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No Code of Conduct but Guidelines instead – what this means for the motor industry

Gunther Schmitz, Chairman of Right to Repair South Africa (R2RSA)

The Competition Commission has communicated to all stakeholders in the automotive industry advising that the implementation of a single industry-wide Code of Conduct (Çode) is not feasible. Instead, the Commission intends converting the proposed Code into a Guideline to be used by the Competition authorities in applying the Competition Act in the automotive aftermarkets sector, for purposes of enforcing the Competition Act and prosecuting any breach of the Act.

Gunther Schmitz, Chairman of Right to Repair South Africa (R2RSA), a Section-21, not-for-profit organisation that has been advocating for freedom of repair choice for vehicle owners, says R2RSA sees this as a positive move.

“Ultimately the Competition Commission’s decision was based on the fact that after two drafts of the Code were published, there was still substantial divergence of stakeholders’ views and a lack of buy-in to the voluntary Code. This was not unexpected and we view the decision to convert the Code into Guidelines as a similar process to the one adopted by the European Union (EU) Commission in 2010, for example,” he says.

South Africa’s Competition Act already prohibits unfair and anti-competitive practices. We understand that the converted Code will become a guideline on how to apply the Competition Act, explains Schmitz.

He says that market dominance and exclusionary, anti-competitive behaviour is rife in the industry and remains the R2R campaigns focus. “We want an environment where consumers can select where their vehicles are serviced, maintained and repaired, at competitive prices and in the workshop of their choice, and which gives aftermarket Small Medium Enterprises a chance to stay in business. Our belief is that the Commission’s Guideline will follow the international Right to Repair trend, which promotes South Africa’s existing consumer and competition laws.”

Currently, aftermarket repairers are being denied access to codes, tools, and information and parts are overpriced. Current exclusionary practices mean SMEs are being driven out of business, and job creation is restricted as is the growth of this sector. “Denying workshops the chance to repair vehicles because of warranties and access to information has, in our view, allowed Original Equipment Manufacturers (OEMs) to monopolise the automotive industry.”

“In the EU, the Commission is of the opinion that for market share calculations, the market for aftermarket parts and services is limited to the brand of the vehicle. To calculate the market position in this way makes perfect sense because a Mercedes part, for example, cannot be fitted to a BMW so Mercedes is not competing with BMW in this field and the consumer does not have the option to use the part for a different vehicle brand. This is of very high relevance because most OEMs are dominant in their market of aftermarket parts and services,” says Schmitz.

And why would market dominance be important to prove in the South African scenario? “Because,” he explains, “according to the Competition Commission’s website, the abuse of a dominant position by a firm may include excessive pricing of goods or services, denying competitors access to an essential facility, price discrimination (unjustifiably charging customers different prices for the same goods or services) and other exclusionary acts (such as refusal to supply scarce goods to a competitor, inducing suppliers or customers not to deal with a competitor, charging prices that are below cost so as to exclude rivals, bundling goods or services and buying up a scarce input required by a competitor).”

The Competition Act prohibits the abuse of a dominant position by firms in a market but it does not prohibit firms from holding a dominant position. “We implore the SA Competition Commission to follow the EU reasoning in terms of establishing market dominance as it will lead to the fair sharing of information, tools and training.”

“While we await the Guidelines, we will continue lobbying. The current anti-competitive practices in the industry means inflated prices for consumers. Extended warranties are locking consumers into periods where firstly, they have no choice but to use the dealer for repairs and secondly, they are at the mercy of the dealer who can charge whatever rates he/she chooses.”

“Ultimately consumers are being denied the right to have their vehicle repaired at a workshop of their choice. We believe this also inhibits the consumer’s right to support local business,” he concludes.

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