The Austrian Job: “You're only supposed to blow the…doors off!” - Does Peugeot’s recent defeat in the Austrian Cartel Court have wider ranging implications for UK dealers?
In a long-standing legal dispute between Peugeot Austria (PSA) and one of its dealers (Buechl), Austria’s ‘Kartellgericht’ (Cartel Court) has found in favour of the latter and held that PSA abused its market power (‘dominance’) vis-à-vis Buechl contrary to applicable competition law.
The decision, if upheld on appeal, has been heralded in some quarters as hugely significant for dealers across Europe. This is because it examines, in significant detail, a number of contractual and financial controls applied by PSA to its dealer network (but which are not uncommon in other OEM arrangements) which, in the Cartel Court’s view, placed the dealer at an unacceptable economic disadvantage.
In particular, while an official decision/translation of the decision is not yet available (so there is some margin of appreciation in the summary below), it appears that the Cartel Court challenged the following PSA activity:
- Obliging dealers, in practice, to participate in PSA’s price campaigns, which in the Cartel Court’s view, unduly restricted the dealer’s ability to set its own prices to end customers. The court appears to have concluded that Buechl had no choice but to participate in these campaigns in order to meet high sales targets, which in turn unlocked bonuses necessary to ensure the dealer’s economic viability.
- Linking the payment of dealer bonuses to arbitrary and unilaterally-assessed (by PSA) customer satisfaction surveys, which were not necessarily truly representative of the customer experience.
- Passing on the costs of ‘mystery shop’ exercises and audits (sales and aftersales) to the dealer through training levies.
- Applying excessively aggressive (and complex) sales targets, set at artificially high levels, which in turn undermined the dealer’s ability to plan efficiently.
- Cross-subsidising PSA’s own downstream retail operations, which placed (independent) dealers at a competitive disadvantage
- Setting workshop rates for guarantee and warranty work at levels which, when considering the prescriptive and complex processes that the dealer was required to undertake, rendered that work unprofitable.
These are all issues that dealers in the UK may have faced at different times, and may become even more prevalent in the years ahead as some OEMs expand direct sales channels. It follows that the Cartel Court’s decision will naturally be of interest. Moreover, like the UK and other EU member states, Austria’s system of competition law closely tracks EU antitrust rules, notably those set out in Articles 101 and 102 of the Treaty on the Functioning of the EU (TFEU), which prohibit anti-competitive agreements and abuse of a dominant position respectively.
It follows that a number of commentators have suggested that these significant findings represent an important step towards greater fairness in manufacturer-dealer relationships in automotive markets across Europe as well as Austria.
The reality is more nuanced, but valuable nonetheless. First of all, Austrian competition law, particularly where abuse of market power or dominance is concerned, is slightly more sensitive than that prevailing in the UK (and at EU level).
For example, Austrian competition law recognises the principle of ‘relative dominance’; so, rather than dominance (and thus the duty not to abuse it) being assessed, in part, on the ‘dominant’ company’s position with regard to its own rivals on a market (i.e. the degree of inter brand competition that prevails), a company may also be considered dominant in Austria if it occupies a particularly important or strong position relative to its customers (in this case, its dealers) or suppliers.
In other words, a finding of ‘dominance’ can also occur where a company’s trading partners are highly dependent on maintaining their business relationship with it, failing which they would suffer severe economic hardship. When one considers the high degree of dependence that certain dealers might have on one OEM, it is not difficult to make the case for that OEM occupying a position of ‘relative dominance’ vis-à-vis that dealer.
Further, in the Austria, the types of abuse that can infringe the relevant competition law (kartellrecht) prohibition appear slightly broader, so that (a dominant company) insisting on certain business terms or (or unduly low or high) purchase or sales prices, which are at odds with those prevailing in comparable markets where more healthy competition exists, can be abusive.
Finally, it is important to remember, aside from the fact that this is an Austrian decision, that the decision is a ‘first instance’ decision and very likely to be appealed, the outcome of which will determine its application in Austria (and its potential value elsewhere).
It follows that the Cartel Court’s decision has not quite (yet!) exploded the traditional (selective distribution) relationship between OEMs and dealers across different markets; however, it highlights a number of important potential points, notably that:
- the application of very prescriptive and arbitrary commercial controls over weaker negotiating parties – which may characterise the approach of some OEMs to their dealer networks - can give rise to serious competition problems according to a respected, specialist competition tribunal;
- laws on abuse of dominance may need to evolve to address negative impacts that can arise where one party is heavily reliant on the other, even where the latter does not, strictly speaking, qualify as dominant (as far as any traditional EU interpretation of that term is concerned);
- there is merit in revisiting whether broad block exemption rules (which arguably condone the type of behaviour challenged by the Cartel Court) should be re-engineered for key sectors, such as automotive, at an EU or domestic level, to address any disproportionate limitations on the competitive independence of those parties that are economically (financially and contractually) dependent on others.
In any event, the NFDA – and its European colleagues (AECDR) - will be keeping a close watch on developments and their potential implications, which may well inform the thinking of competition regulators in jurisdictions beyond Austria, and the sector’s representations on appropriate regulatory change in which the NFDA and its colleagues are closely involved.
This briefing was prepared for the NFDA by TLT LLP. It was prepared for general information only. It does not constitute advice and no reliance should be placed on it. For further information, please contact Miles Trower, Partner and Head of Competition, at email@example.com or on +44 (0)333 006 0574.