Selling franchised dealerships

One of the important pieces of protection given to dealers in the 2002 Block Exemption - still there, until 2013, but cut from the new version of the Regulation - is the right to transfer the franchise to another member of the network. Previously, vehicle manufacturers had generally reserved the right to dictate to whom a dealer might sell, and often they would have preferred candidates. "Of course you can sell your dealership: and this is who you can sell it to ...". The provision in the 2002 Regulation that effectively said members of the network were pre-approved recognised an inherent truth in the way dealer networks are structured, but at the same time deprived manufacturers of protection against over-concentration of franchises in the hands of large dealer groups, which can be as much a problem for competition as vehicle manufacturers having market power.

With the removal of this condition for exemption, the protection of dealers will be significantly weakened. Whether this is a good or bad thing depends in the first place on where you stand - but to my mind, this is a dealer protection provision too far. No-one should be obliged to do business with someone they haven't chosen. Competition law does not generally require this, although for a dominant firm a refusal to supply may be an abuse (and therefore a breach of Article 102 TFEU or Part II of the Competition Act). Within the manufacturer-dealer relationship, of course, the manufacturer might be regarded as dominant, and certainly just because the new Regulation is silent on the question of transfers doesn't mean that the manufacturer will always be able to impose its wishes on the dealer - there is no exemption from Article 102.

However, the biggest limitation on the usefulness of the block exemption has always been the gap between the rights given to dealers and the practicalities of enforcing them. Legal action against a vehicle manufacturer to enforce rights given by the Regulation has clearly never been an attractive proposition for dealers: I can't think of any legal actions being brought. There have been a few disputes referred to expert determination, as the Regulation also requires for certain matters, but not many. Even just intimating to one's supplier that one's rights might have been breached is likely to be a step too far for most dealers.

The removal of the automatic right to transfer will look to dealers like a huge step backwards. On the face of it, manufacturers will be able arbitrarily to stop dealers transferring their business as a going concern. In fact, it merely reinforces the fact that the value of that business is built entirely on a contract, and it is common to find that rights under a commercial contract cannot be transferred freely. Obligations perhaps, but that makes no difference here. And even now, if the manufacturer doesn't like what the dealer proposes to do it can terminate the contract on notice. It would have to state its reasons, which must be objective, but unless it were blatantly anti-competitive it's not likely to help the dealer much as the block exemption contains no automatic sanction for a breach of this requirement. So perhaps the current dealer protection measure doesn't count for much anyway.

So there's a window of opportunity until the end of May 2013 for dealers to sell or buy, if they see an opportunity for consolidation - and manufacturers will probably be cautious about trying to terminate in such circumstances. (Of course, many networks are under wholesale  notices of termination during the two-year run-up to the change anyway.) After that, the basic competition rules will be there as a long-stop to prevent egregious anti-competitive behaviour - as they always have been. And there remains the possibility that the matter will be dealt with in the much-vaunted Code of Conduct.

However, the Code of good practice regarding certain aspects of vertical agreements in the motor vehicle sector. seems to be in trouble. The manufacturers, through ACEA, had offered a draft, but it didn't cover all the aspects of dealer protection - being limited to dispute resolution and minimum periods of notice. The Commission, which at first adopted a "hands off" approach consistent with its view that dealer protection had nothing to do with competition, has now become more proactive and announced that it wanted ACEA to reach agreement with CECRA before November this year. Subsequently it seems that ACEA has decided not to take part in further discussions - presumably, standing by its draft Code. So whether we will ever see anything in a form useful to dealers is up in the air - but as ACEA will be well aware there's always the general competition law lurking in the background to deal with any arbitrary exercise of power by vehicle manufacturers - if dealers dare invoke it.