14 Indian car companies fined Rs25.4b for anti-competitive policies

In a significant ruling, the Competition Commission of India, or CCI, has imposed a penalty amounting to Rs25.4 billion in aggregate on 14 car companies after finding them to be in contravention of the provisions of the Competition Act 2002 by creating a monopolistic control over spare parts and diagnostic tools of their respective brands.

The penalty has been calculated at the rate of two per cent of the average turnover of the 14 companies and has to be deposited within 60 days of receipt of the order, an order issued by the commission on Monday said.

The decision was taken on the basis of a complaint filed by an informant, Shamsher Kataria, who had approached the commission alleging anti-competitive conduct by three car companies in not allowing the spare parts and after sales services market to grow to the detriment of consumers and independent repairers.

“In view of prevalence of anti-competitive issues throughout the automobile industry, the commission directed the director-general to include other car companies also under the scanner of its investigation,” it said.

Ensuing detailed investigation, the commission found that the conduct of the car companies was in violation of the provisions of Section 3 (4) of the act with respect to its agreements with local original equipment suppliers, or OESs, and agreements with authorised dealers whereby it imposed absolute restrictive covenants and completely foreclosed the aftermarket for supply of spare parts and other diagnostic tools.

Further, the commission found that the companies, who were found to be dominant in the aftermarkets for their respective brands, abused their dominant position under Section 4 of the act and affected around two crore car consumers.

The 14 car companies were found to be indulging in practices resulting in denial of market access to independent repairers as the latter were not provided access to branded spare parts and diagnostic tools which hampered their ability to provide services in the aftermarket for repair and maintenance of cars.

“Having a monopolistic control over the spare parts and diagnostic tools of their respective brands, the car companies charged arbitrary and high prices for their spare parts. The car companies were also found to be using their dominant position in the market for spare parts and diagnostic tools to protect their market for repair services, thereby distorting fair competition,” the release said.

The commission has prescribed corrective measures to make the automobile market more competitive and to put an end to the present anti-competitive conduct of the car companies.

“While deciding the case, the commission was guided by two prime motivations i.e. (i) to enable the consumers to have access to spare parts and to have freedom of choice between independent repairers and authorised dealers and (ii) to enable the independent repairers to participate in the aftermarket and provide services in a competitive manner,” it said.

Accordingly, the commission, under Section 27 of the act, directed the car companies to cease and desist from indulging in conduct which has been found to be in contravention of the provisions of the act.

The car companies were also directed to adopt appropriate policies which shall allow them to put in place an effective system to make the spare parts and diagnostic tools easily available in the open market to customers and independent repairers. Further, the commission directed the car companies not to put any restrictions or impediments on the operation of independent repairers/garages. Other behavioural remedies to ensure a competitive market conditions were also prescribed by the act.

The 14 companies are Honda Siel Cars India, Volkswagen India, Fiat India Automobiles, BMW India, Ford India, General Motors India, Hindustan Motors, Mahindra & Mahindra, Maruti Suzuki India, Mercedes-Benz India, Nissan Motor India, Skoda Auto India, Tata Motors and Toyota Kirloskar Motor.

The companies were directed to allow OES to sell spare parts in the open market without any restriction, including on prices. OESs will be allowed to sell the spare parts under their own brand name, if they so wish. Where the companies hold intellectual property rights on some parts, they may charge royalty/fees through contracts carefully drafted to ensure that they are not in violation of the Competition Act 2002.

The companies were told to place no restrictions or impediments on the operation of independent repairers/garages.

They were also told to develop and operate appropriate systems for training of independent repairer/garages, and also facilitate easy availability of diagnostic tools. Appropriate arrangements may also be considered for providing technical support and training certificates on payment basis.

— business@khaleejtimes.com