The Future of the Motor Block Exemption in the UK

The future of the Motor Block Exemption post “Brexit”

Art. 101(1) of the Treaty on the Functioning of the European Union (“the Treaty”) prohibits anti-competitive agreements between undertakings unless they create efficiencies and allow consumers a fair share of the benefits.

The motor trade was once covered by two specific block exemptions.  However, from 1 June 2013, that was reduced to one, that is:

• Vertical agreements (such as those in place for the distribution of new motor vehicles) were placed into the existing “general” block exemption applicable to vertical agreements and concerted practices (Regulation (EU) No 330/2010  – “VBER”).
• Agreements relating to the sale or resale of spare parts for motor vehicles or the provision of repair and maintenance services for motor vehicles (Commission Regulation (EU) No 461/2010 (the “MVBER”)) remained subject to a specific exemption which remains in force post Brexit following the UK’s adoption of EU laws as part of the European Union (Withdrawal) Act 2018.

The future of the Block Exemption and Brexit

The MVBER will remain in force until it expires on 31 May 2023.  In the case of VBER, the expiry date is 31 May 2022.

Therefore, the UK will soon need to create its own block exemption, or Domestic Exemption Order, if necessary.

EU Consultation

The EU has recently engaged in a consultation to consider the future of the MVBER and VBER.  The focus of the consultation was to evaluate “the key competition issues arising in vertical relationships on the motor vehicle distribution and after-sales markets”.

The findings of the evaluation

The evaluation has shown that, overall, the competitive environment in the motor vehicle markets has not significantly changed since the Commission last evaluated these markets in 2010.  However, the commission observed that the sector is now under intense pressure to adapt to keep pace with the green and digital transformations in the motor sector.

The Commission analysed the competitive landscape in three markets: (i) vehicle distribution, (ii) vehicle repair and maintenance and (iii) sale of spare parts.

• Motor vehicle distribution markets:
  • Competition in passenger cars remains vigorous, but is less intense for light commercial vehicles, trucks and buses.
  • Overall, the evaluation concluded that VBER remained appropriate.
• Motor vehicle repair markets:
  • The evidence showed that many authorised repairers enjoy considerable local market power and that intra-brand competition within the authorised networks appears to be limited by strict and detailed quality criteria.
  • Independent repairers will only be able to continue to exert vital competitive pressure if they have access to key inputs such as spare parts, tools, training, technical information and vehicle-generated data.
  • Whilst the current regime is suitable for these markets, it may require certain updating to take account of the increasing importance of data.
• Motor vehicle spare parts markets:
  • These markets are less flexible due to certain contractual arrangements between original equipment suppliers and vehicle manufacturers, which ultimately reduce the choice available to end-consumers. At this stage, the evaluation finds that the decision in 2010 to give special treatment to these markets was appropriate.

The Evaluation Report concludes that the current regime has shown itself to be suitable and adapted to diverse situations. Nevertheless, some provisions and policy objectives may need updating in the light of the report.  The Commission will reflect on the various findings in the coming year, while also taking account of the findings of the ongoing review of the Vertical Block Exemption Regulation.

The Commission will now start the policy-making stage of the review, in order to decide by 31 May 2023 whether to renew the current Motor Vehicle Block Exemption regime, revise it or let it lapse.

UK Government

VBER Consultation – https://www.gov.uk/government/consultations/retained-vertical-block-exemption-regulation

The CMA is currently reviewing VBER for the purpose of making a recommendation about whether to replace it when it expires on 31 May 2022.  The CMA plans to consult on its proposed recommendation in summer 2021 (Interested stakeholders are invited to contact [email protected]).  The CMA will be reviewing MVBER in due course in order to make a recommendation to the Secretary of State.

The CMA’s current view is that VBER largely delivers what it was intended to deliver, but it should be examined rigorously to ensure that it takes account of any specific features of the UK economy so that it serves the interests of UK businesses and consumers.

The vehicle retail market has changed a lot over the last 10 years.  Leasing grows ever popular. Manufacturers are beginning to supply customers direct.  Consumers increasingly associate their dealer as being owned by, or part of, the manufacturer.   As cars become increasingly electronic and controlled by computers, will the model changes such that dealers perform all relevant services on vehicles as agent of the manufacturer?

Any policy regarding the issue of parallel imports will also be interesting to watch.  In the 80’s and early 90’s disgruntled British customers started to obtain cars direct from cheaper EU jurisdictions.  Large car supermarkets soon started to appear spotting an opportunity to make good profit by means of parallel imports.  Will that happen again?  Will online discounters, with reduced costs, challenge the traditional retail model which involve large showrooms showcasing their manufacturers vehicles at great cost to them.

Brexit is a divisive topic.  As has been seen with the fishing industry post Brexit, policy appears to be as much about playing to the crowd as it is about protecting British fishermen.  The car market in the UK is an important one politically and economically not to mention symbolically given our once great car industry.  There are many that feel that UK dealers should be given extensive protection which mirror those in the States and those enjoyed in Europe.  However, there are many that favour a market which regulates itself.

Conclusion

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Our evaluation has shown that the Motor Vehicle Block Exemption Regulation has made it easier for businesses in the automotive sector to assess whether their agreements are in line with the EU rules on competition. At the same time, it showed that we need to take into account the emergence of new technologies and the increasing role of data in competitive dynamics in this industry. The Commission will therefore reflect on how to address these issues to ensure that the rules remain fit for a rapidly changing automotive industry.”

The current government is neo-liberal.  Neo-liberal politicians prefer to let the market regulate itself.  Whether that happens, or, the government concur with Ms Vestager will be a topic which will be closely watched and provoke plenty of comment, no doubt.

Disclaimer: this article is not to be relied upon as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.