By Dominique Arteiro
On Thursday (December 10), the Competition Commission issued the final guidelines for competition in the South African Automotive Aftermarket (automotive guidelines).
The guidelines are forward-thinking as the measures proposed therein apply not only to internal combustion engines, but also to electric vehicles and to propulsion by other means (hybrid).
The automotive industry contributes 6.4 percent to South Africa's gross domestic product (4 percent manufacturing and 2.4 percent retail) and accounts for 30.1 percent of South Africa's manufacturing output.
It is the country’s fifth-largest exporting sector out of all 104 sectors and accounts for 13.9 percent of total exports.
The manufacturing segment employs more than 110 000 people across component manufacturing to vehicle assembly.
Accordingly, the automotive sector is an important economic engine for South Africa and a big contributor to employment in South Africa.
It is, therefore, unsurprising that the commission is keen to ensure that conditions and commercial arrangements between participants at the different levels of the automotive value chain are conducive to competition.
The commission states that it issued the Automotive Guidelines with the aim of promoting competition in the automotive aftermarket, and to promote economic access, inclusion and greater spread of ownership for historically disadvantaged individuals.
In a media statement dated December, 11, 2020, the commission indicates that it consulted widely with industry participants including the National Association of Automobile Manufacturers of SA, the National Automobile Dealers Association, the South African Insurance Association, the Banking Association of SA (Basa) plus individual OEMs and individual Insurers.
The commission has also engaged with independent repairer associations including the Motor Industry Federation, African Panelbeaters Motor Mechanics Association, Tyre, Equipment, Parts Association, Right to Repair, Motor Industry Workshop Association and the Automotive Remanufacturers’ Association.
Numerous complaints have been made over the last decade to the commission which has been working with participants in the automotive sector since early 2017 to resolve these market issues.
The commission initially facilitated an advocacy programme towards a voluntary Code of Conduct for the industry, but after two years of engagement, the commission states in the Automotive Guidelines that stakeholders did not reach consensus and/or did not commit to meaningful pro-competitive reforms in response to the challenges posed.
The commission, therefore, issued the guidelines to provide practical guidance for the automotive aftermarkets industry.
The guidelines are intended to promote inclusion and to encourage competition through greater participation of small businesses as well as historically disadvantaged groups.
Measures proposed in the Automotive Guidelines
Some of the novel measures proposed, which have cost, staffing and legal implications for participants in the automotive industry, are the following:
– the unbundling of the new motor vehicle price from the price of the service and/or maintenance plan of that motor vehicle. In other words, dealers must ensure that at the point of sale of a motor vehicle, that consumers have full disclosure of i) purchase price of the motor vehicle; and ii) the purchase prices of service and maintenance plans, and other value-added products. Consumers will then have the choice whether to purchase the motor vehicle and service/maintenance plan separately or at the same time.
– Original Equipment Manufacturers (OEMs) and independent third party providers must transfer a service and/or maintenance plan to a replacement motor vehicle in circumstances where the motor vehicle is written off by the insurer.
– in circumstances where there is no replacement motor vehicle after a write-off or its not feasible to transfer a service and/or maintenance plan to a replacement motor vehicle, the consumer must be afforded the right to cancel the service and/or maintenance plan contract and/or receive a refund for the balance of the product;
– approved dealers that sell new motor vehicles and products of competing OEMs must ensure that they do not engage in price co-ordination.
– approved dealers that sell new motor vehicles and products of competing OEMs must ensure that no commercially sensitive information is provided or shared with competing OEMs.
The guidelines are effective from July, 1, 2021. Although the guidelines are non-binding on the competition authorities, it indicates the commission's approach on any matter.
Importantly, the guidelines do not preclude the commission from pursuing any firm in the automotive industry for anti-competitive conduct through the commission's enforcement powers.
Businesses should, therefore, carefully consider the implications of the measures proposed by the commission in the guidelines on their franchise and dealer arrangements, and on their different services and product offerings pertaining to motor vehicle servicing, repair and/or maintenance.
The guidelines do not apply to motorcycle dealers or finance and insurance institutions, which provide products and services to participants in the motorcycle industry.
However, participants in other industries that have similar franchise, distribution, servicing and/or repair arrangements to the automotive industry will undoubtedly be keeping a watchful eye on how the implementation of the commission's Automotive Guidelines unfold in the automotive sector.
Dominique Arteiro is a director at Werksmans Attorneys Competition Practice