On 17 February 2020, the Competition Commission (Commission) released a media statement announcing that it has published Draft Guidelines for the Automotive Aftermarket Industry (Guidelines). The Automotive Aftermarket Industry is the market for motor vehicle spare parts, tools and components after the vehicles are sold to consumers. This market also includes maintenance and repair services sold by dealerships to consumers. Key role players in this market include companies involved in the manufacturing, distribution, retail, service and repairs of motor vehicles. Large automotive manufacturers, referred to as Original Equipment Manufacturers (OEMs), are considered key role-players in the Automotive Aftermarket Industry.
The published Guidelines are a result of years of advocacy work done by the Commission and attempts to understand and regulate the practices of key players involved in this market. The Commission's previous efforts include a Scoping Study in 2015, various workshops and a Draft Code of Conduct, which the Commission ultimately scrapped in favour of the current Guidelines. The Guidelines now seek to address many of the practices and arrangements in the Automotive Aftermarket, which have been a basis for complaints by car owners and Independent Service Providers (ISPs) working in the industry. The issues have divided consumers and key role players in the market.
Exclusion of ISPs from the market
One of the key issues the Guidelines seek to address is the exclusion of ISPs in the market for service and maintenance, motor body repair, non-structural and mechanical repairs of insured vehicles and vehicles under warranty. By mandating OEMs to conduct themselves in a manner that is not exclusionary and exploitative, the Guidelines aim to afford consumers a choice of service providers and encourage fair allocation of work. According to the Guidelines, OEMs must support and promote the right of consumers to seek service and maintenance work, and other services in the Automotive Aftermarket Industry such as motor-body repairs, at a service provider of their choice, regardless of whether that service provider is an approved service provider, an approved dealer or an ISP.
Promoting entry and participation into the dealership market
Another key issue covered by the Guidelines is entry and participation in the dealership market, and preventing anti-competitive information sharing. The Guidelines promote this by requiring OEMs to establish a fair process for the selection of dealers who meet those OEMs requirements. Each OEM must publish the terms and conditions it uses to select dealers and a right of first refusal must be granted to dealers who have previously been rejected. Rejected dealers must be given reasons for their rejection.
Promoting inclusive and fair allocation of repair work by insurers
Due to arrangements by insurance companies with their network of service providers, independent panel beaters have been excluded from undertaking work on insured vehicles and vehicles that are still under warranty. The Guidelines now require insurers to approve any service provider that meets the insurance company's standards and specifications to undertake service and maintenance work; motor-body repairs; non-structural repairs and repairs on motor vehicles during the warranty period. Insurers must advise consumers, in clear and explicit terms, of their right to have repair work undertaken by any service provider of their choice, whether such service provider is approved or independent.
Exclusion of distributors of non-original spare parts from distributing parts competing with the OEMs brand during the warranty period
Another prominent concern in the Automotive Aftermarket Industry is the exclusion of distributors of non-original spare parts, components, tools and equipment from distributing parts competing with the OEMs brand during a warranty period. The Guidelines regulate this by requiring OEMs and approved dealers to allow consumers to fit non-original spare parts where the warranty of a specific part has expired, without voiding the warranty of the entire motor vehicle. Consumers must be allowed to fit non-original spare parts at a service provider of their choice, whether approved or not. Owners of motor vehicles will also be able to access original spare parts and components from approved dealers and OEMs, however spare parts and components that are linked to the motor vehicle's security systems can be sold conditionally. OEMs are not allowed to restrict service providers from selling spare parts.
Bundling of motor vehicles with value added products
With regard to value added products, consumers are given various options including:
- to purchase them separately from a new motor vehicle;
- to purchase them from any provider of their choice;
- to refuse to purchase them;
- to purchase them any time after the purchase of the motor vehicle and
- to transfer a maintenance plan or service plan from one vehicle to another in instances of write off.
This seeks to avoid tying and bundling of motor vehicles with value added services by OEMs and dealerships. Consumers must be informed, at the point of sale of a motor vehicle, of the complete purchase price of any motor vehicle, maintenance plan/service plan or other value added product.
Lack of access to technical information by ISPs
The Guidelines also cater for ISPs by encouraging OEMs to make maintenance and repair technical information available to them. This includes service handbooks, technical manuals, components and diagnosis information, wiring diagrams and operational software. The information excludes security related information that permits interference in motor vehicle security systems. ISPs will also benefit from training offered by OEMs as the Guidelines require OEMs or dealers to provide such training at a reasonable cost. The training must encompass the methods used to effect motor body and mechanical repair, service and maintenance and fitment work on motor vehicles.
Responses to the Guidelines
The National Association of Automobile Manufacturers of South Africa (NAAMSA), has expressed its views on the Guidelines and believes that the guidelines will compel “profound structural changes which will intrinsically remould the existing business models of all automotive multinational companies, which continue to invest emphatically in the country’s economy, its workforce and its overall future growth.” NAAMSA has claimed not to be opposed to the Guidelines, but rather “disturbed” as it had already discussed different approaches with the Commission, which could have been used to enact the proposed reforms. According to CEO Michael Mabasa, the industry has already made a commitment to investing in resources, including a financial injection of ZAR 6 billion to create the Automotive Industry Transformation Fund (AITF) that seeks to address the same reforms outlined in the Guidelines.
Automotive parts company, Autoboys also commented on the Guidelines, stating that they were a major victory for consumers. The CEO, Filum Ho stated that he believed the industry needs strong guidelines to unlock greater opportunities for Small and Medium Enterprises and help generate economic growth.
By Angelo Tzarevski, Senior Associate, and Thando Thabethe, Candidate Attorney, Competition and Antitrust Practice, Johannesburg,