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Conference 2006
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New Changes - New Challenges

Seventy delegates again attended this year's conference which was held on 23 February 2006 at the The Royal Automobile Club, London to listen to and exchange views with leading European and UK motor industry representatives.

The keynote speech was given by Paolo Cesarini, Head of Unit in the European Commission’s Competition Directorate, who outlined the Commission's view of the impact of the block exemption changes three years on.

Varied impact of BER three years on
Mr Cesarini provided delegates with a preliminary review of the block exemption regulation three years on as the Commission awaits the results of the formal review by London Economics. After running through the core policy objectives of the regulation, he talked about the first results and challenges in the three areas that are regulated by the block exemption - distribution of new vehicles, after-sales service spare parts distribution.  He also described the changes in the enforcement of EC competition rules with the introduction of “legal exemption” to replace notification and the decentralisation of enforcement responsibility to national authorities.  

Price harmonisation not Commission’s objective
The new cars market had become more integrated, and prices had tended to come more into line across national boundaries than had been the case before the present regulation came into operation.  This effect was particularly pronounced in the Eurozone.  Harmonisation of prices across the single market was not, he stressed, the Commission’s objective, but it was important that the regulation allowed competitive forces to operate freely.  Intermediaries were, he said, playing a greater role, though he went on to describe enforcement action taken by the Commission against Peugeot in October 2005 to deal with the use of bonuses to discriminate against foreign consumers.  He told the conference that the Commission allows dealers to have incentives to concentrate on their “areas of responsibility”  (good to know that the Commission recognises that such things can still exist!).  This stimulates interbrand competition, and can legitimately be used to take the dealer over a qualifying threshold to entitle him to a bonus: once that threshold is crossed, however, payments should apply to every car sold regardless of destination.  

Decisions soon on dealer standards and multi-franchising
The interaction of dealer standards and the requirement that multifranchising should be permitted has occupied the Commission a good deal.  In decisions on General Motors and BMW, to be reported shortly in a Commission press release (he promised), the Commission sets out the importance of sales targets being adjusted when a franchise ceases to be solus.  The decisions will also look at the vexed issues of non-brand-specific IT systems and the application of corporate identity standards to brand-exclusive areas.  Dealers may opt for a brand-neutral style outside the brand-specific areas.  

There had been significant changes on the supply side too, though these were not driven by the block exemption.  Rover had dropped out of the picture, and Korean manufacturers had entered the market or taken a larger share.  Overall, demand for cars remained fairly static.  

‘testing the limits’ in aftersales
Turning to the after-sales market, he observed that the impact of network reorganisations prompted by the block exemption was less in this area than in the car distribution sector.  Numbers of authorised repairers were down, but less so than numbers of distributors.  Some innovative practices were emerging, both among authorised repairers and in the independent sector, and participants were testing the limits of what the block exemption would allow.  The imminent BMW and GM decisions will deal with quantitative criteria for workshops, which must be based on potential rather than historical local market information, and will also address the question of what has to be brand-neutral and what can remain brand-specific.  Repair-only outlets must not be discriminated against on manufacturers’ web sites or in car handbooks and navigation systems.  

Access to information still a concern
Access to technical information remained a matter of concern to the Commission.  Unless independent repairers have access to up-to-date technical information their competitive position will be undermined: the main problems here were identified in the IKA study of October 2004, and during 2005 the Commission has continued its investigations looking at the scope of the technical information to be provided, its accessibility, the way it is bundled and discrimination in the terms and conditions on which it is provided.  

As for parts distribution, it is still the case that authorised repairers rely on vehicle manufacturers for their spare parts.  In some Member States, independent wholesalers have taken some business from manufacturers, but vehicle manufacturers have responded (as the Commission would no doubt wish) by bringing our economy-priced ranges of parts.  

The initial impact of the regulation is to be examined in a study by London Economics, and a full impact assessment will be done by the Commission by May 2008.  The exclusion of location clauses from the block exemption from last October is expected to have a significant impact and will have to be monitored carefully.  Which leaves us with the most tantalising question of all: will there be another sector-specific regulation in 2010, when this one expires?  It’s a little early to expect an answer to that one yet.

Peter Groves

 

Automotive restructuring is a fact of life
Stephen Barker, the head of the Automotive Sector Group at solicitors Eversheds gave delegates a thought provoking presentation on the issues that can arise when financial problems result in a manufacturer going out of business, or deciding to restructure a business through administration or insolvency.

Drawing on examples from the US as well as recent events with MG Rover in the UK to show that automotive restructuring is a fact of life but that risk can be reduced by forward planning and creative thinking, Stephen highlighted the different issues that can arise from the perspectives of consumers, dealers, component suppliers and vehicle manufacturers. Consumers’ rights under vehicle warranties are not likely to be enforceable against the dealer, and the absence of a warranty might justify a consumer cancelling an order for a car if the manufacturer goes out of business. The consumer could also find himself responsible for end of life disposal of the vehicle. Dealers’ issues would include their repair liabilities, requirements under their dealer agreements to take allocated stock, and their continuing obligations under the General Product Safety Regulations to monitor and notify safety defects. For component suppliers, terms of business are fundamental, in particular the inclusion of effective retention of title clauses, and intellectual property issues. Contract terms are also the key to being prepared for the possible insolvency of one of its component suppliers for vehicle manufacturers, and taking steps such as dual sourcing to protect the supply chain.

Motor industry still a target of enforcement
Anthea Worsdall, the editor of Motor Law, gave the conference an update on recent developments in consumer law and enforcement, and an overview of some recent cases. The future of trading standards organisation was under review, and it seemed likely that in future more resources would be available to be targeted on areas of concern such as the motor industry. The statistics from the first year of operation of Consumer Direct showed that the industry was still a significant problem, with three out of the top ten areas of complaint arising from the motor industry.

Anthea highlighted the recent case brought by the Office of Fair Trading against the Officers’ Club, as it illustrated that compliance with the Code of Practice on Price Indications was not necessarily sufficient if an advertisement was generally misleading. This was a message that all staff responsible for advertising and marketing had to take to heart.

The forthcoming implementation of the Unfair Commercial Practices Directive (UPCD) was of particular interest to the industry, but it was often difficult to assess what the impact of new legislation would be until it was in operation. It had been predicted by the trade back in 1968 that the effect of the Trade Descriptions Act – a very similar piece of legislation - would be to make the sale of used cars impossible, whilst comments from enforcement officers had played down its likely impact. In fact, whilst the sale of used cars has clearly continued, there has been, and continues to be, significant numbers of car dealers prosecuted each year for breaches of the Act.

DTI wants to simplify consumer protection laws
Christopher Hobley from the DTI explained the background to the implementation stages of the Unfair Commercial Practices Directive. The consultation now being undertaken is not on the Directive itself which is in its final form, but on the best way it can be introduced into UK law, and how the government can achieve its objective to simplify the consumer protection framework without complicating the law. The options range from making minimal changes, through wholesale repeal – but no change at all is not an option.

There are some 28 pieces of legislation affected by the Directive and which will probably need at least some amendment ranging from core consumer measure like the Trade Descriptions Act 1968, to rather more esoteric legislation like the Fraudulent Mediums Act 1951.

The consultation deals with interpretation, enforcement and existing legislation. Enforcement of the new legislation is a particular issue to consider, as if this is not implemented correctly the benefits of the Directive would be lost. Four enforcement possibilities are being considered: injunctive actions, criminal sanctions, private rights of action, and self-regulation. Injunctions must be an option, but criminal sanctions can also be retained or introduced, and one of the matters to be considered was whether the new provisions of the Directive, e.g. aggressive commercial practices, should carry criminal sanctions. The DTI is also considering whether consumers should have a specific right to seek redress where they have suffered actual economic loss. The DTI is considering whether in some areas, such as advertising and banking, recourse should be required to codes of practice before other enforcement action is taken.

Christopher explained the future timetable: the current consultation closes on 8 March, the Government’s response to the consultation will be published in the Spring, and draft regulations and guidance for further public consultation in the Autumn. The new regulations are scheduled for publication in Spring 2007.

Roundtable feedback
The first session after lunch was given over to feedback from the lunch tables of the different topics that they had been given to discuss. The topics ranged from the future of the block exemption and whether it had achieved its objectives so far, through how the industry can best be regulated, the cost to business of the harmonisation of consumer laws, the balance of manufacturer/ consumer interests in the enforcement of intellectual property rights, and how manufacturers can best deal with long term liability for their products.

As might be expected, these topics produced some lively discussions, and, according to the table leaders who gave the feedback, some of the debates went much wider than the specific question asked. Interesting points made included:

(on the block exemption) the consumer is now very much “in the driving seat” so far as the industry is concerned, but this is due more to consumer protection laws than to the block exemption, and dealers are perhaps not using all the tools they have available under the block exemption;

(on intellectual property rights) safety issues mean that on counterfeiting issues consumer and manufacturer interests are very much the same, but it is more difficult to convince consumers of that in respect of parallel imports;

(on standards in the industry and regulation) trading standards think that self regulation hasn’t worked, but there are serious doubts as to whether any licensing scheme would actually deal with rogue traders effectively while the cost would have to be borne by consumers in the end;

(on the cost of EU harmonisation for the industry) more regulation simply impacts on reputable manufacturers, other markets may have less regulation ;

(on long term liability for manufacturers) will manufacturers’ structures (e.g. IT) survive long term to provide the information needed ? Honda’s anti-counterfeiting experience Christopher Morgan from Honda Motor Europe gave the conference an intriguing and entertaining picture of the sort of world-wide counterfeiting and IP infringement issues that Honda has to deal with across its range of products. Problems they have encountered range from counterfeit of components and complete products, to infringement of registered designs and trademarks to copies of complete cars and motorbikes. The company monitors exhibitions all over Europe, and takes legal action as well as supporting lobbying and education activities with enforcement authorities.

“Toto, I don’t think we’re in Kansas any more”
The final session of the day on consumer credit was an informative one presented by Ashley Holmes of the Finance Leasing Association. He outlined the major changes now being made in this area, after many years of regulatory stability, and the need for the industry to respond and influence the changes where they can. As his quote from the Wizard of Oz illustrates – the scenery in which motor finance operates has completely changed and is still changing.

The coming-into-force date for the Consumer Credit Bill which is expected to complete its final stages in the Lords soon before receiving Royal Assent is not yet certain, but may be from April 2007. Meanwhile a number of pieces of secondary legislation have already come into force dealing with advertising, up-front information, clearer and fairer contracts, early settlement, distance contracts and online agreements. Important measures in the Bill itself include those relating to “unfair relationships”, which replaces the rules on extortionate credit. The problem here is that there are no criteria in the Bill for defining an unfair relationship, and this has been left entirely to the courts. It will therefore be vital for companies to have the right processes and procedures in place. In addition, not only will all lending to consumers be caught by the legislation but the OFT will have unfettered powers in respect of licensing arrangements, and new guidance is expected as to how they will exercise these powers.

Meanwhile in Europe, the provisions of the draft EU Directive on consumer credit are causing concern, particularly the standard 14 day cooling off period which is currently proposed.

Payment protection insurance is also under scrutiny. The PPI market has been the subject of a super-complaint by Consumers’ Advice, and the OFT is currently considering this - a reference to the Competition Commission may follow. The FSA too is concerned about PPI and has written to the trade associations seeking assurance that they are going beyond legislative requirements to ensure that the market is working.

Plea for input from trade to trading standards
Peter Stratton representing Trading Standards Institute at the Conference took the opportunity to hear the views of delegates in respect of a mandatory licensing regime. Not surprisingly in the light of current burdens and legislation the trade faces there was not much support for this way forward.

Peter accepts that working with the trade will more likely to bring successful outcomes and still would like to hear any views from the trade.

He says “It may be that the OFT working with the SMMT supported by the RMIF may find an acceptable solution to redress the consumer detriment and dissatisfaction with standards in vehicle repair and servicing. However, I still have concerns in respect to the second hand car market; there are far too many examples of unscrupulous dealers hiding behind false identities. This means that it is at times almost impossible for us to identify who is responsible for clocking cars and selling unroadworthy cars.

Honest car dealers ought to see the damage done to consumers and their own businesses by those who sell clocked cars. Many of these unscrupulous traders do not have forecourts, they have no need to. They buy their stock one or two at a time and sell them back to the trade or to consumers via small ads or the internet. Perhaps it is time to consider a scheme that requires those in the car trade with no fixed business premise to register their activities.

I hope there are those amongst you that can find time to respond with your views and ideas. Anything, to progress ways of helping trading standards officers be able to ensure that legitimate business operate on a level playing field and consumer are not cheated will be welcomed.”

Peter can be contacted on 01245 341981 or peter.stratton@essexcc.gov.uk

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Conference reports from previous years

2005 2004 2003 2002 2001 2000