Seven motor-vehicle manufacturers are to be referred to the Competition Tribunal for adjudication after a probe by the Competition Commission that revealed that most manufacturers and their franchised dealers have been guilty of price-fixing and anti-competitive practices.
The seven motor manufacturers referred for adjudication are South Africa’s BMW, Citroën, General Motors (GMSA), Nissan, Volkswagen (VWSA), Subaru and DaimlerChrysler (DCSA).
If found guilty, they could face an administrative penalty of up to 10% of their yearly turnover, including on their exports.
The Competition Commission said evidence revealed that DCSA, BMW, VWSA, GMSA, Nissan and their dealers had contravened Section 5(1) of the Competition Act by entering into franchise and dealer agreements that contained a number of restrictions that negatively affected competition in the market within which they operate.
“We are still to finalise the decision in respect of Ford Motor Company of Southern Africa on this aspect,” it added.
“The restrictions that were placed on dealers relate to, inter alia, the selling of new motor vehicles to unauthorised agents, the selling of new motor vehicles to exporters, as well as active out-of-area marketing and selling of new motor vehicles,” the commission stated.
It said that though it found evidence of similar restrictions in franchise or dealer agreements of a number of other manufacturers/importers/distributors, it was unable to conclude that these had resulted in a substantial lessening or prevention of competition due to their relatively small market shares in the relevant market.
In alleged contravention of Section 5(2) of the Competition Act, the commission found that VWSA, Nissan, BMW, Citroen, DCSA, GMSA and Subaru had either imposed minimum resale prices on their respective dealers or agreed on minimum resale prices with their dealers.
“We have gathered correspondence that relate to dealers being advised about restrictions on discounts, being reported for transgressing discount limits, as well as being ‘threatened’ that their motor-vehicle supplies would be limited or withheld if they did not comply with the discount limits,” the commission said.
“On the collusion part,” it continued, “there is evidence indicating that the franchised dealers of BMW, VWSA, DCSA, GMSA and Subaru have contravened Section 4(1)(b) of the Act, which provides that an agreement or concerted practice between competing firms is prohibited if it involves, inter alia, directly or indirectly fixing price and/or trading condition; or dividing market by allocating customers, suppliers, territories, or specific types of goods or services.
“In this regard, we found that franchised dealers were all members of dealer councils and that at both regional and national levels, agreements were reached regarding maximum discounts, out-of-area marketing, as well as out-of-area sales and/or discounting. This is a per se violation for which no justification can be provided.”
Excessive pricing
On the excessive pricing allegation, the commission said it is still finalising the investigation. However, it said its analysis thus far indicates that prices of new cars in South Africa are much higher than in other countries.
“We are working hard to finalise this part of the investigation, but we must emphasise that it is one of the most complex areas of the investigation. We will also liaise with the Department of Trade and Industry on the possible review of the motor industry development programme, which in our view may be the main reason for the high car prices in our country,” the commission added.
The commission said it is empowered to negotiate and enter into consent agreements with the car manufacturers concerned, and some have already expressed a wish to do so.
“We are also pleased to announce that there are a number of manufacturers/importers/distributors/dealers that were investigated and evidence gathered indicates that the firms have not engaged in the alleged collusion and or resale price maintenance.
“However, there are some that were found to have engaged in anti-competitive practices, but their market shares were found to be relatively small or negligible to have a substantial effect on competition in the respective markets.
“We urge these firms to review their agreements and practices to ensure that they are fully compliant with the Act.
“In view of the above, we will be preparing notices of non-referral in relation to allegations against Honda South Africa, Renault South Africa, Hyundai South Africa, Volvo South Africa and Peugeot South Africa,” the commission said.
Naamsa cautioned
Though it had cited the National Association of Automobile Manufacturers of South Africa (Naamsa) as one of the respondents in the initiation of its investigation, the commission said it found no evidence suggesting anti-competitive practices that contravened the Act.
“However, we gathered information that indicated that Naamsa does collect sales forecasts from various manufacturers, which are then circulated among its members. We have since advised Naamsa that such conduct is unacceptable as it is likely to facilitate collusion in the industry,” it added.
The commission said that if the alleged contraventions are corrected by the firms concerned, consumers will be the ultimate beneficiaries in that they can negotiate discounts and will have an incentive to shop around for better deals.
“This is anticipated to stimulate price competition in this industry. Reduction of competition in the market removes this incentive and raises prices for goods or services to the detriment of consumers.
“This would further strengthen the position of dealers as independent business entities in that they will be free to sell motor vehicles where and to whomever they want to. Price competition was reduced since almost all manufacturers/importers/distributors of motor vehicles and dealers use the same system of restricting competition, which is detrimental not only to the consumer, but to the development and participation of dealers in the mainstream economy.
“Dealers are cautioned to refrain from fixing prices, discounts and/or trading conditions among themselves, especially through the apparently existing dealer councils,” the commission added. — I-Net Bridge