It's just not fair
With the MV-BER due to expire, Neil considers how the legal framework governing competition in the industry may look in the coming years
By Neil Pattermore |
Published: 20 October, 2022
I love competition. No really, I do. Competition abounds in a wide variety of aspects of everyday life. It helps to formulate innovation or is often the basis of experience, in both good and bad ways. Competition creates choices when you have money to spend or forms the basis of just about every sport, whether you are participating or watching. Competition is at its best when there is a level playing field, both metaphorically and literally.
There are many more examples of competition, but from the UK aftermarket’s position, it is the very foundation of its existence. The aftermarket only exists because it offers vehicle owners and operators a choice. If they choose to use the aftermarket, which they predominately do, then it remains the vibrant, innovative and service-centric sector that it is.
Evolution
The aftermarket has evolved for well over more than a century, but in the 21st century the level playing field has become increasing distorted. This is due to the rapid rise in vehicle technology, particularly the vehicle’s electronically controlled systems and functions. In recognition of the corresponding reliance on the vehicle manufacturer being the sole source of the technical information needed to diagnose, service, repair or maintain the vehicle, aftermarket associations lobbied the legislator to act and create the level playing field. As I alluded to in an article earlier this year, this was done as part of the Vertical Block Exemption Regulation (V-BER) created in 2002 that exempted a variety of industry sector distribution models from the requirements of competition law that would otherwise have made these distribution models illegal. The specific needs of the automotive sector were then covered in a sub-regulation – the Motor Vehicle Block Exemption Regulation (MV-BER) that allowed main dealers to operate as a monopoly within a set geographical area. For the aftermarket, this also included the non-discrimination between workshops, so that independent operators were able to access the same repair and maintenance information (RMI), replacement parts, tools and training as the vehicle manufacturer’s main dealers. The MV-BER was updated in 2010, valid in both the EU and UK and importantly for the aftermarket, included some new hardcore restrictions concerning the access to captive parts and the ability of Tier 1 suppliers to sell their parts into the aftermarket. Also importantly, it included supplementary guidelines that help to define many detailed aspects of the original Regulation. However, the current MV-BER will expire on 31 May 2023.
More recently, many in-vehicle ‘software driven’ aspects have evolved and created an increasing number of ways that the vehicle manufacturers themselves can now directly provide aftermarket services to the driver, vehicle owner or vehicle operator in direct competition to the independent aftermarket.
This has led to new service centric business models, especially using the remote wireless access to the vehicle when it is being driven. Monitoring of the vehicle’s functions, as well as how the driver is using the vehicle, using embedded diagnostics and predictive analysis of the vehicle’s data, as well as bespoke service and maintenance offers directly to the driver via the in-dash display are now where it is happening. The basis of competing business models now starts in the car when it is being driven. By the time it gets to a workshop, half the work has been done (the identification of the problem, what work is required, and the parts needed have been identified) so that workshop costs can be reduced by up to 50%.
As only the vehicle manufacturers have remote access to the vehicle, their own embedded applications, and the ability to bi-directionally communicate with the driver, the aftermarket is at a severe disadvantage.
Principles
So, where is the level playing field and non-discrimination unless independent operators can also have equal abilities? (I choose my words carefully).
The MV-BER is very important to retain the principles of effective competition for the aftermarket but needs to work in parallel with the vehicle type approval regulations, as these contain much more detail about both the technical and the access requirements that the vehicle manufacturers must support. Vehicle type approval legislation also allows non-compliance claims to be challenged through the type approval authority, as opposed to the more difficult and expensive route through the courts under the MV-BER.
Post-Brexit, the role of the UK legislator in the guise of the Competition and Mergers Authority (CMA) is most important. The CMA have consulted on the continued relevance of the MV-BER and plan to issue a two-stage consultation during the summer, so it seems that they plan to renew MV-BER, but it is not clear how new requirements needed to address “technical progress” would be included, if at all. This would require either change to the wording of the MV-BER itself, or an update to the wording of the supplementary guidelines, which although easier to do from the legislative viewpoint, has less direct legal basis in the event of a “non-compliance” by a vehicle manufacturer.
Aftermarket associations in the EU, but equally importantly in the UK, have submitted key proposals for updates to the MV-BER supplementary guidelines. The UK government has stated that they will also take into consideration what the European Commission propose to do. The European Commission issued its proposal in early July which explained their approach and their draft proposals.
These documents confirmed that MV-BER will be renewed until 31 May 2028, but their proposal also stated that there needed to be an update to “reflect the importance that access to vehicle-generated data was likely to have as a factor for competition.” However, although the European Commission felt that “some parts of the sector would evolve rapidly over the coming years and that this would have an impact (not yet quantifiable) on the conditions of competition,” they also stated that the extension of the MV-BER will “allow some of the currently emerging technologies to consolidate and will put the Commission in a better position to re-assess the situation under the new market reality.”
The Commission also explained that access to vehicle-generated data would be included in the revised wording of the Supplementary Guidelines, but although this seeks to establish that “withholding the item in question will have an appreciable impact on the ability of independent operators to carry out their tasks and exercise a competitive constraint on the market” as the basis, this does not clarify many other important related aspects, for example how vehicle generated data would be accessed, what can be accessed, at what cost and what registration/declaration conditions would be imposed by the vehicle manufacturers.
The UK government will need to consider what the European Commission has proposed, but for truly effective competition in the UK aftermarket where the vehicle manufacturers are now increasingly and directly competing with independent operators and where the basis of vehicle-related service offers starts remotely when the vehicle is being driven, the UK government will have to do much more. Given the time frame before the current MV-BER is set to expire, the reality is that the ‘rules of the game’ are likely to be insufficient to ensure that the playing field remains level, meaning that the next few years are likely to be increasingly challenging for the UK aftermarket to have the equal abilities needed to compete.
- Would you like to supersize that?
As you may have heard and as I reported in Aftermarket’s September 2022 issue, the Motor Vehicle Block Exemption (MV-BER) is up for renewal. The UK Competition and Markets Authority (CMA) issued a consultation in July 2022 on how any renewal may be structured, assuming that the MV-BER will be renewed when it expires on 31 May 2023.
The CMA’s final recommendations to the Secretary of State of BEIS (Department of Business, Energy and Industrial Strategy) were subsequently circulated in October 2022 and were a mixture of recommendations for good improvements, but with some concerning elements which would be detrimental to the UK aftermarket.
Direct legislative requirements
The basis of the MV-BER is in competition law and is based on direct legislative requirements in the main regulation, with additional ‘guidance’ to describe how these requirements should be met (which is a weaker legal basis).
Ultimately, the MV-BER seeks to ensure that there is non-discrimination between authorised and independent workshops in their ability to service and repair vehicles, which in turn provides motorists with the choice of where they can have their vehicles maintained. However, MV-BER has been in existence since 2002, and although it was updated in 2010, it is obvious to anyone reading this that much has changed in the last two decades in the automotive sector. Although the CMA’s recommendations needed to address some existing issues, it was even more important that they addressed new issues that have impacted the aftermarket during this period.
In effect, the CMA are proposing to ‘go supersize’ on the revisions of the MV-BER, but is this wholly beneficial to the UK aftermarket – and just what are the CMA recommending? Most importantly, the CMA recommends that the MV-BER should be retained, with no change to the existing scope, but that it would become a UK ‘Order’ in UK law – i.e. an ‘MV-BEO’ and be extended until 31 May 2029. The other key recommendations then fall into three distinct categories.
Hardcore restrictions
Firstly, there are recommendations to rectify “residual and novel issues” in the existing requirements which are not being implemented correctly. These included the CMA’s revision in the guidance for improved clarity from the vehicle manufacturers and their authorised repairers: “...to produce additional and updated guidance to clarify that the clauses contained in all the documents proposed to consumers by OEMs/authorised dealers or repairers should clearly state the consumer's right to use the services of an independent repairer without losing the benefit of the warranty.”
The CMA also understood that the requirements of the existing “hardcore restrictions” that provide access for independent operators to OEM parts, or the ability for Tier 1 parts manufacturers to sell their parts through their Aftermarket divisions is not working as intended. Therefore, the CMA is: “...recommending that further guidance on this matter be issued in order to address residual and novel issues reported by stakeholders.”
Secondly, the CMA recognises that there is a need to address the definitions in the MV-BER. Therefore, there is a recommendation to update the definition of ‘spare parts’ to address: “…access to software is increasingly a necessary condition to ensure providers of repair and maintenance are able to fit certain spare parts. In this context, the CMA considers that the definition of spare parts should encompass all software, together with activation/configuration codes for replacement parts and components, which are strictly necessary to fit those parts and to replace or update components or systems of the vehicle, which are necessary for the use or operation of a motor vehicle…’
The CMA have also recognised the importance of “access to vehicle and technical information and ‘in-vehicle data” and recommend the introduction of a new definition. However, the details are not yet clear: “The CMA acknowledges that the manner in which technical and vehicle information is provided is a relevant consideration and notes that this issue is already covered in the EU Supplementary Guidelines in paragraph 67. Furthermore, the CMA is minded to issue further guidance on this subject in the context of any MVBEO Guidance. We also received comments that the legal instruments above mentioned do not cover in-vehicle generated data which may constitute an essential input for independent providers. The CMA agrees the in-vehicle data may amount to an essential input on which independent operators rely and recommends that this type of information is included in the definition of technical and vehicle information.”
Although the CMA recognises that this new definition is important, they are also recommending to include this as an ‘excluded restriction’: “...given the potential for these restrictions to distort competition, in particular, competition between authorised and independent providers, it would be appropriate to ensure that these types of restrictions are carefully self-assessed by businesses on a case-by-case basis, taking account of the specific circumstances.
This effectively states that the vehicle manufacturer will be responsible for defining what and how access to vehicle generated data is provided and be self-assessed on a ‘case-by-case’ basis.
This has partly been addressed by the CMA recognising: “...the CMA considers that this risk could be sufficiently mitigated by the issuance of revised guidance which could assist and help businesses to carry out the self- assessment and to distinguish restrictions which meet the conditions for individual exemption from those that do not.” However, for the aftermarket, this is still likely to be highly problematic, whilst also only providing a very weak legal basis for any challenge to be made by independent operators against a vehicle manufacturer.
Thirdly, the CMA recognises that they ‘should be mindful’ of what the EU is also considering in the EU’s revisions of the MV-BER: “The CMA has been mindful of the approach proposed in the EU by the European Commission. The CMA is conscious that there may be advantages in divergence from the EU in certain circumstances .....Equally, the CMA recognises that, all things being equal, there can also be benefits in consistency between the EU and the UK block exemptions...”
Distorting the market?
In both the EU and the UK, the remote access to a vehicle, its data, resources and functions is already distorting the market and should be included in the revision of the MV-BER. However, in line with what the EU is proposing, the CMA recommends a ‘wait and see’ approach: “It therefore seems likely that some parts of the motor vehicle sector will evolve rapidly over the coming years and that this will have an impact on the conditions of competition that cannot currently be quantified.”
So overall, although the CMA has recognised many of the issues that impact the UK aftermarket and which should be addressed, there are also well intended revisions that have yet to be detailed (i.e. the new wording in the guidance of the MV-BEO) and which if not handled correctly, could be very detrimental to the future of the UK aftermarket. Supersizing the MV-BEO will be good, but only if implemented correctly.
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