On 4 October 2022, the CMA published its final recommendation to the Secretary of State on the retained EU Motor Vehicle Block Exemption Regulation (MVBER). The retained MVBER expires on 31 May 2023 and sets out automatic exemptions for certain categories of agreements related to the purchase, sale, and resale of spare parts for motor vehicles and the provision of repair and maintenance services for motor vehicles.
Background
Chapter I of the Competition Act 1998, prohibits agreements between businesses that restrict competition in the UK. An agreement is exempt from the Chapter I prohibition if it creates sufficient efficiencies and benefits to outweigh any anti-competitive effects. A ‘block exemption’ regulation automatically exempts agreements of a certain category from the prohibition if the agreement satisfies the conditions set out in the block exemption regulation. In this way, a ‘block exemption’ provides a level of legal certainty for businesses.
Prior to the UK’s withdrawal from the EU, block exemption regulations under the MVBER that exempt certain categories of agreement from the Article 101(1) TFEU prohibition were applied to the chapter I prohibition as parallel exemptions. MVBER was retained under domestic law following Brexit and will continue to form part of UK law until it expires on 31 May 2023.
In March 2022, the CMA announced that it was conducting a review of the MVBER to help it prepare advice to the Secretary of State on whether or not the MVBER should be retained. Proposed recommendations were published by the CMA in July 2022 and have been published in final form this month.
The UK motor vehicle industry
The motor vehicle industry in the UK has a complex supply chain comprised of vehicle manufacturers, spare parts manufacturers, dealers in motor vehicles, and authorised and independent repairers and parts distributors. Vertical agreements for goods and services related to the repair and maintenance of vehicles and the supply of spare parts are of particular relevance to the retained MVBER and have been the sole focus of the regime since 2013.
The UK automotive aftermarket sector employs around 350,000 workers, in around 35,000 small businesses. It is the fourth largest automotive aftermarket sector in Europe and contributes around £12.2 billion to the economy each year, encompassing both authorised dealer networks and repairers and independent repairers.
Since adopting the retained MVBER, the sector has experienced substantial technological evolution, particularly concerning communications technologies and the growing importance of in-vehicle data. There is also an increasing pressure to reduce emissions in light of the UK’s Net Zero Strategy and to shift towards more environmentally friendly fuels and power trains. In turn, the increasing adoption of electric vehicles (EVs) and alternate fuel vehicles (AFVs) will necessitate further training for mechanics. In a post-covid world, the sector is also facing permanently shifting mobility patterns, and fuel price increases are expected to contribute to a fall in car usage during 2022-23.
CMA recommendations
The CMA’s final recommendation is to replace the retained MVBER when it expires with a Motor Vehicle Block Exemption Order (MVBEO) that is tailored to the needs of UK consumers and businesses operating in the UK. In its recommendation, the CMA acknowledges that the increasing sophistication of automotive telematics and evolving distribution models within the UK are likely to impact the competitive dynamics of the sector in the coming years.
Some respondents to the CMA’s consultation expressed a view that the scope of the retained MVBER should be expanded to cover two-wheeled vehicles (the scope is currently limited to three and four-wheeled vehicles). Reasons for this include views that modern motorcycles use almost identical engine management, power control and ABS technology as four-wheeled vehicles. Other respondents noted that two-wheeled vehicles are becoming increasingly complex with more sophisticated and expensive parts. However, the CMA has reached the view that the current scope of the retained MVBER remains appropriate.
In its recommendation, the CMA indicates that it has had regard to comments from stakeholders, as well as the results of the European Commission’s Evaluation (EC Evaluation) of the MVBER. The findings of the EC Evaluation suggest that the MVBER has been efficient and that the costs resulting from assessing compliance of vertical agreements in the motor vehicle sector with competition law are proportionate to the benefits brought by the block exemption regulation. Additionally, the EC Evaluation specifies that the EC took a view against extending the scope of the block exemption to include two-wheeled vehicles on the basis of a lack of concrete evidence. The CMA has taken a similar approach.
Whilst the CMA does not consider that major changes to the retained MVBER are appropriate, it has acknowledged that some provisions of the existing block exemption will require to be updated to reflect the importance that access to data already has as a factor of competition, and the likelihood that it will become increasingly more important in the future.
The CMA has suggested, for example, that certain aspects of the retained MVBER should be clarified, e.g., by updating the definition of “spare parts” to reflect technological developments as well as adding a new definition of “technical and vehicle information”. Additionally, the CMA indicates an intention to provide detailed guidance aimed at giving a greater level of legal certainty for businesses in determining whether an agreement falls within the scope of the block exemption.
Points to note
The CMA is recommending a transitional period of one year which will allow businesses that wish to take advantage of the “safe harbour” to review and revise their agreements if necessary. This would mean that the Chapter I prohibition would not apply during a period of one year from the date on which the new MVBEO comes into effect in respect of agreements already in force on that date which satisfied conditions for exemptions contained in the retained MVBER.
It will be important for businesses that operate in both UK and EU markets to bear in mind that UK and EU rules may apply in parallel to their agreements. Full details of the CMA’s final recommendations can be found on the UK Government website.