s agents had to bear considerable financial and commercial risks linked to their ac- tivities and thus must be treated as independent dealers.18

In some cases it is not the dealership agreement between car manufacturer and dealer it- self which infringes Article 81(1) EC, but subsequent directives issued by the car manufacturer and addressed through circular letters to all authorised dealers in a particular distribution terri- tory. In its decision against Volkswagen,19 for example, the Commission investigated that the German carmaker had issued such circular letters ordering its dealers in Germany not to sell the Passat model below a certain recommended price. On appeal before the Community Courts, car manufacturers then usually argue that such a simple directive is a mere unilateral act and there- fore cannot be considered as agreement in terms of Article 81(1) EC. Volkswagen for example, brought this objective in another case as it challenged a decision of the Commission before the Court of First Instance (CFI) in July 2000.20 The CFI decided, however, that a circular by a car manufacturer, addressed to its authorised dealers, is not an unilateral act which falls outside the scope of Article 81(1) EC but is an agreement within the meaning of that provision if it forms part of a set of continuous business relations governed by a general agreement drawn up in ad- vance.21 The court thus followed prevailing case law established by the ECJ.22

In those cases where the object of a vertical agreement is not to restrict competition, an economic analysis is necessary to establish whether the agreement in question has the effect of restricting competition on the relevant market. The ECJ emphasised that, if such an agreement exists within a producer’s framework of several vertical distribution agreements, it cannot be considered in isolation, but only in conjunction with the whole bundle of distribution agreements used by that producer.23 In cases where a high percentage of goods within one relevant market are distributed by each manufacturer using nearly identical features in their distribution agree- ments, a so- called cumulative effect occurs which is likely to restrict competition in that market. As all manufacturer use similar distribution arrangements throughout the EU, such a cumulative effect exists in the car sector.24 This fact has to be taken into account when assessing the new block exemption.

2. Detrimental and Beneficial Effects of Vertical Agreements

Vertical agreements contain so- called vertical restraints. These are contractual restric- tions on conduct imposed from the producer on the distributor in order to facilitate the process of distribution. Such vertical restraints can have potential anti- competitive and pro- competitive ef- fects which are much depending on the format, content and context in which they are used.25 The main task of EC competition law applicable to vertical agreements is to balance these specific ef- fects in order to protect competition and to create efficient allocation of resources for the benefit of the consumer.26

Foreclosure of other suppliers or other buyers by raising barriers to entry, the reduction of inter- brand competition, the reduction of intra- brand competition and the creation of obstacles to market integration are considered by the Commission as major detrimental effects on compe- tition that may result from vertical restraints.27 In the case of vertical agreements in the motor vehicle sector, such detrimental effects are in particular caused by resale price maintenance28 and direct or indirect export bans.29

There are also significant arguments in favour of vertical restraints.30 They can improve economic efficiency within the distribution chain by facilitating better co- ordination between the participating undertakings. Recital five and six of the new block exemption on motor vehicles Regulation 1400/02 indicate, that the Commission is aware of the fact that such effects must also be taken into account when assessing vertical restraints in the automotive sector.

3. The EC Policy of Granting Block Exemptions

An agreement which fulfils the conditions set out in Article 81(1) EC is not necessarily automatically void as Article 81(1) EC provides. According to Article 81(3) EC, the Commis- sion may declare Article 81(1) EC inapplicable in respect of individual agreements or categories of agreements which satisfy certain requirements. Article 9(1) of Council Regulation 17/6231 in conjunction with Council Regulation 19/6532 provide the legal framework within the Commis- sion may adopt block exemptions for categories of vertical agreements such as the block exemp- tions on motor vehicle distribution. In the early years, at the time when the dense net of block exemption regulations did not existed yet, the Commission pursued a policy of wide interpreta- tion of Article 81(1) EC.33 However, the earlier system of block exemptions was largely criti- cised because of its excessive formalistic and prescriptive approach to competition law issues and its lack of economic analysis and flexibility.34 With the adoption of the new general block exemption 2790/9935 on vertical agreements in 1999 which replaced three regulations,36 the Commission adopted a new policy in assessing vertical restraints which was described as an “radical process of reform”37. Unlike the former traditional block exemptions, Regulation 2790/99 now defines in so- called “black lists” what is not exempted and thus leaving the parties to an agreement a much greater flexibility.38 Moreover, the integration of market share thresh- olds for determining whether an agreement qualifies for block exemption is an absolute novelty and shows likewise the Commission’s more economic approach to competition law issues.39

B. Article 81(3) EC and Motor Vehicle Distribution

I. Block Exemptions in the Automotive Sector - a Historical Outline

Distribution agreements between car manufacturers and dealers were first exempted from the application of Article 81(1) EC by Regulation 123/8540 issued by the Commission in 1985. The BMW case,41 ten years before the first block exemption was adopted, is seen as the origin for the adoption of a block exemption for the distribution of motor cars.42 In this case the Commis- sion decided that although the agreements between BMW and its dealers restricted competition, it nevertheless fulfilled the requirements set out in Article 81(3) EC43 and therefore it was granted the first individual exemption in the automotive industry. Given the experience gained in that case and to avoid a situation in which all motor vehicle manufacturers notify their similar dealer contracts individually, the Commission draw the conclusion that car distribution agree- ments, as used in a common form throughout the EU, constitute a sufficient definitive category of agreements in terms of Article 81(3) EC, capable to be exempted en bloc.44 In order to fulfil the requirements of Article 81(3) EC, an exempted category of vertical agreements must improve the production or distribution of goods or promote technical or economic progress while allow- ing consumers to receive a faire share of the resulting benefit and must neither contain dispensa- ble restrictions nor substantially eliminate competition in the relevant market. The Commission regarded the restrictions of competition caused by the combination of selective and exclusive distribution systems as used by car manufacturers as indispensable measure of rationalisation in the motor vehicle industry, because motor vehicles were seen as complex and expensive con- sumer goods which require expert maintenance and repair, not always in the same place. There- fore, motor vehicle manufacturers should have been able to co- operate only with those appointed exclusive dealers who can to provide such specialised servicing appropriate to the complexity of such goods in order to ensure that consumers get proper access, choice and a fair share of bene- fits.45

As block exemptions are only granted for a specific period of time,46 Regulation 123/85 expired on 30 June 1995 and was then replaced by the Commission’s second block exemption on car distribution, Regulation 1475/9547. Although basic principles of Regulation 123/85 remained unchanged, in particular the maintenance of the “indispensable necessity to combine selective and exclusive distribution,”48 the new regulation narrowed the prior block exemption and aimed to bring more competition into the sector. Under Regulation 123/85 for example, a dealer might have been prohibited from running a multi- branding dealership (i.e. to sell new cars of more than one single brand) by the manufacturer,49 however, under the new regulation such a ban was not possible any more.50

II. The New Regulation 1400/02 - General Remarks

Regulation 1475/95 expired on 30 September 2002. The block exemption on the distri- bution of motor vehicles was renewed by Regulation 1400/02. The adoption of the new regula- tion was preceded by a long- lasting legislative process consisting of extensive fact finding and consultation which took into account the views of interested parties and the findings of a series of studies carried out by independent consultants. The origin of the new regulation was the Commission’s evaluation report on Regulation 1475/9551 published in November 2000. A series of problems with the current regulatory regime were identified by that report. In its accompany- ing press release, the Commission stated that “the block exemption has not achieved part of the aims stated by the Commission in 1995 when it renewed its permission to use selective distribu- tion networks for the sale of motor cars. Consumers in particular do not seem to receive from this distribution system the fair share of the benefits of the creation of a Single European Market in 1993.”52 The publication was followed by a public hearing in February 200153 which enabled interested parties to announce their views. Subsequently, a draft Regulation was published in February 200254 and, following further consultation, the final version was published in July 2002. Accordingly, all new agreements entered into on or after 01 October 2002 must fulfil the requirements of the new regulation. Agreements in force on 01 October 2002 which comply with Regulation 1475/95 remain untouched by the new until 30 September 2003, in order to provide a transition period of one year to adapt present distribution arrangements to the new rules. The new regulation is based on the same philosophy as Regulation 2790/99 on vertical restraints.55 Several similarities in structure and characteristics underlay this statement. Unlike the former Regulation 1475/95, it does not prescribe a single rigid distribution model but rather leaves a wide number of choices open to carmakers and distributors which gives them much greater flexibility.56 The Commission does not seek to define what criteria are permitted or how a carmaker should organise his network; instead, provided an agreement corresponds to the basic conditions for the application of the regulation, everything is permitted with the exception of a defined blacklist of "hard core restrictions". If an agreement contains such a hardcore restriction, the entire agreement will lose its benefit from the block exemption. Similar to Regulation 2790/99, the new Regulation introduces the use of market share thresholds when defining the applicability criteria of the block exemption.57 Moreover, it now contains two novel provisions relating to the withdrawal of the benefits of the block exemption.


1 European Commission Report, 15 November 2000, Document COM(2000)743 final “Report on the evalua- tion of Regulation (EC) No 1475/95 on the application of Article 85(3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements” > lex/en/com/rpt/2000/com2000_0743en01.pdf< (hereinafter: Evaluation Report) at para. 89.

2 Source: European Manufacturers Association (ACEA), Market Data > Error! Hyperlink reference not valid.

3 OJ2002L 203/30.

4 Evaluation Report at para. 83.

5 Andersen, 03 December 2001 “Study on the impact of possible future legislative scenarios for motor vehicle distribution on all parties concerned” Part I at p. 62. Available at ><.

6 Maxton, G.P. and Wormald, J., Driving Over a Cliff? - Business Lessons from the World’s Car Industry (1st ed. 1994 Economist Intelligence Unit) at p.108.

7 Evaluation Report at para. 85.

8 Evaluation Report at para 86.

9 Cf. Albors- Llorens, A., EC Competition Law and Policy (1st ed. 2002, Willan Publishing) at p. 17.

10 “Object” or “effect” of restricting competition do not constitute cumulative requirements. On this issue see the fundamental decision of the ECJ in Société Technique Minière v. Maschinenbau Ulm1966C.M.L.R. 357 at p.375.

11 Louis Erauw- Jacquery v. La Hesbignonne19884 C.M.L.R. 576 at para 15.

12 Consten and Grundig v. Commission1966C.M.L.R. 418.

13 Volkswagen v. Commission20005 C.M.L.R. 853 at paras 88, 89 and 178 (on appeal before the ECJ; judgement pending) and BASF Coating AG v. Commission20004 C.M.L.R. 33 at paras 133, 135.

14 1966C.M.L.R. 418 at p. 470.

15 Whish, R., Competition Law (4th ed. 2002, Butterworths), at p.537.

16 OJ2002L257/1.

17 Whish, R. supra note 15 at p.538.

18 Supra note 16 at paras. 156 et seq.

19 Volkswagen Passat Commission Decision 2001/711/EC OJ2001L262/14 at paras. 32 et seq.

20 Volkswagen v. Commission supra note 13 at para 210.

21 Ibid at para 236.

22 Cf. Ford- Werke AG & Ford of Europe Inc. v. Commission19853 C.M.L.R. 528 at para.21 and Bayerische Motorenwerke AG v. ALD Autoleasing D GmbH19964 C.M.L.R. 478 at paras 16 et seq.

23 Brasserie de Haecht v. Wilkin1968C.M.L.R.26 p. 40 and Delimitis v. Henninger Bräu AG19925 C.M.L.R. 210.

24 Evaluation Report at paras. 20 and 82.

25 Rodger, B.J. and MacCulloch, A., Competition Law and Policy (2nd ed. 2001, Cavendish Publishing) at p. 172.

26 Ibid. at p. 171.

27 Cf. current Commission Guidelines on Vertical Restraints OJ2000C 291/01 (hereinafter: Guidelines on Vertical Restraints) at para 103.

28 Volkswagen Passat supra note 19; Peugeot SA v. Commission1994E.C.R. II- 2727 (final decision of the ECJ); Daimler- Chrysler supra note 16; Opel Netherlands Commission Decision 2001/146/EC OJ2001L59/1.

29 Volkswagen v. Commission supra note 13 at paras 88, 89 and 178.

30 Guidelines on Vertical Restraints paras.115 et seq.

31 OJ Sp. Ed.1962204/62 at p.87, as amended by Regulation 1216/99 OJ1999L 148/5. On 16 December 2002 the Council adopted a new Regulation (Reg. 1/2003) implementing Articles 81 and 82 EC, which will re- place Regulation 17/62 when it comes into force on 01 May 2004. Until then, Regulation 17/62 remains in force.

32 OJ1965036/533 as amended by Council Regulation 1215/99 OJ1999L148/1.

33 Rodger, B.J. and MacCulloch, A. supra note 25 at p.144.

34 Ibid. at p. 148; Albors- Llorens, A. supra note 9 at p.54.

35 OJ1999L 336/21.

36 Regulation 1983/83 for exclusive distribution agreements (OJ1983L173/1), Regulation 1984/83 for exclu- sive purchasing agreements (OJ1983L173/5) and Regulation 4087/88 for franchise agreements (OJ1988 L359/46).

37 Albors- Llorenz, A. supra note 9 at p.54.

38 Ibid. at p. 61.

39 Rodgers, B.J. and MacCulloch, A. supra note 25 at p. 149.

40 OJ1985L15/16.

41 Bayerische Motorenwerke AG v. Commission OJ1975L29/1.

42 Cf. Evaluation Report at para. 28.

43 At this time Article 85 (3) EC.

44 Faull, J. and Nikpay, A., The EC Law of Competition, Oxford University Press, (1st ed. 1999, Oxford University Press) at para 7.294. and Regulation 123/85 recital 1.

45 Regulation 123/85 recital 4.

46 Pursuant to Article 8 (1) of Regulation 17/62.

47 OJ1995L145/25.

48 Cf. Regulation 1475/95 recital 4.

49 Cf. recital 7 and Article 3 (3).

50 Regulation 1475/85 Article 3 (3).

51 Supra note 1.

52 European Commission Press Release, 15 November 2000, Document IP/00/1306, “Commission adopts evaluation report on motor vehicle distribution and servicing under Regulation 1475/95” >|0|RAPID&lg=EN<.

53 For respective speaking notes of the participants see the European Commission website: ><.

54 OJ2002C 67/2.

55 Tsoraklidis, L., “Towards a new motor vehicle block exemption- Commission proposal for motor vehicle distribution adopted on 5 February 2002”, Competition Policy Newsletter Number 2 June 2002, 31 at p. 31.

56 Ibid at p. 32; Singleton, S. “In Focus - The Motor Vehicle Distribution Block Exemption and Case Law”2002C.L.T. 25.10(9) at page 9.

57 Regulation 1400/02 Article 3.

Excerpt out of 27 pages


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
Cardiff University  (Großbritanien; Law School)
Competition Law (Wettbewerbsrecht)
74% with Distinction
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
502 KB
Critically, Commission, Regulation, European, Union, Competition
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,


  • No comments yet.
Look inside the ebook
Title: 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

Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free