Automotive aftermarket guidelines to help competition and benefit consumers

Four years after the Competition Commission started engaging with the automotive aftermarket, its guidelines for the sector are finally to be enforced. It’s been a long time coming and key players in the sector are said to be neither particularly delighted, nor unhappy about it. But when the final Guidelines for Competition in the South African Automotive Aftermarket go into effect on 1 July, it will open up competition in the vehicle aftermarket sector, drive down prices and benefit the consumer.

The guidelines were issued in December 2020, after the commission received complaints about anti-competitive conduct in the sector. It then gave the sector until next month to ensure their businesses and business arrangements are compliant.

The commission has received complaints for more than a decade about exclusionary agreements and/or arrangements between original equipment manufacturers (OEMs) and approved motor-body repairers; independent service providers (ISPs) being excluded from working on vehicles under warranty; and insurers unfairly allocating work.

ISPs have also been restricted from buying original spare parts; small and medium enterprises and historically disadvantaged individuals battled to get a foot in the market by becoming approved as motor-body repairers and dealers; and consumers are saddled with little choice when buying and fitting spares.

The commission has been working with industry stakeholders since early 2017 to resolve the market issues. Initially, it had hoped to facilitate a voluntary code of conduct. But when consultations with stakeholders bombed, it opted to issue guidelines, which apply only to the aftermarket; they affect vehicle service, maintenance and repairs. Vehicle servicing, repairs and parts supply comprise about 80% of the aftermarket industry. Each year more than R10-billion is spent on motor-body repairs. Vehicle cover accounts for a huge portion of SA’s short-term insurance business – around 45%.

Anti-competitive behaviour in the automotive sector is hardly unique to SA, so the commission conducted a review of work undertaken by its counterparts in the EU, US, Australia, Russia and China. These countries led in the promulgation of regulations, voluntary codes of conduct, or guidelines aimed at ensuring effective competition and facilitating consumer choice.

In some jurisdictions, vehicle manufacturers are barred from stopping originalparts suppliers from providing products to independent distributors. Independent repairers also have access to the vehicle manufacturers’ original parts, to compete with authorised repairers. Owners can use any repair shop for non-warranty work while the vehicle is under warranty.

In SA, the commission was determined to lower barriers to entry and ensure greater opportunities for the previously disadvantaged, while increasing consumer choice and facilitating competition in the markets for spare parts and value-added products.

This, it hoped, would widen the pool of approved dealers and repairers; promote the entry of the historically disadvantaged; ensure that ISPs can undertake in-warranty work on vehicles; allow for greater competition in the selling of service and maintenance plans; drive down costs for consumers; and ensure fairer allocation of work by insurers.

What this means

OEMs must recognise and not obstruct a consumer’s choice to seek work on their vehicles at a service provider of their choice. But, if the consumer chooses to use an ISP while their vehicle is within warranty, the OEM is under no obligation to pay for any service and maintenance work undertaken.

Consumers can fit original and non-original spare parts at a service provider of their choice, during the in-warranty period. But if there is any damage from that fitment, it could put the warranty at risk but only with regard to the part affected by the repair. For example, using aftermarket headlights or a windscreen will have no impact on the engine.

Insurance customers will be required to have vehicle repairs undertaken by an approved motor-body repairer during the warranty period, as allocated by their insurer.

ISPs are obliged to record their in-warranty work in customers’ service books and must explicitly disclose to consumers the risk of damage that could arise, including consequential damage to the motor vehicle, which may potentially void certain obligations of the OEM in terms of the warranty.

ISPs must also disclose to consumers whether they have adequate commercial insurance cover to perform the work on the vehicle.

If any damage is caused to the vehicle as a result of work by an ISP, there is a risk that certain provisions of the OEM warranty will be voided – but other provisions of the warranty may remain severable and enforceable, which means the OEM concerned may conduct an assessment (at its cost), to determine liability. If there is a dispute, a consumer can approach the Motor Industry Ombudsman of South Africa to investigate in terms of the Consumer Protection Act.

OEMs must disclose certain information to consumers, such as the price of any pre-included service or maintenance plan, extended warranty or scratch and dent product, so they can make informed choices about the required maintenance of their vehicles.

OEMs may impose restrictions or prohibitions on ISPs from on-selling original spare parts to third parties. There is no obligation on approved dealers to supply non-original spare parts.

Maintenance and/or service plans – typically three years / 60,000km; four years / 120,000km; five years / 50,000km – that are sold with vehicles, can no longer be bundled with the purchase price. OEMs and independent providers of value-added products must adopt measures to promote competition and consumer choice by offering such plans of varying durations; they must transfer plans or even refund a customer the balance of the product, if a vehicle has been written off by the insurer. OEMs are “encouraged” to make available, on reasonable terms and conditions and subject to their intellectual property and data privacy rights, technical maintenance and repair information including information stored electronically or in the cloud. They must also provide training (or give access to training) to employees of ISPs on request, at a reasonable cost that may not exceed that imposed on employees of approved dealers.

Consumers can fit original and nonoriginal spare parts at a service provider of their choice, during

the in-warranty period. But if there is any damage from that fitment, it could put the warranty at risk

Reaction

During a recent media conference, the National Automobile Dealers’ Association (Nada), suggested that the guidelines were voluntary; while their members would abide by them, they would need up to a year to become fully compliant.

Mark Dommisse, Nada chairperson, expressed concern that consumers might misinterpret the guidelines to mean that they can take their in-warranty vehicles to any workshop of their choice. That would be unwise because it could invalidate the warranty.

While there might be many complaints about dealerships, Dommisse said, in-warranty vehicles should rather be taken to a franchised workshop.

The guidelines appear to be more stick than carrot. The commission says the guidelines are not exhaustive, nor will they affect its discretion or that of the tribunal or courts to pursue anti-competitive conduct in terms of the Competition Act through enforcement.

Commission spokesperson Siyabulela Makunga said the commission intends to conduct periodic impact assessments to monitor compliance. Stakeholders will need to provide relevant information and data.

Complaints about anti-competitive conduct can be mailed to ccsa@compcom.co.za, after a CC1 form has been filled in.