Distribution and after-sales service agreements in the motor vehicle sector are currently governed by Regulation (EU) No. 461/2010 of May 27, 2010 on the application of Article 101 para. 3 of the Treaty on the Functioning of the European Union (“TFEU”) to categories of vertical agreements and practices in the motor vehicle sector (known as the “Motor Vehicle Block Exemption Regulation” (“MVBER”)—full text accessible here).
“Vertical agreements” are agreements entered into by two or more undertakings operating at different levels of the production or distribution chain and relating to the conditions under which the parties may purchase, sell, or resell certain goods or services. Article 101 para. 1 TFEU prohibits agreements between undertakings that restrict competition. However, under Article 101 para. 3 TFEU, such agreements can be declared compatible with the Single Market, provided that they help improve the production or distribution of goods or foster technical or economic progress, while also allowing consumers to enjoy a fair share of the resulting benefits, all without eliminating competition.
The MVBER states that the European Commission’s general regime (i.e., Commission Regulation (EU) 2022/720 of May 10, 2022 on the application of Article 101 para. 1 TFEU to categories of vertical agreements and practices, known as the “Vertical Block Exemption Regulation” (“VBER”)—full text accessible here) applies to agreements for the distribution of new vehicles. The VBER exempts vertical agreements that meet certain conditions from the prohibition in Article 101 para. 1 TFEU, thus creating a safe harbor for those agreements.
For agreements relating to the sale and resale of spare parts for motor vehicles and the provision of repair and maintenance services for motor vehicles, the MVBER states that Article 101 para. 1 TFEU does not apply, so long as these agreements fulfil the requirements for an exemption under the general regime and do not contain any of the clauses listed in the MVBER that remove the benefit of the exemption.
The MVBER is scheduled to expire on May 31, 2023, and in preparation, on July 6, 2022, the European Commission launched a public consultation (more information on the consultation available here) with the aim of gathering evidence on the operation of the rules applicable to vertical agreements in the motor vehicle sector. The European Commission invited all interested parties to comment on its proposals for the future of the MVBER regime (stakeholders must submit their papers no later than September 30, 2022).
These proposals include: (I) a draft regulation extending the validity of the MVBER for five years; and (II) a draft communication introducing targeted updates to the supplementary guidelines on vertical restraints in agreements for the sale and repair of motor vehicles and for the distribution of spare parts for motor vehicles (“SGL”—full text accessible here).
Background of the review process
The importance and intensification of competition in the automotive distribution and repair market, with numerous brands competing in the distribution market and multiple players competing in the aftermarket, has raised questions about what changes the EU might make to the MVBER.
On May 28, 2021, the Commission published an evaluation report and staff working document containing the results of the evaluation of the MVBER regime. In its public report, the Commission summarizes these market changes and covers the new issues that led to changes in the motor vehicle industry.
First, there was the technological evolution, particularly changing communication technologies and growth in embedded data.
Second, there were the environmental issues that challenge this sector. Third, the sector must deal with the post-COVID-19 world and the probability that mobility patterns have changed permanently as a result of the pandemic.
The Commission’s 2021 evaluation revealed that the MVBER system has been effective. Indeed, the costs of assessing whether vertical agreements in the automotive sector are in line with Article 101 TFEU are proportionate to the benefits of this system.
In light of these findings, the Commission is proposing to (i) extend the duration of the MVBER for five years, i.e., until May 31, 2028 and (ii) introduce small targeted updates to the SGL.
The Commission’s willingness to extend the duration of the MVBER
It is undisputable that although the competitive environment in the motor vehicle markets had not changed much since 2010, the sector now found itself under pressure to adapt to (i) the technological evolution, including increased vehicle-generated data; (ii) the constant pressure to reduce emissions and shift to more environmentally friendly fuel and power trains; and (iii) changes in mobility patterns. The evaluation found that as a consequence some parts of the sector can be expected to evolve rapidly in the coming years and that in turn will have an impact (not yet quantifiable) on competition conditions. Many of the changes that are only beginning now are expected to be in full swing by the period from 2025 to 2030.
In this context, the Commission is proposing extending the current MVBER for five years. This will allow some of the changes beginning now to stabilize and will put the Commission in a better position to reassess the situation in the new market reality.
Simultaneously, the Commission proposes introducing a renewed obligation to monitor the implementation of the MVBER and evaluate it before it expires.
The Commission’s proposal concerning the draft communication amending the SGL
As for the draft communication amending the SGL, at present, although the SGL deal in detail with the competition principles applicable under Article 101 TFEU to other key inputs for vehicle repair, such as tools, training, and technical information, they do not explicitly refer to vehicle-generated data.
The evaluation revealed that an update was necessary to reflect the importance that access to vehicle-generated data was likely to have as a factor in competition. The draft communication extends the principles already in place for the provision of technical information, tools, and training so that they explicitly cover vehicle-generated data needed to provide repair and maintenance services. These changes will provide clarity for companies concerning the way the Commission views issues related to access to vehicle-generated data when assessing vertical agreements between vehicle manufacturers and their authorized networks under Article 101 TFEU. These changes are implemented by means of the proposed amendments to paragraph 60 to 68 of the current SGL.
In addition to the above, the draft communication introduces updates to the legal references included in the SGL, namely by (i) updating cross-references to the VBER and VGL with appropriate references to the new texts that will replace them; (ii) aligning the content of certain paragraphs of the SGL with the provisions of the new VBER and VGL; and (iii) updating cross-references to legislation within DG GROW’s remit that has been replaced by new texts or repealed. These updates will ensure consistency across relevant policy instruments and will help stakeholders apply the SGL.