European Union competition law exists to prevent anti-competitive practices and abuse of companies’ dominant market positions. But, in recognition of the unique technical complexity of their products, the motor industry has – since 1995 – enjoyed a so called ‘block exemption’ from some aspects of competition law.
Under the Motor Vehicle Block Exemption Regulations (BER), the industry was allowed to continue to operate a franchised dealer network, controlling who would sell their products and where they could do so – a selective and exclusive distribution network in the jargon. This wasn’t complete exemption though and the BER included clauses protecting consumer rights regarding service and repair.
The BER were introduced in 1995 and then updated at the end of 2002. One specific requirement of the Regulations was that technical data and repair instructions should be made available to the independent motor trade (for which manufacturers could make a reasonable charge) so that car owners were not obliged to take their car to a franchised dealer for service or repair. this also ensured that data was available to motoring organisations like the AA to enable us to fix cars at the roadside.
By the time the BER were next due for renewal in 2010, the new car exhaust emissions regulations
had been agreed for ‘Euro 5’ and ‘Euro 6’. These set the limits for a number of exhaust-born toxins, including particulate matter (soot) but also specified that manufacturers must make technical data and repair information available to the independent trade. The EU initially took the view that with access to technical information covered by Euro 5 and 6 Regulations and the motor industry generally working well, there was no need to renew BER.
Right to repair
Unfortunately the Euro 5 and 6 Regulations only guaranteed the availability of technical data and repair information for cars first registered after 2009. There would be no guarantee that the independent trade and motoring organisations could continue to access repair information and technical data for vehicles registered before 2009 if the BER were allowed to lapse.
The independent ‘Right to Repair Campaign’ eventually succeeded in having the Block Exemption Regulations renewed and improved. This ensured that technical data and workshop procedures remained available.
By securing access to technical and repair information the Block Exemption Regulation helps to:
- Keep repair costs down
- Provide security for independent garages and specialists such as auto-electricians, air conditioning specialists and body repairers
- Ensure you don’t have to wait too long or travel too far for servicing or repairs
Servicing a new car
Changes to the BER in 2002 included clauses intended to increase choice when it comes to servicing of a new car. You cannot be obliged e.g. as a condition of warranty, to have your car serviced by a franchised dealer.
Other changes at that time permitted multi-brand showrooms and no longer obliged dealers to combine sales and service/repair – though most have continued to do so.
The work can be carried out by an independent garage as long as that garage uses manufacturer approved parts and correctly follows the manufacturer’s service schedule. Independent garages generally have much lower overheads than franchised dealers so their hourly labour rate is also cheaper.
Although you are free to have your car serviced at whichever garage you like – and benefit from the cost savings – you can’t then expect much help and goodwill from the manufacturer if the car develops a major fault just after the warranty has expired. Manufacturers often cite lack of loyalty on the customer’s part as the reason for their decision not assist with the cost of a repairs after the warranty has expired.
Legal Analysis: The future for block exemption post-Brexit
Motor Trader’s legal expert Peter Groves thinks block exemption will come under pressure after the UK leaves the EU
What is going to happen to the block exemption after the UK leaves the European Union? It will still apply in the EU27, of course, but will it still have the force of law in the UK after 29 March next year? The short answer it is not going anywhere yet but this could change.
The motor vehicle block exemption has not always been seen as a good thing. Its earliest manifestations (we are on the fourth iteration now) gave extensive protection to dealers as well as protecting consumers by restricting price differentials and guaranteeing “full line availability” – making it possible to buy a UK spec car from a dealer in Belgium.
But dividing the country into exclusive territories made it difficult for consumers to get a bargain by shopping around, and at the start of the century when the Monopolies and Mergers Commission investigated the market for new cars the government thought seriously about asking for the block exemption to be disapplied from the UK. But price differentials, largely, evaporated, consumers were happy, and the block exemption survived.
Come 2022, it’s not hard to imagine that the government might think it’s time for a free-for-all in the car market.
Tesla is already challenging accepted norms, and even where manufacturers sell through dealers they often insist on branding that obscures the dealer’s identity behind that of the marque. Consumers don’t talk about taking their car to a dealer by name they say they have taken it to VW. As cars become more like computers, the sort of service they need will increasingly be performed by the dealer as the agent of the manufacturer, not as an independent business. If that’s the shape of the market, will the traditional structure still be justified?
The government might – I put it no stronger than that – be casting around for Brexit benefits. Some years ago the then government tried to loosen the law to make parallel imports of designer clothes and other luxury goods easier, seemingly hoping that cheap Levis would secure its re-election. Taking new car-selling out the exclusive hands of dealers, allowing discounters with low overheads to compete with those obliged by manufacturers to operate from huge gin palaces or “Taj Mahal” showrooms, might seem a similarly good vote-winner. Nearly as good as free beer – for the consumers, at least.
Later versions of the block exemption lack many of the dealer protection measures that helped to equalise the dealer-manufacturer relationship. They were not, the Commission thought, a competition matter – although what could have more to do with competition than a dramatically unequal contractual relationship? Commercial agents enjoy strong protection in EU law, as a result of a commercial tradition in which they were much more important than in the UK. In the USA, dealers have extensive legal rights – recently strengthened in California, with a new bill signed into law last month. In some EU countries dealers also enjoyed legal protection against arbitrary termination and other disadvantages. There is still a body of opinion arguing and lobbying for more extensive dealer protection, in the block exemption or in separate legislation. If anything comes of that at EU level, it won’t help the UK, and any possibility that we might introduce domestic laws like those in some other countries (Austria seems to be a particularly good place in which to be a dealer) would have gone.
Part of the attraction to many who voted Leave was the promised bonfire of EU regulations. Far from a bonfire, the first stage has been to make all those EU regulations into British laws. But that won’t be the situation for ever, and there are plenty of people around who think the block exemption would burn rather well. I hope I am wrong, but I don’t give much for its chances.
Block legislation: the legal background
Block exemption is not going away anytime soon. Under section 3 of the European Union (Withdrawal) Act 2018, “direct EU legislation” including most regulations, which was operative immediately before exit day “forms part of domestic law
on and after exit day”.
The basic rules of competition will go, but block exemptions will still have an important part to play in domestic competition law, which since the Competition Act 1998 has been deliberately modelled on the EU rules.
To save the Secretary of State making a whole raft of UK block exemptions, those that the EU had made (and has made since) operate in the UK a “parallel exemptions”. So motor vehicle distribution and servicing agreements which, because they contain certain exclusivity provisions, are actually prohibited under both UK and EU rules as anti-competitive agreements will still be saved by the block exemption.
So far, so good. The block exemption (which nowadays is actually two block exemptions, the general one for vertical restraints and the special rules for the motor sector) will remain in force incorporated in our domestic law until it expires (31 May 2022, a year later for the general one). Then the UK will make its own block exemption, or Domestic Exemption Order, under section 6 of the Competition Act – if it sees fit.
