The demise of multifranchising: problems for small networks?

One area where there are big differences between the new block exemption regime and the old one is in the treatment of multifranchising. In essence, the problem arises because of the different definitions of non-compete obligations in the old and new regulations. Under Regulation 1400, non-competes were permitted up to 30 per cent - meaning that a dealer or authorised repairer could be obliged to buy up to 30 per cent of its requirements from one source, which left room for them to have three sources (and a frustrating and useless bit to spare). That, you'll notice, is a rather liberal interpretation of "non-compete". Now, the vertical restraints block exemption (Regulation 330/2010)has become the relevant part of the patchwork of documents that now makes up the motor vehicle block exemption, and it takes a more logical but less helpful view of what amounts to a non-compete: it says 80 per cent is permissible.

The Commission has tried to justify this enormous change (and big step backwards, whether you approve of it or not, because it takes us back to the first motor vehicle block exemption which didn't permit multifranchising at all) by dismissing multifranchising (or multibranding, as they now like to call it) as something that never really worked anyway.

The idea of allowing dealers - by which I mean distributors and authorised repairers - to take on more than one marque is intended to prevent foreclosure of the market. A small manufacture, or a new entrant, needs to be able to get a toe-hold, and they can't expect to find lots of garages looking for a solus franchise. The only way competition can realistically be preserved in this area is by insisting that dealers be allowed to take on more than one franchise. So, for small manufacturers and their networks, as Automotive Management reports this week in connection with Hyundai, the changes are not good news.

Competition authorities will point out that if foreclosure is a problem the rules on competition can be brought to bear. It will be a breach of Article101 of the new Treaty, and if it is conduct that the block exemption permits, that permission can be withdrawn. True, but the Commission hasn't yet withdrawn exemption from a motor vehicle distribution agreeement and it's had 25 years in which to do so - and don't tell me there haven't been enough problems to justify it. Anyway, what dealer - especially the sort of dealer who's likely to be anxious about being able to multifranchise - is going to pick that sort of fight with a vehicle manufacturer?