By Jennifer Finnigan, Head of Competition Law
On 26 September 2017, the Competition Commission published for comments its Draft Competition Code of Conduct for the Automotive Industry. Comments must be submitted by 3 November 2017. The code follows an advocacy process in the automotive aftermarket industry and aims to increase access to the automotive aftermarket industry and to encourage increased economic participation by historically disadvantaged individuals (HDI’s).
The code will affect OEMs, dealers, vehicle service and repair service providers and parts retailers. The code binds signatories.
Signatories to the code must choose their dealers by applying “fair and transparent processes”. Exclusive dealerships are prohibited. HDI’s get preference in dealership appointments. OEM’s may not “impose onerous obligations on prospective dealers” and dealership facility requirements must be reasonable and economically justifiable. Additional investment requirements are restricted. OEMs must allow dealers to source branding and corporate identity products and services from multiple suppliers as long as the products are of an appropriate standard.
Dealers who sell competing OEM brands must have different employees set the prices of vehicles and products for each brand and must not share the competitively sensitive information of an OEM with its competitors.
OEM dealerships must identify separately maintenance and service plan costs when selling vehicles.
On the servicing, repair and parts side, vehicle warranties won’t be invalidated if the vehicle is repaired or serviced by an independent service provider using unbranded parts which the SABS has identified as of equal quality to the OEM branded parts. OEMs may not exclusively appoint in warranty repairers in a territory. Independent repairers can now repair or maintain in-warranty vehicles and the warranty, extended warranty or the maintenance or service plans will not be affected.
OEM signatories have to actively support independent repair and maintenance service providers by giving them free access to their safety and technical specifications and maintenance information for vehicles and parts (including, for example, diagnostic software), leasing OEM tools to them and providing them with training. Non-OEM parts of matching quality can be used to repair and service vehicles in warranty and the warranty, service and maintenance plans remain unaffected. The catch, of course is that if non-OEM parts are used, the OEM is not liable for defects or damage caused by a defective non-OEM part.
The SABS will identify parts of equal quality to OEM branded parts. Where there is no South African standard for a part, the OEM must make public its specifications for that part. Whether OEMs will accept this obligation which utterly disregards their intellectual property in their parts and specifications remains to be seen. This kind of obligation may well make the South African market less attractive for OEMs who want to protect their intellectual property in their vehicles and parts.
The code clearly indicates what the Commission considers to be competitively compliant conduct within the automotive aftermarket industry. At a practical level, the code may well be used by the Commission as the standard for assessing whether conduct by market participants is anti-competitive.
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