The new exemption regulation: the quality compromise of maturity


The regulatory debate remains crucial in the field of motor vehicle distribution, but it is now more dispassionate than it used to be. This clarifies the terms of the dialogue and/or consultation and everything indicates that the four years that have just elapsed between the beginning of the renegotiation process of the exemption and today have been useful and have made it possible to produce a balanced text in which the distributors, by accepting a form of technicalisation of the debates, have managed to be heard on the essential points.

The time is long gone when the entire downstream sector was convinced at each renegotiation of the regulation that its life was at stake. It corresponded - between 1995 and 2002 in particular - to a period when, observing what had happened to white and brown goods in household appliances, seeing the development of the "superstores" of AutoNation and others in the United States and witnessing the emergence of e-commerce, people were afraid and imagined revolutionary scenarios.

These fears or hopes were then relayed by DG Competition itself and the Commissioner of the time, Mario Monti, who - as Nelly Kroes who succeeded him reproached him - had a modernisation 'project' for motor vehicle distribution and services in which the emergence of the Fnac or Boulanger of the motor vehicle industry should have found their place. This had the advantage for the distributors of giving rise to a text (1400/2002) which sought rather to reinforce their bargaining power vis-à-vis the manufacturers and which enshrined - among other things - their freedom of transfer in the hope of seeing concentration increase. On the other hand, we know that Mario Monti had misjudged the economic equations of the sector, the power relations that prevailed in it and, ultimately, the capacity of the manufacturers to block the essential developments that he had wanted. Thus, the evaluation reports could only note - with all the rhetorical caution customary in this type of exercise - that the landscape created by this new text was only very partially in line with the 'intentions of the legislator'.

It was on this basis that Nelly Kroes and her teams reasoned, criticising the Monti doctrine and that of his predecessors, which, in their view, had been marked by a form of 'confusion of genres'.
In fact, the European treaties and the economic and legal doctrine that has developed in these matters are based on a focus on the issue of competition and the preservation of consumer interests. They exclude a priori that the requirements in question be modulated or distorted according to an industrial policy explicitly or implicitly seeking to bring about a scenario of evolution and/or redefinition of the sharing of power and/or value in a sector.

In the same way, in labour law, it is generally accepted that ordinary contract law does not apply because the two contracting parties do not have the same negotiating capacity and it is therefore appropriate to ensure that the weaker party is protected. In competition law, however, such logic is not accepted: 'The role of competition law is not to protect competitors but to protect competition', as Mr Joseph Vogel likes to say on this subject.

As far as car distribution is concerned, since the last regulation (330/2010) and the transition to the general regime, things are clear to everyone. The arguments that can be heard by DG Competition are 'monothematic': they must be placed solely on the ground of the defence of competition, and crying foul is useless. If the dominant party dominates, it is often because it is more efficient. If a monopoly is imposed it may be for good reasons.

If we consider that it is legitimate for a producer to organise the distribution of its product as it sees fit, then it should be left free to do so as it sees fit and also to decide to change the format of its distribution as it sees fit. Whether or not it is then necessary to compensate the distributors that were once appointed and are no longer wanted is a matter that national courts may have to settle on other grounds, but competition law, when it exempts selective distribution, must not do so half-heartedly.

Moreover, as can be seen from this new text, there is no longer a block exemption for the entire motor vehicle sector but a general exemption under which certain manufacturers choose to place themselves for certain territories. In this context, we must now be concerned about the forms of cohabitation between several distribution systems: exclusive, selective, free, direct, hybrid, etc. The manufacturer makes his own market and the legislator is there to help him optimise the legal engineering of this multi-speed distribution and, basically, the latest regulation is largely in this register.

Two issues illustrate this idea: hybrid platforms and agent contracts.

As with the question of dual pricing, the question of hybrid platforms is linked to the fact that what was initially intended to be regulated is no longer - or no longer only - what is now central. Initially, in the framework of the Digital Market Act, in order to prevent online intermediation service providers such as Amazon or e-bay from killing selective distribution and depriving distributors, manufacturers and consumers of the virtues that the general exemption regime allows to be recognised, all those who "sell goods or services in competition with the businesses to which they offer their intermediation services" were excluded from the exemption.

The problem is that the hybrid platforms likely to become important in 2022 are rather those that manufacturers would like to develop with their networks when it suits them and without at other times.

While manufacturers have until now had the right to develop direct sales without their relationships with their distributors being exempted because they were dealing with distinct customers and business models, this time they are keen to develop direct sales of vehicles and services in direct competition with customers for whom they argue that it is crucial to give them the right to preserve selective distribution. It is therefore more difficult when engaging in the development of this new format to ask to retain the right to be exempted from the old one.

Dealers and their representatives and advisors have been able to make this point and to emphasise that if manufacturers mobilise consumer data to make their hybrid platforms work, which they require to be transmitted through their networks, there is a problem. To put it bluntly, the manufacturers then want to have their cake and eat it too, and/or want to show off the advantages of a system that they are operating using the assets of a system that they are weakening by doing so while exploiting its resources.

On this point, as if by chance, counsel for manufacturers and distributors do not have the same assessment: Maître J. Vogel regrets that the text makes manufacturers "suppliers of online intermediation services and deprives them of the benefit of the block exemption even though they provide an assistance service to their distributors". (see the analysis of the regulation by Vogel & Vogel)
Maître C. Bourgeon believes that "hybrid platforms can be a source of information capture on pricing policy and customer data and that it is possible to combine the interest of a branded platform against this risk with a trusted third party." By cleverly placing themselves on a technical register that remains within the narrow framework of competition issues, the distributors are pushing this thorn in the side of the manufacturers and forcing them to work with them and their groups to structure these platforms.

Agent contracts, which everyone had understood for several months that, coupled with these "hybrid" platforms, could be quite powerful "game changers" for manufacturers wishing to address consumers over the heads of the players to whom they had traditionally delegated this task and who made it their "goodwill", transferable, in return for assuming heavy specific investments and the commercial and financial risks associated with the fact that they owned the stocks. The consequence was that, legally, one bought one's vehicle from one's dealer and not from the manufacturer.

Historically and economically, this pattern was imposed because the already capital-intensive car industry would have been infinitely more so if it had had to carry both the stock and the investment associated with building these networks: the historian Tedlow does the calculation for Ford between the two wars and concludes that the productive investment that enabled the expansion of car manufacturing would have been impossible if Ford had also had to carry the financial burden of building a "nation-wide" network of agencies.

The question is not at all incongruous 100 years later and, even if, to promote their new distribution scheme, manufacturers such as Stellantis were quick to point out that standards such as the number of vehicles to be displayed would be revised downwards, it is quite obvious that manufacturers will again be tempted to want the butter of the new system (direct link with the customer, setting of "my" tariffs and ownership of the data) and the money of the old one (commercial work of the agent and investments required to accommodate the customer and the minimal stock). Here too, by staying on the ground and making their registers audible to DG Competition, distributors obtain guidelines that calm the ardour of manufacturers and force them to weigh up the pros and cons very carefully.

As reported by Florence Lagarde, Mr. J. Vogel logically concludes that: "The luxury of details relating to the assumption of these costs by the supplier and the rigorous evidence required of the latter risk making the use of agents extremely complex and discouraging it, whereas it is a marketing method that should be encouraged and commercial law already makes the use of commercial agents very costly. Symmetrically, Christian Bourgeon is pleased to have been heard on the need to separate the costs from the agent's remuneration: "The draft allowed costs to be covered on a flat-rate basis or as a percentage of the turnover, which opened the door to confusion between the reimbursement of costs, which is the responsibility of the supplier, and the commission, which remunerates the intermediation service. It was absolutely essential that this be clearly separated.

In the end, the debate has matured over the past 20 years: everyone has understood that everything is not played out in these texts but in the field, i.e. where, on a day-to-day basis, the power relations are established. Nevertheless, in this perspective, legal resources are of major importance provided that we know, technically and politically, how to assess which ones will prove to be strategic.

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