USA: Nissan dealer's sales affected by local Chevrolet plant

Ah, if only we had laws like the ones in the USA that protect dealers. What little we had under the block exemption disappeared at the end of May. Sims v Nissan 2013-Ohio-2662 is a case in the Ohio Supreme Court involving a Nissan dealer in Warren, Ohio. There is a GM plant in Lordstown, about six miles away. The Ohio Supreme Court agreed with the dealer's argument that Chevrolet's unusual popularity in his market makes Nissan's sales expectations for him unrealistic.

There was a time, not so long ago, when a European dealer would have been able to invoke the dispute resolution procedures required by the block exemption to get such a problem sorted, by an arbitrator or expert third party. No longer. The Code of Good Practice issued by ACEA states that dealers will have the right to refer disputes to an independent expert or arbitrator, but what provides the basis for a dispute that can be referred? The dealer would have to argue that the target was set so high that it amounted to an unlawful restriction on competition - perhaps it would prevent the dealer in question taking in additional franchises. But it's pretty nebulous.

And while it might sound like an unfair commercial practice, the Unfair Commercial Practices Directive (Directive 2005/29/EC), which sounds as if it might be the right instrument to look to for redress, only applies to B2C transactions, not B2B which is what dealer agreements are. It is occasionally mentioned as a possible source of dealer protection, but for this simple reason it doesn't look very useful. But there is a green paper under discussion at present in Brussels, on unfair commercial practices, which was originally launched with a view to looking at practices in the food retailing sector. However, 34 per cent of responses (of which there were 746 altogether) came from the motor trade, and the NFDA is now pushing for the Commission to reintroduce some dealer protection measures. The consultation is being carried out by the Commission's Directorate General for Internal market and Services, and as so often happens it is quite possible that you'll get a different answer from them than from DG Competition - whose agenda, of course, is quite different. The UK government's response to the Commission's consultation is here.

Dealing with dealer disputes: the Canadian way

How dealers will be protected from the arbitrary exercise of manufacturers' market power is, of course, a key topic whenever one talks about the block exemption (and who doesn't?). Here's an interesting piece (and here's another) by Irvin Schein, a commercial litigator at Minden Gross LLP, about how such disputes are handled in Canada, where National Automobile Dealer Arbitration Program exists to deal with precisely that sort of thing.

It sets out rules which bind both parties once they adopt them by signing an implementation agreement, usually at the same time as signing the dealer agreement. Where there is a conflict between the program and the dealer agreement, the program explicitly takes precedence. Very similar in many ways to the much-vaunted code of good practice to be operated as a supplement to the block exemption. Make that codes of good practice, as it is unlikely that there'll be one agreed code.

The Canadian program is more than just procedural rules: it also contains substantive provisions. There's a long list of the sorts of disputes that will be covered, including refusals to renew a dealer agreement. So manufacturers and importers are obliged to renew, unless they have cause not to do so. Just as US dealers have their Day in Court Act, so Canadian ones have their day in arbitration.

Just what we need over here - some would say.

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.