Car-pricing probe moves into high gear

High local car prices came under the spotlight recently as the Competition Commission highlighted possible abuses in car retailing by leading manufacturers and dealerships.

Its findings on what appear to be restrictive marketing practices in franchising and the operation of discounts will be forwarded to the Competition Tribunal.

At the same time, the commission continues with a broader investigation into pricing practices in the industry. This includes the impact the motor industry development programme (MIDP) has on pricing.

The industry operates against the background of ‘excessive” tariff protection on vehicle imports, being 34% of the price of a new car.

Competition Commission chief economist Geoff Parr says local manufacturers are charging excessive prices on vehicles manufactured in South Africa because they know that the consumer’s choices are limited.

‘Part of our analysis seems to indicate that one of the reasons for excessive pricing is the MIDP,” says Parr. ‘They [local manufacturers] know they have the ability to add a premium of that magnitude, because the consumer has no options.”

The commission’s initial analysis suggests that new car prices in South Africa are much higher than elsewhere.
‘The tariff is incredibly high. In countries like Australia, which also has tariffs, it is only 10%,” says Parr.

The investigation by the commission was initiated following information received during an investigation of Toyota South Africa regarding a complaint of price fixing.

Toyota conceded that there was a basis for the complaint and explained the reasoning for the practice to the commission, resulting in a settlement of R12-million.

Toyota Group vice-president of corporate affairs Harry Gazendam says: ‘We have taken strong steps to insure that all our dealers and sales and marketing staff are fully trained in all areas of the Competition Act.”

The Competion Commission has referred five local manufacturers (DaimlerChrysler South Africa, BMW South Africa, Volkswagen South Africa, General Motors South Africa and Nissan South Africa), two importers/-distributors (Subaru South Africa and Citroën South Africa) and 845 dealerships to the Competition Tribunal to answer allegations that they have contravened sections of the Act.

If they are found guilty of contravening the Act, the tribunal can impose a penalty of up to 10% of the firm(s) annual turnover including exports for the previous financial year.

Nico Vermeulen, director of the National Association of Automobile Manufacturers of South Africa, said the attention of the commission had shifted from the initial terms of reference to potential restrictions in the dealer franchise agreements.

‘It’s quite clear that the manufacturers concerned have denied any involvement in anti-competitive practices. These are untested allegations and they must go before the tribunal so the proper procedure can take place,” said Vermeulen.

Caught in the Act

Section 4(1)(b) DaimlerChrysler, BMW, Volkswagen, General Motors, Subaru and their dealers were found to have dealer councils where agreements were reached regarding maximum discounts and out-of-area marketing, which is, according to the commission, ‘a violation for which no justification can be provided”.

Section 5(1) prohibits an agreement between two parties in a vertical relationship that has the effect of lessening competition in the market. DaimlerChrysler, BMW, Volkswagen, General Motors, Nissan and their dealers were found to have entered into franchise agreements that contained a number of restrictive measures relating to dealers not being able to sell outside of their allocated area, not being allowed to tender on fleet deals and not being allowed to sell new vehicles to unauthorised agents that would impact on competition.

Section 5(2) prohibits the practice of minimum resale price maintenance. All seven manufacturers were found to have imposed or agreed on minimum resale prices with their dealers. They were found to have distributed price lists, which contained a maximum discount the dealers may offer. The commission has found that owing to the nature of the short-term franchise agreements the dealers do not deviate from these maximum discount rates for fear of reprisal.

Lloyd Gedye

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