The Competition Commission of India's imposition of a total of 25.5 billion rupees (USD421.8 million) on 14 automakers for limiting competition in the spare-parts market rightly keeps the end-user in focus. However, the penalties can be expected to be challenged by automakers.
IHS Automotive perspective | |
Significance | The Indian antitrust regulator has imposed a combined monetary penalty of 25.5 billion rupees (USD421.8 million) on 14 automakers for limiting competition in the spare-parts market. |
Implications | While the Competition Commission of India's decision keeps the end-user in focus, the penalties can be expected to be challenged by automakers. |
Outlook | Given the regulatory scrutiny that automakers' spare-parts and service practices are receiving, it is likely that more automakers will start offering spare parts over the counter. |
The Indian antitrust regulator has imposed a combined monetary penalty of 25.5 billion rupees (USD421.8 million) on 14 automakers for limiting competition in the spare-parts market, reports business daily the Mint. In a statement, market regulator the Competition Commission of India (CCI) said: "The commission found that the conduct of the car companies was in violation of the provisions of section 3(4) of the [Competition] Act with respect to its agreements with local original equipment suppliers (OESs) and agreements with authorised dealers whereby it imposed absolute restrictive covenants and completely foreclosed the after-market for supply of spare parts and other diagnostic tools."
The automakers found guilty by the commission are BMW, Fiat, Ford, General Motors (GM), Hindustan Motors (HM), Honda, Mahindra and Mahindra (M&M), Maruti Suzuki, Mercedes-Benz, Nissan, Skoda, Tata Motors, Toyota Kirloskar Motors, and Volkswagen (VW). Tata Motors was awarded the maximum fine of INR13.46 billion while market leader Maruti Suzuki received a penalty of INR4.71 billion, followed by M&M at INR2.92 billion. Toyota Kirloskar (INR933.8 million), GM (INR845.8 million), Honda (INR784.7 million), Skoda (INR463.9 million), Ford (INR397.8 million), Fiat (INR299.8 million), Mercedes-Benz (INR230.8 million), BMW (INR204.1 million), Hindustan Motors (INR138.5 million), VW (INR32.5 million) and Nissan (INR16.3 million) were among the smaller and specialist automakers which were penalized to a lesser extent.
The fine is calculated at 2% of average turnover although more details in this regard are not available yet. The penalty is to be deposited within 60 days although the order can be challenged in the Competition Appellate Tribunal (Compat). The commission claimed the companies charged arbitrary and high prices, having monopolistic control over the spare parts and diagnostic tools markets. These companies have been penalised for restricting the growth of the spare parts market, for abusing their dominant position and not allowing independent maintenance companies or garage owners to provide after sales services to customers.
Outlook and implications
The imposition of the penalty is the culmination of a three-year-old investigation by the regulator into monopolistic behaviour by automakers. The matter dates back to 2011 when the CCI initiated an investigation into VW, Honda, and Fiat after receiving complaints of anti-competitive practices (see India: 16 March 2011: Honda, VW Group, and Hyundai Targeted by Indian Competition Commission—Report). However, the investigation was expanded to include 14 more automakers after the fair-practices watchdog identified potentially similar practices by other automakers.
Premier Ltd, Mahindra Reva Electric Car Company, and Hyundai are among the automakers that have not been fined in the latest order. Automakers not part of the initial investigation have challenged the regulator's decision to expand the investigation and the case is currently the subject of legal action in the High Court (see India: 21 August 2014: Indian High Court orders fresh hearing on Competition Commission's probe against automakers).
In its ruling, the CCI noted that some automakers made consumer-friendly commitments in other markets like Europe but failed to replicate such practices in India. However, automakers claim the issue has little merit in the absence of an appropriate legislative and regulatory framework relating to spare parts and after-sales services.
The issue once again highlights the poor state of the regulatory framework in the country, which is the world's sixth-largest light-vehicle market and set to become third-largest market globally in 2016. In this regard, the automakers' contention of a complete lack of a regulatory framework is not very far from reality. It is also not immediately clear what time frame the commission has considered for imposing at the penalties, although the decision appears to have been taken retroactively. Despite the poor sales performance of Tata Motors in recent years, the maximum penalty award to the company lends credence to this view, and so do certain penalties on the now defunct HM and Premier, which is almost a fringe player now. In a similar vein, Maruti Suzuki has been awarded the second-highest penalty, although it was selling aftermarket parts in the open market before the investigation started. In light of these issues, it is to be expected that automakers will challenge the penalties.
Meanwhile, the matter's escalation has already prompted several companies to make changes to their policies. Tata and Hyundai have been selling spare parts over the counter in the open market for some time now, while Ford has been the latest to join a few months back. The move by automakers to open their after-sales channels to common buyers may help the OEMs in bringing down the quantum of penalties. Given the regulatory scrutiny automakers' spare-parts and service practices are receiving globally, it is likely that more automakers will start offering spare parts over the counter now.