A hard look under the hood that will help all motorists
The Competition Commission is examining unacceptable practices in the car service industry, writes Thembinkosi Bonakele
CARMAKERS and aftersales service providers have been thrust into the spotlight by the publication of excerpts of the findings of an internal study done by the Competition Commission.
The commission, as part of its advocacy work, from time to time undertakes studies in sectors or markets where it has concerns of excessive concentrations of ownership and control, unjust and artificial restrictions and exclusionary practises, among other discomforts.
These, in the beginning, may not necessarily warrant investigatory intervention
After receiving a plethora of complaints against carmakers and their approved agencies in the automotive after-market, we launched a scoping study that resulted in a report on how this market functions.
We discovered that the South African automotive after-market is beset with anticompetitive agreements and arrangements between after-market service providers and car manufacturers.
These cut across the value chain of panel beaters, service centres, fitment centres, parts manufacturers, car manufacturers and insurance companies.
The agreements differ, but may involve a requirement that customers only use approved service providers as a condition of their warranty.
Short-term insurance companies may also compel policyholders (insured vehicle owners) to use approved service providers, usually the same as those approved by the car manufacturers.
Furthermore, every new vehicle has a warranty and a service plan, known as a motor plan, which the customer buys upfront and is included in the purchase price.
Curiously, the warranty or motor plan becomes invalid if there’s any part fitted, maintenance and repair work done by a “non-approved” service provider.
Approvals are done by carmakers through the assistance of various associations in the sector.
Independent service providers, many of whom may be as professional and competent as the approved ones, are foreclosed from servicing vehicles that are under warranty.
Equally, a customer with a warranty or a motor plan who may wish to purchase parts from independent manufacturers, or service their vehicle at a reputable non-approved service provider, is precluded from exercising their choice.
The most important question that arises from this arrangement is whether it is fair to exclude the independent service providers from the “service plan fund”.
This fund, which pays for the repairs and services claims emanating from service plans, is administered by the relevant manufacturer.
There may well be other questions about surplus and general administrative issues which other regulators may be interested around this fund.
From the complaints — dating from 2011 — and the study, features of this market may prevent, distort or restrict competition between independent after-market service providers and authorised service providers.
These, in the end, have the potential to harm consumers.
So we are concerned about certain restrictive and exclusionary practices in the automotive aftermarket.
We are concerned about the exclusion of independent panel beaters from servicing insured vehicles and those under warranty and motor plans.
We are concerned about the exclusion of independent panel beaters and parts distributors from sourcing manufacturer-branded parts.
We are concerned about potentially exorbitant prices charged by these approved service providers because of lack of competition.
These have evoked much emotion, interest and debate among stakeholders in the sector.
We have sought to engage the industry to reach sufficient con- sensus on the way forward.
Carmakers have raised legitimate concerns about quality assurance and safety.
What is encouraging, however, is that the carmakers are aware that our concerns are not uniquely South African; the EU, France, the US, China and Russia have all intervened in this regard.
These interventions have led to the promulgation of either regulations or voluntary codes of conduct.
For example, in 2010 the EU introduced a legal framework that prohibits car manufacturers from making warranties conditional based on the repair and servicing of a vehicle within its approved network.
In addition, warranties cannot be nullified if a vehicle owner uses spare parts other than the manufacturer’s branded spare parts.
In 2014, authorities in China issued “guiding principles” that introduced the concept of “same quality spare parts” to mitigate against discrimination in the market for spare parts not manufactured by carmakers or approved suppliers.
Manufacturers are also prohibited from abusing warranty provisions to restrict consumers from choosing repairers or repair services.
Since 2015, vehicle manufacturers in China have also been required to publish maintenance and technical information of newly launched vehicles to both approved and independent repair operators.
In France, legislation has been amended to address the issue of restricting the sale of spare parts to independent repairers, while the Federal Antimonopoly Service of Russia has adopted a code of conduct to establish good business practices in that country’s automotive sector.
We have invited the Russian body to join us this month and share its experience when we meet the South African manufacturers.
The workshop is a golden opportunity to change the face of the South African automotive aftermarkets in line with international best practice.
We are emboldened by some of the preliminary feedback and propositions of co-operation and support.
Although we are under no illusion that what lies ahead will not be a walk in the park, we are cautiously optimistic that we should be able to open up this billion-rand industry to other equally able and competent South Africans for meaningful participation.
For the consumer, this will certainly lead to varied options and lower prices.
Bonakele is South Africa’s Competition Commissioner
❛ The automotive after-market is beset with anticompetitive agreements