The role of networks at the heart of the review of exemptions for motor vehicle distribution

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The current consultations on the regulations concerning automobile distribution provide an opportunity to take stock of the major issues concerning relations between manufacturers and their networks. All indications are that the transition to the "general regime", which the manufacturers welcome, will be assessed positively and will establish a balance of power that, legally speaking, is very favourable to them. It remains to be seen whether the omnipotence they acquire in this way can be exercised without damage to themselves and consumers and how dealers will be able to occupy this area of doubt.

 It will be remembered that the debate on 1400/2002 began shortly after it was adopted, since the London Economics report submitted to the then Commissioner Nelly Kroes dates from June 2006.

 

It should be noted that at that time, as in 1995, the exemption associated with the Regulation was only granted to the sector for 7 years. The regulation currently in force is 461/2010 (known as the Motor Vehicle Block Exemption Regulation or MVBER). It essentially places sales and after-sales under the "general regime" of franchising governed by Regulation 330/2010 but 461/2010 supplements these provisions as regards more specifically the issues of repair and distribution of spare parts.
 
The latter had entered into force as early as June 2010, when a period of three years was granted to stakeholders to reshape their contractual relations and adapt to the 330/2010, which therefore only came into force in the automotive sector in June 2013. The Commission had supplemented these two texts by specifying how the rules set out in a notice entitled "Supplementary guidelines on vertical restraints in agreements for the sale and repair of motor vehicles and for the distribution of spare parts for motor vehicles" should be interpreted. 
 
Since 461/2010 essentially decided to subject motor vehicle distribution to the general exemption regime which allows, under certain conditions, producers to opt for selective distribution by placing themselves under the franchise regime, the debates currently concerning motor vehicle distribution are at least as much those concerning this "general regime" as those specifically relating to motor vehicles.
 
Concerning the 330/2010, it will expire on 31 May 2022 and the European Commission has started the public consultation since May 2019. Concerning 461/2010, the Commission's DG Competition website states: "There is currently an exemption for certain agreements and practices in the automotive sector, but this will expire on 31 May 2023. This evaluation will assess whether the exemption is still effective, efficient and consistent with other national and EU rules". 
 


It specifies that the contributions will be collected between 12 October 2020 and 25 January 2021 and that the Commission will propose its evaluation report on this basis in the second quarter of 2021. Stakeholders were quick to respond to this invitation and 33 opinions were posted on the site this weekend.

 In addition to the issues raised by access to technical information or vehicle data, the main topics of debate in the field of distribution itself concern three points:

 

- the status of the distributor and his "freedom to transfer" his contract ;
- the ownership of customer and vehicle data;
- online sales.
We will deal with the first two in this column and reserve the third, particularly sensitive, for a future one (1).
 
Essentially, the answers to these questions will be provided by the provisions of the General Regulation and will confirm the developments in case law that have taken shape for the automobile industry as for other sectors over the past ten years. The reproach made to Mario Monti and his 1400/2002 by Nelly Kroes and her teams concerned a form of "confusion of genres": while it was supposed to deal with competition law and only competition law, the text also had "industrial policy" aims by intending to reshape the sector and was sensitive to requests for protection from dealers who were deemed to be in an asymmetrical position vis-à-vis the manufacturers, which required that they be granted a certain number of protections.
 
In 2010, DG Competition wanted a text that was more "chemically pure" and this is what led to placing automobile distribution under a general regime that considers that selective distribution is a choice of producers that franchisees validate by contracting freely and which, as long as the co-contractors have signed freely, does not call for any particular protection, at least in competition law.
The manufacturers have welcomed this evolution which leaves them much more freedom to organise and reorganise their networks as they see fit. Given the review of the "formats" of their networks in which they are currently engaged, the manufacturers will do everything possible to ensure that this evolution, which will take place in 2010, is sustainable.
 
ACEA thus states in its opinion (we translate) :
"These regulations have made it possible for vehicle manufacturers to optimise the organisation of their networks so as to combine their efficiency with consumer satisfaction. This is mainly due to the real flexibility that these regulations offer manufacturers when it comes to determining the structure of their networks. This has facilitated the management of distribution networks and their adaptation to technological developments and changes in consumer expectations in terms of quality and services".
 
The 330/2010 considers that franchisors contractually bound to their franchisees are in competition with each other on the markets that concern them and that, in order to engage in this game and to enable consumers to benefit from this specific competition, which is less focused on prices and more on quality and service, they must be as free as possible in the organisation - and reorganisations - of their networks.
 
As Joseph Vogel wrote in 2013 to underline the "progress" made from his point of view in 2010: "The fact that the Commission has decided to abandon the rules protecting distributors owes nothing to chance. By definition, the purpose of competition law is not to protect competitors, but competition, and these rules have no place in an exemption regulation". 
 
Everything suggests that this doctrine will be reaffirmed by the Commission and that Cecra's or CNPA's claim to guarantee freedom of assignment will remain a dead letter. These questions will once again be referred to "soft law" mechanisms such as "charters of good conduct" or to negotiations with groupings on the duration of contracts and/or notice periods.
 


In fact, dealers are asked to accept to be treated as suppliers to the manufacturers: the fact of setting up near an assembly plant at the request of a manufacturer corresponds to specific investments whose "redeployability" in the event of loss of the market(s) concerned is often imperfect. However, this in no way obliges the manufacturer not to have recourse to another supplier some time later.

 J. Vogel writes as follows: "Every undertaking makes investments for the conduct of its business, without this giving it any vested rights to continue relations with its partners, customers and suppliers; there is no justification from this point of view for car dealers to enjoy an exorbitant advantage under ordinary law". This was the profound meaning of the transition to the general regime.

 

 The question of customer files and the ownership of information concerning them is in the context of the 330/210 posed in fairly similar terms. Since a franchise system is a system whereby a producer chooses, via its selective distribution, to address its customers in a particular way which it defines and redefines centrally and asks its franchisees to respect, it can rightly consider that it is primarily "its customers" and not those of its franchisee.
 
Then, with regard to customer files, he is free to organise himself as he sees fit and to delegate - or not - this management to the franchisee. It is not for the regulations to govern the terms of this sharing and/or division of labour, but for the co-contractors to agree on this. Since, by hypothesis, there is no recognition of the existing asymmetry between the co-contractors, what the franchisor requires is legitimate if the franchisee signs. 
 
From this point of view, a judgment handed down in the spring of 2019 by the Paris Court of Appeal made a significant impact, as it indicates that in this franchise law, the franchisor is legally in a position of strength. Xavier Henry and André Bricogne sum up the case as follows:
"A network head had terminated the brand concession contracts of two retailers. They argued that nothing in the contract reserved ownership of the retailers' customers to the head of the network. On the contrary, according to the retailers, it was they who had created and managed the clientele throughout the commercial relationship, and therefore owned it. However, they did not have the customer files held and managed by a service provider on behalf of the head of the network. The retailers further argued that, through its website and customer loyalty programme, the head of the network had set up a system for capturing customers that constituted unfair competition against them.
The Court of Appeal, in its decision of April 3, 2019, dismissed their claims. According to the Court, it was up to the retailers to create their own customer files as their customers made purchases. If they had not kept their own customer file, they could not access the headend's file because customers who had subscribed to the "e-club" loyalty programme were attached to the brand. As to the capture of customers, the Court considered that it had not been shown that the implementation of a customer loyalty programme would be the cause of the loss of turnover recorded in the shops".
 
Thus, the franchisee must consider that it has a provisional and revocable right to provide a service for a franchisor, in return for specific investments. Becoming a franchisee means taking the risk, in order to benefit from this right, of not being retained tomorrow, of having another franchisee appointed and/or of having the franchisor decide to deal more directly with "its customers". 
 
This vision of a franchisee network has the merit of coherence and it is understandable that, seen from the manufacturer's point of view, the question deserves to be posed as follows: the "general regime" of franchising is basically the general regime to which it subjects all its partners, including the major world equipment manufacturers, that of the asymmetrical relationship agreed to remain present in an industry structured in this way. Its problematic character has already been underlined concerning the upstream issues and it was then possible to highlight the interest that there can be in structuring less short-term and violent relations in order to structure long-term cooperation that is better able to benefit, when it is a question of innovation for example, from sustainability and the relations of trust that support it. 
 


With regard to automobile distribution and service, treating the manufacturer as a franchisor like any other and giving it the same powers as a perfumer or a brand of crockery or clothing also poses a problem: this would be defensible if manufacturers had historically demonstrated that they have full control at central level of the very complex relations that consumers have with their purchases of new cars and cars and/or their after-sales relations.

 It is indeed under these conditions that the treatment of their networks as mere revocable and interchangeable performers would be justified in the context of inter-brand competition conceived as competition between the strategies developed by the brands at central level. 

 This is not the reality that has been structured historically and that we know today. It is made up of very partial knowledge of commercial realities by the manufacturers and a very useful complement - even very useful corrections - made by the networks for the benefit of manufacturers and consumers.

 

Manufacturers no longer have any legal obligation to recognise these realities and can count on a law that is very favourable to them to deny them. They will hardly give themselves moral obligations in this area.
 
All that remains is for distributors to hope that they realise that their ability to manage their brands properly from headquarters is very imperfect and that it is in their interest to rely on long-term partners and to share with them some of the value and information about customers.
 
(1) Florence Lagarde had already dealt with this issue in April 2019.

 

 

 

 

 

The weekly column by Bernard Jullien is also on www.autoactu.com.

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