Block Exemption: Time to speak up...
Andy Hamilton says that, with the coming of the Block Exemption consultation, it’s time for the aftermarket to make its voice heard
Published: 18 July, 2022
By Andy Hamilton CEO, LKQ Euro Car Parts
Last summer we helped to bring national attention to the threat posed by the expiry of the European Motor Vehicle Block Exemption (MVBER) regulation, both to UK motorists and the independent aftermarket. The UK inherited MVBER after Brexit, but it runs out in May 2023. Our warning was stark – Failure to replace it would be an existential threat to independent workshops.
More than the risk of it going altogether, we wanted to highlight the increasing inadequacies of the current MVBER rules, which had been in force since 2012, and the opportunity for the UK to create more robust legislation to protect British businesses and consumers rights.
Today, OEMs have found ways to exclude an ever-growing number of parts from MVBER’s scope. This even extends to practices such as parts needing to have a specific code, implementing software before they will work or needing to have the OEM-supplied diagnostic equipment to activate replacement parts. This restricts the functionality of a part for independent repairers – even if the part was developed and made by a major aftermarket supplier.
Recent changes
While the EU was consulting on the future of MVBER last year, there was a worrying silence from the UK’s Competition and Markets Authority. But not anymore.
A consultation is due to kick off either later this spring or this summer. We, alongside our colleagues in UKAFCAR, the British arm of the Association for the Freedom of Car Repair, will be submitting evidence and we urge anyone in the aftermarket with first-hand experience of the inadequacies of the current MVBER to do so too – either directly, or via UKAFCAR.
The scope of the CMA’s consultation is, in broad terms, to establish whether MVBER meets its purpose for business and consumers and establish if it adequately provides for recent changes in technology and business models. The resounding answer to all three is ‘no, it does not’, even if its protection is certainly preferable to having nothing. I’ll briefly recap the most pressing reasons why.
Insurmountable burdens
For businesses, the UK’s 30,000-strong independent sector is finding it harder to repair and service vehicles. Certain parts have been purposefully misidentified by OEMs to fall outside of the MVBER’s jurisdiction and so are only available to the OEMs’ dealerships – or at a significant additional cost, or with insurmountable burdens for the independent aftermarket.
OEMs also continue to restrict access to data, like bulk Repair and Maintenance Information (RMI) that can be processed electronically, which prevents diagnostic tools manufacturers and automotive data publishers from creating products and solutions for new vehicles.
Consumers prefer to use the independent aftermarket by a significant margin; More than three-quarters of non-MOT trips every year are too independent garages. If they were unable to do so we estimate that this would cost each of them an extra £100 annually – or a staggering £2.4 billion in total. Hardly a helpful additional burden during the country’s worst cost of living crisis in 50 years.
However, the CMA must be presented with overwhelming evidence of these risks and now is the time for the industry to speak up.
Our concern has always been that this could turn into an asymmetrical legal battle over the legislation between the might of the global automotive giants and thousands of diverse SME aftermarket businesses. Through the consultation and the efforts of UKAFCAR, my sincere hope is that we can push for an updated regulatory framework that ensures a level playing field and stops anti-competitive behaviour before it happens.
In the EU, an evaluation of MVBER has concluded that it remains useful, but its effectiveness could be improved. Something we hope the CMA takes note of.
There is also a concern in Europe that MVBER when renewed will not be given the additional strength it needs to protect consumers and motorists in today’s rapidly evolving automotive sector.
Opportunity
The UK now has an opportunity to forge its own path and set the standard by introducing much stronger protections. Of course, there is also the risk that the UK does too little, with the rights of consumers and the viability of independent businesses gradually eroded as OEMs create ever larger monopolies. This is perhaps the single biggest threat to ever face the aftermarket.
- BER: What next
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
- Two years and counting
At the end of March, Excel Automotive Group (EAG) celebrated two-years since it was purchased by Tony Bhogal with Adrian Lamb.
Since then, the company has arranged distribution deals for TRICO wiper blades, Suplex coil springs, Monroe shock absorbers and coil springs, Champion wiper blades, RYMEC clutches, Celect braking and Brembo braking, as well as its own steering and suspension, wheel bearing and transmission ranges. If that’s not enough, the company also found the time to gain approvals with several UK buying groups, including A1 Motor Stores along with joining the IAAF. All of this with a pandemic to deal with too. Here at Aftermarket, we thought this would be a good time to find out from Tony how it’s all been going.
It’s been two years of the new incarnation of EAG? How do you think it’s going?
Since taking over the Excel Automotive Group (EAG) business two years ago, Managing Director Adrian Lamb and I have been busy getting the business back onto a solid footing. This has included significant investment in staff, stock and systems. In the first year, we relocated the business to a 30,000sqft warehouse in Leeds and thought this would be sufficient for a few years, but we are already considering additional warehousing due to the significant increase in stock, sales and customers in our second year of trading!
We have been continually investing in stock and have added some brilliant brands to our range, which now includes Suplex, Brembo, Monroe, Rymec, Marelli, TRICO and various DR1V brands, in addition to our own EAG branded steering and suspension, wheel bearings, strut top mounts, driveshafts, CV joints, calipers, etc.
We are also in detailed discussions with other brands that are keen to work with us and take advantage of our unique distribution solution for suppliers, as we can cover this both locally and nationally.
None of this could have been achieved without the fantastic team that we have at EAG. Everyone has a desire to succeed and ensure that we meet or exceed our customers’ expectations, which in itself has sometimes been a challenge as a consequence of our rate of growth. However, we have been fortunate that customers have joined us on our journey and have given us considerable support and encouragement. In the current climate, the whole EAG family should be proud of our achievements and we are looking forward to the future.
Where would you like to see the business in another two years?
In the next two years, we will be working to consolidate our position as a key supplier of parts into the automotive aftermarket. Chris Haw joined the business as UK Sales Manager and he is working hard to develop and grow our customer base. Also, Chris Burnside, ex-Livingston Autoparts, has joined us as Operations and IT Director, so we now have a very experienced team in place to continue our ambitious growth plans.
How are you finding your customers? Both in terms of their reaction, and getting them in the first place!
Due to our combined experience in the aftermarket, we had already cultivated solid relationships with many customers and businesses in the industry, which certainly helped when Adrian and I took over EAG.
Since then, we have continued to manage and grow these relationships, as well as develop new ones with businesses we may not have dealt with in the past. I believe that our customers come to us because of our reputation in the aftermarket, as well as our extensive range of product and availability. We put a lot of investment and focus into our customer service and it’s something we pride ourselves on.
What challenges and surprises have there been along the way, and what have you learnt?
I think the biggest challenge was getting the company sorted when we took it over and growing it to what it is now. Running a business is a difficult task, and Adrian and I want to make EAG one of the largest suppliers in the UK, something that we’re on our way to becoming. Luckily, we haven’t had too many surprises along the way, but one thing that Adrian and I have both learnt from our years in the market, is to hire the right people. We have an incredible team at EAG and without them, we wouldn’t be able to do the great work that we do.
We also have a desire to ensure there’s the product availability for our customers, which we still have some way to go on, but we are working on increasing both the range and availability, in addition to improving cataloguing and pushing sales through our online trade portal and through TecCom.
Does experience help? Or do you find you learn more than you already knew?
I think that experience does help a lot, but as the industry continues to evolve, we all need to adapt and understand new technology and systems that are developing and this is something that no amount of experience can help with.
Adrian and I have made sure that we hire the best people for the job, who have the experience and know the aftermarket and its products inside out, as that’s what makes a good salesperson and helps our customers the most. These are also the people that can share their knowledge with us and the rest of the company, so it’s certainly a win-win situation.
If you’d had the choice, would you have picked the pandemic as a time to be rolling into year two? What particular issues did this cause?
I don’t think there’s ever a good time for a pandemic! Having it happen so early in our business was unfortunate, but like many other companies, we had to adapt and quickly. I feel that we achieved this and went on to have a successful year despite everything, also as the industry was allowed to remain open, we found that business remained steady for us and many others during 2020.
Obviously, our main concern was for our staff and their safety, so we ensured that we implemented all of the safety precautions the government advised, which is difficult in a situation like a warehouse, but we were very stringent with it and will continue with a cautious attitude until this pandemic has eased.
Do you think COVID-19 inspired any innovations for EAG in terms of approach or anything else that have really worked out that might not have happened otherwise?
Due to growth and the reliance on delivery because of the pandemic, we invested more money into our delivery fleet and also began offering our local customers same-day delivery and national customers next working day delivery.
We have also been working very closely with MAM to improve and enhance the IT systems that we inherited. This has included the implementation of the MAM Warehouse Management System, which is already resulting in improved efficiency and accuracy of processing orders.
You knew starting up that Brexit was going to be an issue, however – any bumps on this side?
Thankfully, we have not been impacted as much as our competitors, who rely on the Far East for their products. They have suffered from supply delays and increased costs due to freight and materials. This has clearly benefitted us since we source the majority of our parts from the UK.
I think with Brexit we just had to be prepared, listen carefully to all of the information we were given by the government and decide our action plan from there. We knew that leaving the European Union was going to have an impact on every industry, especially the aftermarket, but we’re confident that we will continue to have the great relationships we have with our suppliers in Europe, as we do now.
- No wave of disruption this time say OESAA members via Andy Savva video
The Original Equipment Suppliers Aftermarket Association (OESAA) and its members are reassuring garages they are all very much open for business during the current lockdown via a video from OESAA spokesman Andy Savva a.k.a The Garage Inspector.
- Whatever next?
In the February issue of this most illustrious publication, I wrote about the imminent implementation of cybersecurity in vehicle Type Approval regulations and the potential impact that this could have on the UK aftermarket.
However, the automotive world is getting ever more complicated, not just in the way that vehicles are being designed, or the use of data to support diagnostics or repair processes, but also in the way that the vehicle is becoming the basis of its own service-centric functions using vehicle generated data.
The traditional ‘we-can-work-on any-car-that-comes-through-the-door’ business model was the basis for competing workshops, with different skill sets, hourly rates and a choice of replacement parts to offer consumers the ability to choose where and how their vehicles were repaired. Unfortunately, this basic business model is increasingly difficult to maintain in the face of the rise in vehicle complexity – and with it, new ways to diagnose, service and repair vehicles.
Free competition
The principles of free competition allowed the ‘we can work on anything’ to be possible, as legislation has existed since 2002 to ensure that non-discriminatory access to the vehicle, its data, technical information, diagnostic tools – in fact almost everything the aftermarket needed to offer the consumers’ choice was enacted. However, this legislation was workshop-versus-workshop but now does not address the changes created by the remote access to data that is an integral part of almost all new vehicles.
Critically, there are wider legislative requirements that will be needed to support the aftermarket. This is not just the MVBER renewal, but the technical implementing Acts (known as secondary legislation) that need to be created and implemented for the legislation that includes the full repair and maintenance (RMI) for the aftermarket which is contained in (EU) 2018/858. This legislation is used in both the EU and the UK for vehicle Type Approval, but the details of how and what needs to be put in place as secondary legislation for the independent sector’s access to RMI have yet to be discussed – which coming from the basis of the UK government’s approach of ‘not intending to use the EU’s implementing legislation’, is very concerning.
Also in the EU, the European Commission has published its long-awaited (generic) legislative proposal on access to data – the EU Data Act – which includes the rights of the product’s owner to access that product’s data. This also includes the principles of data portability and contractual principles for business-to-business data exchange, but although the Commission opened a consultation for automotive sector requirements in March (which runs until June), there is a strong call from the aftermarket to have robust legislation to address fundamental concerns. For example, the vehicle owner may have the right of access to the vehicle (the product) and its data, but how would they access and use that data if no software (applications) have been developed to allow services, such as diagnostics, service, maintenance and repair jobs? This is an increasingly important issue when many new aftermarket services are based on remote access to the vehicle when it is being driven, such as predictive diagnostic and service functions. A key aspect would be to ensure that these service providers can access the details of a vehicle’s data and resources to allow applications to be developed which are then chosen by the vehicle owner, using the data generated by their vehicle (i.e. ensuring that the horse is before the cart). These are no longer just EU legislative developments, but also now happening in North America, Australia and South Africa, the UK has catching up to do.
Wider changes
With all this in mind, what is the UK government doing to address these wider changes in the way that vehicles, their data and functions can be accessed?
In September 2021, the Dept of Transport issued a consultation document entitled The Future of Transport Regulatory Review Consultation. This described their intended approach to a future legislative framework that included key elements for “regulating safety, security and environmental performance’, ‘tackling tampering’ and ‘improving compliance, safety and security.”
Although this included aspects particularly focused on “automated vehicles,” which may be seen as a future requirement, the reality is that automated systems already exist on today’s vehicles and the consultation document includes “approval and in-use obligations for software and cyber-security requirements” which would also apply to “suppliers of replacement parts.” The consultation document is far from clear in relation to what this would mean for any aftermarket replacement part which could then fall under the “tampering” aspect, as this could lead to only OEM replacement parts being fitted with the corresponding requirement for an independent workshop to meet the vehicle manufacturer’s criteria to enable that replacement part to be both fitted and integrated into a vehicle.
This aspect of “tampering” was challenged by the motorsport and classic vehicle sector and the consultation document was amended to explicitly exclude these sectors, but for normal repair and maintenance the original approach remained. As an example, there are currently problems with aftermarket replacement parts that have been Type Approved, but which cannot be fitted and integrated into a vehicle as they are not accepted by the vehicle manufacturer and only that vehicle manufacturer’s replacement part can be fitted and coded using that VM’s proprietary diagnostic tool.
Concerns
Subsequently, even though wording had been changed, such was the concern in the motorsports and classic vehicle sector around this issue of tampering, that a Parliamentary petition was started, which was signed by over 115,000 people, automatically triggering a Parliamentary debate.
This debate took place on 25 April and these concerns were raised with the Department of Transport, who appeared to take note, not only for the motorsport and classic vehicle sector, but also for the wider aftermarket repair sector, with a particular call to ensure a much-needed clarity of tampering to avoid unintended restrictions.
However, the UK aftermarket is being increasingly threatened by changes to vehicle design and functions, the change of business aftermarket models that use remote access to dynamically generated vehicle data and the rise of cybersecurity to protect the vehicle. Currently, these are all under the control of the vehicle manufacturers, so existing legislation that supports the aftermarket needs to be urgently revised to address how innovation, competition and consumer choice can continue. How the detail of this may be included in both the primary and secondary legislation is yet to be discussed.
- Global aftermarket: Top regions for next five years
By Vinisha Joshi, Content Team Lead, Global Market Insights
