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Unfair Trading Practices in the Automotive Retail MarketBack

TradingPracticeIntroduction

The National Franchised Dealers Association (NFDA) represents the interests of UK franchised car dealers and authorised repairers. Its membership covers over 4,700 dealerships across the UK, encompassing 80% of franchised sales outlets in the country and representing around 40 manufacturer franchises. Most NFDA members are SMEs who sell directly to consumers.

The automotive industry employs around 770,000 people in the UK. The retail sector alone accounts for around 500,000 jobs, a significant proportion of the total. The industry as a whole makes up around 4 per cent of the UK’s GDP, contributing around £24.29bn in GVA to the economy in 2013.

Business to Business Unfair Trading Practices

Across Europe, the automotive sector is suffering due to business to business (B2B) Unfair Trading Practices (UTPs). There are few, if any, effective legal remedies at EU or domestic level. This situation has been exacerbated by the abolition of the Motor Vehicle Block Exemption Regulation (May 2013), which had limited the imposition of restrictive agreements by manufacturers.
The power balance between dealers and manufacturers is unfairly stacked in favour of manufacturers. Practices include, but are not restricted to:

• abuse of bargaining power
• curtailing dealers’ ability to offer a wide range of products to consumers
• unrealistic and unilaterally set sales targets
• unilateral (and repeated) changing on contract terms
• unfair termination

The European Business Test Panel (EBTP) consultation (2011/2012) revealed the extent of the problem:

• 34% of all responses came from dealers, almost twice as many as the rest of the respondents from the remaining retail/wholesale sector.
• 83% of respondents from the automotive retail sector were unhappy with existing enforcement mechanisms.

In 2013 a UTP Green Paper Consultation showed that retailers felt:

• Car manufacturers were unwilling to negotiate a create a voluntary code at EU level.
• Retailers considered “the EU level the only level where action can be taken as it is an EU wide issue”.

Economic effect and Commission action

UTPs not only damage retailers but have an adverse effect on investment, efficiency, consumer welfare, and employment. Effective UTP regulation would complement consumer protection aims and encourage investment, innovation and employment at the retail level, supporting thousands of small businesses and millions of workers across the EU.

The NFDA is disappointed by the European Commission’s failure, to date, to address the issue of the UTPs in the automotive sector, focusing soley on the food sector, which received far fewer respondents to the original EBTP consultation.

The Commission had threatened legislative action to regulate the relations in the automotive sector if manufacturers are dealers failed to reach agreement on a code of conduct by the end of 2014, as set out in the CARS 2010 Final Report. The deadline has passed, with the Commission indicating that dealers and manufacturers should explore further negotiations. Unless the Commission adopts a firmer position soon; it is unlikely that ongoing talks with manufacturer representatives will be productive.

Concrete action is now needed.

The NFDA calls upon the Commission and UK Government to urgently regulate automotive B2B UTPs

Unless a proper self-regulatory solution is achieved by the end of August 2015, the Commission must follow through with its threat to bring forward policy action following the failed code of conduct process, or justify its decisions not to do so.

It is therefore essential that the UK Government puts pressure on the Commission to act on its commitment and in the result the Commission fails to do so, the UK must look to nationally regulate B2B UTPs to support a crucial industry.

For further information or to discuss this issue, please email: katy.recina@rmif.co.uk

Posted by Sue Robinson on 17/07/2015