The Competition Commission of India (CCI) has imposed a penalty of more than Rs 2,545 crore on 14 car manufacturers, for violating trade regulations in the spare parts and after services market. The list includes some of the biggest car makers in the country like Tata, Maruti Suzuki, Honda, Volkswagen, Fiat, BMW, Ford, General Motors, Hindustan Motors, Mahindra, Mercedes-Benz, Nissan, Skoda and Toyota. The penalty for each manufacturer adds up to two per cent of its annual turnover and it has to be deposited with the government within 60 days.
According to the 215-page order released by the CCI, the car companies in question defied competition norms with their local original equipment suppliers (OES). They also violated the pacts with authorised dealers by imposing ‘absolute restrictive covenants’ and completely ‘foreclosing the market for the supply of spare parts and other diagnostic tools’.
The statement said, "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."
While the complaint was initially registered against only three manufacturers, others were included in the investigation due to the existence of anti-competitive issues throughout the industry. The directive, has instructed manufacturer not to impose any restrictions on the operation of independent repairers and garages.
"OESs will be allowed to sell the spare parts under their own brand name, if they so wish. Where the OPs 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," the order said.
The maximum fine, among the 14 manufacturers, has been slapped on Tata Motors (Rs 1,346 crore) which is followed by Maruti Suzuki (Rs 471 crore) and Mahindra (Rs 292 crore).
Maintenance of cars is a very critical part of the car ownership experience and it involves a significant amount of financial expenditure for the customer. Such anti-competitive conduct from the car manufacturers has a huge impact on consumers’ spending. While some of these manufacturers have made consumer-friendly commitments in other global markets, they have deferred from adopting similar practices in India, which could have helped the consumers in a big way. The order released by the CCI states that the manufacturers abused their dominant position in the industry and affected the financial spending of around two crore car consumers.
While this decision should give an impetus to the industry, the government needs to come up with a definite governing framework and legislation preventing manufacturers from implementing restrictions on manufacture of spare parts. Once these restrictions are lifted, over-the-counter sales of spares will be for possible for every other car, irrespective of the brand. This will give consumers the option to buy the spares from a retail shop and have them fitted at a garage of their choice, something which was not just possible with a majority of car makes.
Not just for four-wheelers, but a similar regulation needs to be put in place for two-wheelers as well. India is the world’s biggest two-wheeler market and such a system will go a long way in preventing customers from spending a bomb on the maintenance of their vehicles.