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.