Following last month’s article about the European Commission’s launching an ‘evaluation roadmap’ to consider if the existing Automotive Block Exemption Regulation (BER) should be renewed when it expires in May 2023, I explained the background and how important BER is to the abilities of the UK aftermarket to conduct their day-to-day business and offer the motoring consumer competitive choices for the service and repair of the vehicles.
    
However, since the original BER was drafted in 2002 and subsequently updated in 2010, much has changed concerning the design and functionality of today’s vehicles, with much more likely to change in the coming years. If you think that 2023 is a long way ahead, just think about the Olympics in London in 2012 – does that seem like such a long time ago - and this is nearly twice the period between now and 2023.

What should the legislator consider? Firstly, there is the fundamental question of why the BER exists and if the original requirement is still valid. The answer is not so clear, as the original BER has already been modified in 2010 to allow franchised dealers to sell outside their geographical area and the way that vehicles are being distributed and sold is changing to different outlets (think shopping centre ‘pop-up’ shops as well as the internet).

It is also appealing for the vehicle manufacturers to oppose the renewal of the BER, as this would provide them with a much more ‘flexible’ approach to supplying vehicles – either directly from the vehicle manufacturer to the new vehicle owner, or as part of tomorrow’s ‘mobility services packages’ on a ‘pay by use’ basis – in both cases avoiding having to pay the dealer margin. It would also release them from the legislative obligations for the provisions for the aftermarket and thus avoid supporting their competitors in vehicle servicing.

Vehicle manufacturers are increasingly selling vehicles online and with the exponential increase of the ‘connected car’ retain a direct relationship with the vehicle owner/driver – again negating the involvement of the dealer. The original ‘vertical agreements’ are changing to be ‘horizontal agreements’. Equally, the legislator may also view this as a natural evolution of the vehicle distribution sector and a valid reason not to consider renewing the BER.

Aftermarket perspective
Most importantly, where does this leave BER from the aftermarket perspective? Clearly, the original key elements need to be maintained, namely the honouring of warranties, servicing in the context of leasing contracts, the supply of spare parts, the use/purchase of tools, access to technical information and access to authorised repairer networks to buy original parts. Some important aspects are also covered in other legislation, such as the access to the repair and maintenance information (RMI) under the Euro 5 vehicle type approval, but this is complimentary legislation and is not a replacement for the BER.

Critically, there are both important changes in vehicle technology and the way that the vehicle manufacturers themselves have become an active competitors for aftermarket services which the legislator should also consider.

At the moment, BER and the guidelines provide protection against a number of distortions. They serve as an important framework which allows OE parts producers the right to supply independent parts distributors as well as the independent and authorised aftermarket. These OE parts suppliers also have the right to brand their OE products with their own logo (dual branding) and the definition of ‘original and matching quality parts’ has had an important effect in the aftermarket helping to demonstrate the true origin and quality of parts to consumers and their subsequent competitive choices. All this needs to continue - especially from the position of protecting small independent businesses – the backbone of the aftermarket.

It is very welcome that the European Commission has rightly emphasized that competition policy needs to "make sure that our markets stay competitive enough to give consumers the power to demand a fair deal." However, this pre-supposes alternative choices exist.

It is therefore critical that the legislator considers how small businesses can continue to compete, as only focusing on the repair level is too myopic and does not capture the influence that BER needs to have on the entire aftermarket and its competitive eco-systems. The complexity of the aftermarket sector and the nature of the respective economic activities throughout this value chain should be taken into account to allow a better understanding of the different competitive conditions at each level of the supply chain and then legislate accordingly.

Examples of this include the trend for vehicle manufacturers to require replacement parts to be re-coded, but then either restricting access to the code (e.g. ADAS components) or charging a inflated price for the code for non-OEM parts to ensure that their own total price for the part and the code are cheaper. This is an example of another developing trend from vehicle manufacturers where ‘software as a product’ is becoming another way that competition can be distorted.

As the vehicle becomes a ‘computer on wheels’, there is an increasing concern that the (already) existing imbalance between OEMs and the independent aftermarket will further increase due to vehicle manufacturers being able to control access to the vehicle data. Vehicle manufacturers have evolved since 2010 into new and additional roles, entering as direct competitors into traditional independent aftermarket areas. Increasingly repairs are being done today directly and remotely (e.g. resetting of fault codes, coding, reprogramming, software updates) via the ‘connected car’ and this also needs to be addressed in any revision of the BER.  
There are also now the first examples of vehicle manufacturers joining forces on a common Internet ordering platform for their original spare parts and consequently corresponding to the role/function of an independent multi-brand spare parts distributor. The main competitors of independent repairers/operators are no longer only the authorised repairers/networks, but are now also the vehicle manufacturers themselves, who have much more power and much more (in)direct technical and commercial means to frustrate effective competition by independent aftermarket operators.

The traditional comparison between the position of the dealer/authorised repairer and the independent operator (the vertical ‘non-discrimination principle’) is no longer valid, due to the proprietary design of the in-vehicle telematics systems, the vehicle-generated data/functionalities go directly to the vehicle manufacturer, who then decides with whom it shares the data, or not and under what contractual conditions.

The proprietary closed design of their in-vehicle telematics systems and the unique access to the vehicle, its data and functions, enables manufacturers to vertically integrate additional services, e.g. to offer bundled telematics services over the life-time of the vehicle, and even ‘free of charge’ (e.g. remote diagnostics, remote programming, fleet management, insurance policies etc.). This has a de-facto competitive knock-out effect on all other service providers around the car.

Clearly a lot has changed since the original BER was implemented - given that it is the vehicle manufacturer itself who is now the privileged controller of the in-vehicle data and resources/function and subsequently the whole downstream aftermarket, so any new version of BER must now consider a different approach and re-assess how a competitive aftermarket can continue to offer consumers a competitive choice.

xenconsultancy.com