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India – CCI Fines 14 Car Manufacturers For Abuse Of Dominance.

12 September, 2014

 

On August 25, 2014, CCI imposed a penalty of approximately INR 2.5bn on Honda, Volkswagen, Fiat and a number of other automobile companies. The information was filed by Shamsher Kataria (the informant) alleging anti-competitive practices because the spare parts of automobiles are not made available freely in the open market. Further, technological information, diagnostic tools and software programs required to maintain, service and repair the automobiles are not freely available to independent repair workshops.

 
CCI had ordered the Director General (‘DG’) to conduct an investigation into the allegations on February 24, 2011. The DG, upon receipt of consent from CCI, expanded the scope of the investigation to include BMW, Ford, General Motors, Hindustan Motors, Mahindra, Maruti Suzuki, Mercedes-Benz, Nissan, Premier, Skoda, Tata Motors, and Toyota (together, the ‘OEMs’).

 
CCI’s decision has held the OEMs guilty of abusing their dominant position in the markets for (i) manufacture and sale of cars; (ii) sale of spare parts, and (iii) sale of repair services; for denial of market access to independent service centers as the OEMs had placed restrictions on the ability of authorized dealers to sell spare parts to independent service providers. Additionally, the OEMs restricted the availability of the diagnostic tools/repair manuals, etc., to independent service providers and multi brand retailers. CCI also found that the OEMs were charging unfair prices for spare parts due to a substantial mark-up in the price of the spares, which was only possible since there were no competitive constraints on the OEMs. CCI further held that the OEMs were leveraging their dominant position in the market for sale of spare parts to enter and control the market for sale of repair service since consumers are forced to purchase spare parts along with repair services, and cannot avail of independent repair services.

 
Additionally, CCI also found that the agreement of the OEMs with their original equipment suppliers (‘OESs’) and their authorized dealers violated sections 3(4) (b), (c), and (d) of the Act for exclusive distribution and supply agreements resulting in refusal to deal and foreclosure of the market, as the OESs required prior consent from OEMs to sell spare parts directly into the market. Even if the OEMs allowed sale of genuine spare parts over the counter to a limited extent they did not sell diagnostic tools and repair manuals, and the warranty of the vehicle was rendered void if independent service providers were used for repairs and servicing of vehicles.

 
CCI found the OEMs to be in a dominant position because each OEM controls almost the entire production and supply of spare parts which can be used in repairing and maintaining the various brands of cars manufactured by each of them. Further CCI stated that dominance in the primary market for automobiles was irrelevant as each OEM has a 100% market share in the market for after-sales spare parts and services for its own automobiles. CCI noted that the spare parts of one brand cannot be used to repair and maintain another. So OEMs face no competitive constraints in the aftermarket from their competitors in the primary market. Therefore without access to required spare parts and tools/manuals, independent repairers are not able to effectively compete with the authorized dealers of the OEMs. It was also noted that each OEM had entered into a network of contracts, pursuant to which, they have become the sole supplier of their own brand of spare parts and diagnostic tools in the aftermarket. CCI noted that once sold, a car-owner is locked-in and the customer had to necessarily use the spare parts/diagnostic tools compatible to that car which CCI found to be an entry barrier for other competitors of such OEM from entering into the aftermarket for spare parts or repairs.

 
CCI imposed a penalty of 2% of the average turnover for three years in India on the OEMs.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com

Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com

Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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