Termination of dealer contracts in run up to 2010

Ferrari's CEO Amadeo Felisa is quoted (second-hand - originally in Autmotive News Europe) on the termination of dealer agreements throughout Europe last August.

"The cancellation was done in preparation for the new franchise contracts that will be needed to comply with the next block exemption, as the current one expires in 2010.

"Ferrari has made significant investments in the past decade to completely renew its headquarters, factory and products. We want our dealers to follow us by upgrading their corporate standards to match what the new Ferrari is.

"We have 80 dealers in Europe. If they want to continue partnering with us, we would be happy to continue doing business with them."

Ferrari dealers are not the only group in such a position.  The transition from one regulation to another has always been fraught, and usually (at least, as far as I know) suppliers have taken it as a good reason to terminate all their dealer agreements and offer new ones to selected dealers.  Perhaps at least all 80 Ferrari dealers in Europe will be getting new agreements - but it's clear that they will have to meet a new, improved set of dealer standards if they are to qualify.

Ther is nothing in the block exemption that requires suppliers to terminate their contracts with dealers.  Whether this is necessary is a matter purely for national contract law, as the Court of Justice of the European Communities made clear in Case 125/05, Vulcan Silkebord.  But, like so much in the relationship between car manufacturer and dealer, dealers don't hurry to assert their legal rights against the dominant party in the relationship.

Associations call for retention of Block Exemption

Automotive News reports that five dealer trade associations - the ZDK (Germany) and its counterparts from Luxembourg, Switzerland, South Tyrol, and Austria, have called on "the EU" to extend the block exemption for at least 10 years.  It notes that the "EU Commission" has offered little hope of an extension, and then in an extraordinary non-sequitur that the block exemption affects about 2.8 million workers in 350,000 small and medium-sized automotive companies.

Leave aside that the EU has nothing to do with competition policy, which is the exclusive domain of the European Community, and that the title of the institution that is responsible for the block exemption is the European Commission.  More to the point, the Associations are pleading for the retention of the multifranchising rules to protect the investment of these enterprises.  They argue that:

'If the automotive block exemption were to disappear in 2010 without a replacement, "auto manufacturers could, in particular, prohibit multiple-brand operations"...'

Not so, at least not automatically.  Whether a restriction on multifranchising would be permitted would require an analysis of the effect of such a provision on competition.  It is highly likely that this would conclude that the provision would be prohibited under Article 81(1) and not exempt under Article 81(3).  But the dealer associations are still right to call for a continuation of the certainty that the Regulation gives, because without the protection of the block exemption dealers might well find their suppliers taking the view (now that Article 81(3) is a matter for self-assessment) that a ban on multi-franchising was permissible, leaving it for the dealers to take the matter to court or to the competition authorities - and as I have observed many times before, the rights given to delers by the block exemption are of interest only to those dealers tired of their franchises.  What rational dealer, in the present climate especially, would pick a fight of such importance with a vehicle maker?

There is, it seems to me, a good reason why the USA has had the Dealer's Day in Court Act for over 50 years now, and it is that same reason that makes the dealer protection provisions of the block exemption an essential part of the apparatus that protects competition.

Responses to the Evaluation report

The Commission has published the non-confidential responses it has received to its evaluation report, published in May.  There 104 of them, so I know what I will be reading for the next few weeks (although I will be limiting myself to those in English and, just possibly, French, depending on how much time I have!).

The future of the right to repair

The Warsaw Business Journal tells us that "Independent car service providers in the EU are under threat", reporting the Right to Repair Campaign who could be expected to make such claims.

The gist of the story is that the Commission has not yet decided to renew the "directive", as the report calls the Regulation. Not that this appears to be news: it sounds as if R2RC, or perhaps just their Polish operation, have decided to gee the Commission up a little. It was only the end of July when comments on the Evaluation Report were requested, so it might be a little premature to chase the Commission just yet. But we are entering a phase in the renewal process when we can expect the lobbying to become more and more frenetic.

An endangered species

According to a PriceWaterhouse Coopers report described in an article in the on-line edition of Motor Trader: "Car dealers are an endangered species and their number in the UK will be significantly reduced in the future". I think I have read similar predictions of the demise of the franchised dealer in the past ... each new iteration of the Block Exemption seems to bring with it similar comments.
Suppliers are taking every opportunity to exercise more and more control over dealers, but this is nothing new. It was going on before we ever had a block exemption, and is an unavoidable consequence of the fact that the public face of the supplier is the dealer. All the valuable goodwill - the attractive force that brings customers back for more, or gets them interested in the cars in the first place - is in the hands of the independent dealer. Is it any surprise that car makers will cast around for anything that enables them to protect that reputation?
The important point is that surely that the process is reaching a new level. Every few years, the car makers' scope for exercising control over dealers has been diluted by the latest iteration of the block exemption regulation. It is due to happen for the fourth time in 2010, although the dilution of the car makers' powers has never been as great as dealers would have liked. In between new regulations, the car makers have striven to get back the control they lost, and more.
This time, when the Regulation is replaced, the chances are that dealers will find the outcome uncomfortable. The Commission, which in 1995 was moved to replace block exemption v1 following an extraordinary demonstration of how suppliers could exercise arbitrary power over their dealers (from memory, it was the president of CECRA whose franchise was terminated for no apparent reason, though I am sure that this is a gross oversimplification), is now set to remove all the dealer protection stuff that has been lobbied for and written into the regulation over the decades. They consider it out of place in a competition law instrument, and point out that the general competition rules can be used to control arbitrary abuses on the part of the supplier. So they can, but the process of invoking them (and moving national competition authorities to enforce the rules) will be long, complicated and expensive.
If the Commission is determined to lift the burden of regulation on the manufacturers, it should be putting in place protection for dealers similar to that given to commercial agents in the European Community and to auto dealers in most if not all states in the USA. If manufacturers could recognise that they are in it together with their dealers, and treat them as the independent experts they are supposed to be rather than micro-managing every aspect of the dealer's business, we might achieve a satisfactory outcome without legal intervention: but the history of the block exemption tends to show that more not less regulation of the manufacturer-dealer relationship is needed to preserve an appropriate balance in the market.

A time to Blog ...

With Regulation 1400/2002 due to expire on 31 May 2010 (though experience suggests that there might be an extension of time after that to allow the Commission to get the replacement, whatever that might be, ready) it is time to give serious thought to what might come after it. Well, the time to start doing that has already passed, and with this latest block exemption we have had plenty of opportunities to review its operation during its lifetime. My aim with this blog is to discuss what's likely to happen over the next couple of years, and to report on events as they unfold.