TRUTH APPROVAL

Will the rights guaranteed to the aftermarket in European legislation survive Brexit?

By Neil Pattermore | Published:  07 September, 2017

As you will be only too familiar with, the Brexit talks have begun – albeit after some delay. Now there will be a lot of discussion, some of which will be made public in the media, some of which will stay behind closed doors and some will be just plain media hype. As Mark Twain once said; “never let the truth get in the way of a good story.”

In search of the truth, what is likely to happen as part of the Brexit talks which may impact on the aftermarket? How much of this will have a positive effect, and how much will create a negative impact? Equally, how much will remain conjecture until well after all the official talks have finished, but the negotiations continue? It is useful to start at the beginning of how European legislation has supported the aftermarket.


Cause and effect
First, there was the Block Exemption Regulation (BER) which was based on competition law. BER ensured independent operators would have access to the same data, tools and information as an authorised repairer. In reality this had limited success. If a vehicle manufacturer decided not to play ball, then it was effectively impossible for a small business to take legal action against them under competition law. This was recognised by the European legislator. It decided that the ability to compete in a non-discriminatory manner needed to be anchored in a more robust legislation, so included the access to full repair and maintenance information (RMI) into the Euro 5 type approval legislation – drafted in 2007.

Type approval legislation changes the fundamental approach to a cause and effect issue. By testing the vehicle manufacturer’s compliance as part of type approval, it starts on the premise that if the vehicle manufacturer’s provision of the RMI does not meet the requirements, then the vehicle does not get type approved.

Euro 5 was therefore a more robust piece of legislation, but as ‘rules are for the guidance of wise men’ states, not all the practical implementation requirements were met. This was highlighted to the European Commission by the Ricardo report, which identified a number of key areas where some vehicle manufacturers were not compliant. The principles of access to vehicle RMI for independent operators contained in Euro 5 have subsequently been transposed into the heavy-duty vehicle legislation (Euro V/VI), powered two wheelers (L category vehicles) and agricultural and forestry vehicles (T category). However, European vehicle type approval requirements are increasingly being discussed and agreed in the United Nations WP29 group in Geneva (previously known as UNECE). In these regulations, very limited if any, provisions exist to provide access to RMI for independent operators.


Prioritise
Against this background of European regulation, what is the UK government able to do and what are they likely to do? Firstly, it is important to understand that although I have mentioned some of the automotive legislation that impacts the aftermarket, these are just one or two of the (reportedly) 19,000 plus pieces of European legislation that the UK is subject to and there are apparently 759 treaties that the UK Government may need to renegotiate as a priority.

The UK government’s initial stance is to continue with all European legislation and then to prioritise what legislation needs changing. This may be either on the basis of wanting to create an alternative to the European legislation if this benefits the UK economy, or it may be to replace European legislation if it no longer applies. You can bet every man and his dog will be trying to get the Government’s attention to highlight their particular case of why legislation affecting their sector should be a
top priority.

Can the aftermarket fit into this category? Probably not if the government’s stated intention of prioritising and supporting manufacturing industry is to be believed. The aftermarket is a service industry. Should the alternative be to ‘keep calm and carry on’ with the existing legislation, then can the aftermarket consider that it will continue to be business as usual? This may depend on the specific legislation concerned.


Serious threat
The UK is a signatory to the UNECE regulations on type approval, so no change, but no advantage either as these do not address aftermarket needs. BER is likely to remain with no change, but is difficult to enforce, especially for some of the key emerging challenges facing the aftermarket, such as remote communication with the vehicle for predictive maintenance, remote diagnostics etc. The most critical legislation for the aftermarket – Euro 5, is currently under revision to streamline many of the previously complicated requirements and amalgamate both the car and truck legislation into a single regulation.

UK vehicle manufacturers will continue to use this legislation to ensure that they can sell vehicles into Europe, but there is a very worrying new paragraph in the draft proposal that explicitly excludes the UK from this legislation. This would exempt vehicle manufacturers from having to provide all of the vehicle diagnostic, repair and maintenance information to the UK aftermarket – a serious threat. This is still a draft and may yet be part of the behind the scenes pre-discussions from both sides, but there is no guarantee that it is on the UK government’s priority list.


Emerging challenges
The UK government has famously ‘let market forces rule’ rather than legislate, but the very reason that the Euro 5 legislation was created was to address non-discriminatory access to the repair and maintenance information. This needs to be urgently brought to the attention of the government, as the alternatives are insufficient for fair competition.

The proposal to trade with other countries around the world may help the UK economy, although setting up some of these may also be a challenge. The issue of legislation for the UK aftermarket is a national issue that is, and should remain, linked to the European type approval legislation. I have stated many times before, supporting the UK aftermarket trade associations is increasingly important, but there has never been a better example of when this is going to be so critical. Your country really needs you.
xenconsultancy.com

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    "I know it’s not automotive news but there will be many opportunities like this for the automotive industry outside of the EU post Brexit. The Germans French and Italians will still want to sell cars to the UK. It just annoys me that the media constantly go on about how bad it will be when we leave the single market. There will be many opportunities and upsides out of the EU even on WTO tariffs."
        
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    Having heard from David in the north of England, we thought we might take views from other businesses around the UK, to see what they think the impact of Brexit will be on their business.

    Access
    Turning our attentions south, we asked Kevin Pearce from 2018 Top Garage winners Cedar Garage in Worthing his views on whether Brexit will have a positive or negative impact on the aftermarket. "I think it could go either way," mused Kevin. "I don't see any positives it can necessarily bring. On the negative side, I think we could struggle to get hold of technical data and manufacturer-specific information." According to Kevin, UK consumer buying choices have built up a car parc that could swing things 'our' way: "Considering the number of vehicles we actually import, especially the German stuff, we should actually be in a very strong position to dictate terms. If they want to continue to sell cars to us, whoever is negotiating for the UK should be able to dictate terms on that. Going forward, in terms of telematics we need to make sure the aftermarket stays on the right side of the manufacturers to make sure we continue to get access."
        
    Cedar Garage recently opened a German marques-only outlet, so we wondered if he thought Brexit might have a specific impact on the business's ongoing endeavours: "If it does, not for a long time," replied Kevin. "I think generally it will all come down to how well the negotiations go. We have good access to all the data we need for the German brands. So long as Brexit does not get in the way of that, I can't see how it could cause a problem.
        
    "Obviously a lot of the parts that we buy come from Europe. Hopefully the prices won't increase too much. At the end of the day, we import so much, that if these people then do not want to sell to us, they are surely going to be the ones that lose out."
        
    We went onto ask if Cedar Garage's customers had displayed any noticeable Brexit jitters: "So far it does not look like that at all. We have not seen anything like that. All of our customers are carrying on as normal. If any of them say, ‘I can't afford this or that’ I don't think it affects our trade that much. Maybe if it was car sales, but definitely not in terms of the repair market."
        
    While garages on the south coast might be closer to the continent than most of the other businesses in the market, it's not like Cedar Garage customers are likely to head over the channel to France for their car servicing is it? Shaking his head, Kevin replied: "Of course not." As far as Kevin was concerned, the market is changing and this should mean the supposed consumer confidence hit that might result from Brexit could be over-stated: "What we are finding is that people are looking more and more for a professional service, and are prepared to pay for that. People are becoming more conscious of what goes into a car and are prepared to pay. They would rather pay a professional to pay to repair their car, rather than someone they met down the pub who does it in the car park."

    Uncertainty
    How you feel about the relative opportunities and threats of Brexit can largely depend on where you are sitting. For businesses in Northern Ireland however, Brexit has its own special issues. Starting with the more general concerns,  Colm Higgins from CH Autoservices  in Magherafelt, Northern Ireland said: "I think the biggest issue for most garages, with the position we are in, particularly the go-ahead guys who are into diagnostics, is access to data. This is the issue we would want to address first and foremost. We rely on the access to manufacturer data that is assured through European regulations like Euro 5, so obviously we are concerned. With Brexit nobody really knows what is going to happen.
        
    "Some of the manufacturers, like Mercedes-Benz, had a very good scheme where you could lease a diagnostic tool, but they removed that recently, and I think it is tied to Brexit.
        
    "Obviously the price of parts and access to parts, is something to be concerned about as well. MOTs too, as well as emissions. Are we going to establish our own standards? Are we going to be governed by European rules? Or are they going to be similar to the European rules? Is it a chance for the UK to make its own emissions standards. If so will they be similar, or less?  
        
    Colm continued: "Also, what affect will it have on the car parc? What cars will we be working on? Are we going to see a change in consumer activity as well? What the good guys seem to do is look at what people are buying and how the market is going and see the trends. Obviously electric vehicles is something we have invested in here. Is that going to be impacted by that? Is it going to be more or less. It is important to get an idea of where things are going to go. The biggest problem is that nobody knows.
        
    "Almost everybody has a German or French car in the UK, or at least a European car. What is going to  happen? Are they going to be taxed more? In the second hand car market we are still seeing the effects of years of uncertainty over diesel."
        
    "The key thing for any business is to be ahead of the curve or at least be aware of where it is going before it gets there. For any business you would be absolutely crazy to  bury your head in the sand. It gives you a very good reason to read the latest industry news so you know what is going on."
        
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    "There is already a lot of that happening in Northern Ireland" said Colm. "We are about an hour's drive from the border. Some of my customers in trade sales, they sell a lot of cars to the south because the Pound is weak. We can make the most of that depending on the situation, as we can buy stuff from down there and sell it up here, or vice versa. I am optimistic, and we can make the most of that kind of situation. Because we are so close to the border,
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    Despite these concerns, Colm remained confident: "Anyone who is in the higher end of this business is ready to adapt to change. In the next few years you won't see an engine or a piston as it is all going to electric motors. It is change or get out really. Brexit is another factor in the motor trade, albeit one that is going to affect your life in a big way."

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    To understand the background, it is important to understand the ‘legislative landscape’. The automotive sector in Europe is heavily regulated by European legislation, especially concerning vehicle safety and emissions. However there are also other aspects of automotive regulation that are an integral part of European legislation – especially the UNECE Regulations, which are centered on Geneva and cover many aspects of the European vehicle type approval (the UK is a signatory to these UNECE activities). At first glance, this may not appear to be an issue for the aftermarket, but increasingly, UNECE Regulations are referenced in the European Vehicle Type Approval and have started to include direct requirements for the aftermarket. In summary, this has complicated the legislative landscape and the increasing impact that legislation has on the future of the aftermarket in Europe, including the UK.
        
    This legislation has different aspects in terms of its legal basis and has both an historic element as well as a future requirement which has yet to enter into force. Historically, the Block Exemption Regulation (BER) is based on competition law. This principally covered the agreements between the vehicle manufacturer and their authorized dealer network (originally allowing an ‘exemption’ from the monopolistic geographical trading area), but importantly for the aftermarket, included the rights for ‘independent operators’ to access all technical information, tools, spare parts, training etc. at the same level as the authorised repairer – the ‘non-discrimination’ principle.
        
    However, although BER was revised in 2010, in practical terms, it did not change the basic problem of the ability for a small business to take legal action against a vehicle manufacturer if they did not provide access to e.g. technical information, when requested – a real ‘David and Goliath’ challenge.
        
    To address this problem, the European Commission decided to put the ‘access to repair and maintenance information’ (RMI) into Vehicle Type Approval Regulations, where it addressed the issue by changing the legal basis – still fundamentally a competition issue that supports non-discrimination - but now based on the vehicle manufacturer having to prove that access to the RMI was possible before they can achieve whole Vehicle Type Approval. However, now there is a mechanism that allows the type approval authorities to challenge the vehicle manufacturer if a possible non-compliance problem is raised by an independent operator once the vehicle model is in the market. This is all part of the requirements of the Euro 5 emissions legislation, introduced in 2007.
        
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    For the UK aftermarket after Brexit, the key issues will be how the government act on these important points and how these will be covered in UK legislation. Obviously, the UK is likely to follow European Vehicle Type Approval legislation to ensure that vehicles manufactured in the UK can be sold in Europe, but the key question is if the RMI requirements will also be referenced and if so, with what detailed requirements. Potentially, the UK could still copy/paste the European Regulations into UK law, or could implement a different approach for RMI, just for the UK, but this could be both complicated and counter-productive for both parts manufacturers and the aftermarket, as one of the future requirements may be the extension for the type approval of replacement parts, especially for ADAS and autonomous vehicles.
        
    The position of the UK Government today (ahead of Brexit) has been to support manufacturing as a longer term post-Brexit strategy, but as the UK aftermarket represents almost 70% of the post-production services market, this also needs to be an integral part of life after the EU. Clearly a lot of important political work will need to be done after Brexit, both in the UK and Geneva to ensure a continued healthy and vibrant UK aftermarket.

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