CODE RED
The Competition Commission’s plan to increase black involvement in after-sales vehicle service is laudable but flawed, say motor companies and dealers
Attempts by the Competition Commission to throw open the vehicle sales and service industry to more black participants are misleading and dangerous, say opponents. The commission says its proposed code of conduct for competition in the SA automotive industry will increase the number of black players, increase consumer choice and drive down vehicle ownership costs.
It claims the current industry model, which allows motor companies to decide who may service vehicles under warranty and which replacement parts may be used, is discriminatory and uncompetitive.
A final draft of the code was published in August and the deadline for submissions expired at the end of October. The commission is giving no hint of when it plans to implement the code.
Mark Dommisse, chair of the National Automobile Dealers Association (Nada), says the commission has ignored almost every industry input and seems hellbent on implementing the code as soon as possible. Though it will start life as a voluntary code, he suspects it could eventually become compulsory.
The draft code proposes wholesale changes to the after-sales management of vehicles covered by warranties or maintenance plans. Motor companies will no longer be able to insist that service and repairs are carried out by franchised dealers but must consider any independent black-owned workshop. Motor companies will be responsible for providing workshops with training, parts, manuals, proprietary information and even intellectual property. The commission originally wanted these to be free but has since backtracked.
It says the current “exclusionary” system prevents black players from entering the multibillion-rand auto repair market. However, the National Association of Automobile Manufacturers of SA says that of the estimated 11.2-million passenger and commercial vehicles on SA roads, only about 25%, or about 2.8-million, are covered by a warranty or maintenance plan. That leaves 8.4-million.
“There is therefore an adequate number of vehicles to be repaired or serviced,” it says in a submission. “There is no shortage of opportunity for any automotive business to participate.”
The Ford Motor Company agrees. “The broad automotive market is competitive and characterised by large numbers of players at all levels.”
The Gauteng provincial government’s department of economic development has other ideas. It says the SA motor industry at all levels is “plagued by slow and stagnant transformation underlined by rigid ownership patterns, skewed productive capacity and undisrupted monopolies”. It says the proposed code doesn’t go far enough in encouraging black participation.
The national government is confronting that at manufacturing level. Future motor industry policy, unveiled two weeks ago by trade & industry minister Rob Davies, will require vehicle and components producers to accelerate black industrialisation. Under the next leg of the automotive production & development programme, from 2021 to 2035, those failing to do so will forfeit investment incentives.
Dealers say enforced after-sales transformation will have safety consequences. Not only does the commission want motor companies to open the vehicle repair door to everyone — it also wants them to stop insisting on approved spare parts. Independents should be allowed to use cheaper alternatives provided they meet quality standards.
Today, that would automatically void any warranty.
Motor companies argue that in the case of safety-critical parts, the idea makes no sense. Dommisse says the consequences could be “catastrophic”. His Nada colleague, Gary Mccraw, says the potential for injury and death is “very real”.
Mccraw says Nada is in favour of transformation. “Our problem is not the ‘what’ but the ‘how’.” He adds that while job creation is important, it cannot be at the expense of the 60,000 people already employed by franchised dealers.
The SA Insurance Association (Saia) also has misgivings. The code wants insurers to use more black-owned repair shops, but the association says it must choose the most reliable, irrespective of background. While the SA Black Automotive Chamber of Commerce & Industry says black suppliers should receive preferential treatment and be paid by insurers within 48 hours of invoicing, Saia says insurers are bound to check workmanship and costs first.
The commission also wants motor companies to create more black dealers by limiting the amount required to create and equip dealerships. It can cost hundreds of millions of rands to meet the standards of some brands.
However, companies point out that these standards are set by global parents. As with the insistence on licensed spare parts, policy decisions are not taken in SA but in Europe, Asia and the US.