Taking counsel

  • 2006-02-22
  • By Iraida Zogaite [ Jurevicius, Balciunas & Bartkus ]
Opportunities for motor vehicle sellers and consumers

The purchase of a new motor vehicle, its maintenance and the (almost inevitable) repairs is an issue of concern to many consumers. The sector falls under specific regulations whenever motor vehicle distributors and consumers face restrictions on competition.

In 2002, the European Commission initiated reform of competition rules regarding trade in new motor vehicles and spare parts, as well as repairs and maintenance services in order to increase competition and protect consumers' rights. Commission Regulation (EC) No 1400/2002 established stricter competition rules over agreements between motor vehicle suppliers and distributors on the distribution of motor vehicles, in particularly selective distribution. The regulation also deals with conditions for not applying these competition rules (general exemptions) as compared with the agreements on distribution of other goods.

One more competition rule concerning the Regulation came into force as of Oct. 1, 2005 enabling motor vehicle distributors to compete more freely in the entire territory of the European Union. Henceforth, motor vehicle suppliers may not directly or indirectly prohibit any distributor distributing within a selective distribution system from establishing sales or delivery outlets of motor vehicles at other locations or even in other European Union member-states where such a selective distribution system is used.

Now motor vehicle distributors (the selected distributors) may freely open a new additional sales or delivery outlet of motor vehicles at other locations within the European Union internal market. This new rule, however, is applied with reference to new passenger cars and light commercial vehicles (up to 3.5 tons).

It is understandable that motor vehicles distributors' question whether they have to obtain consent from the supplier before opening a new additional outlet, or whether they have to conclude an additional agreement with the supplier regarding establishment of such a motor vehicle outlet? The European Commission explains that currently a distributor may open an additional sales or delivery outlet without discussing and agreeing with the supplier 's i.e., without the supplier's permission. It is also not obligatory to conclude an additional agreement with the supplier on opening such outlet at another location.

In providing more freedom to motor vehicle distributors, the interests of motor vehicles suppliers are also enhanced. In case a distributor wants to close the initial outlet of motor vehicles and open a new one at a new location, he has to obtain consent of the supplier since the supplier has the right to ensure his network of trade in motor vehicles covers all geographical locations on the European Union internal market.

Additionally, the supplier may demand that the additional outlet meet the quality standards applied to the same type of outlets of motor vehicles at the same geographical location. For example, if a distributor intends to open a sales outlet on a city's main street, the supplier has the right to obligate the distributor to stick to the established quality standards that are applied for setting up the outlet and arrangement of motor vehicles at the same or similar location. The supplier may demand to apply the same quality standards also to the delivery outlet of motor vehicles.

As the European Commission explains, motor vehicles may be supplied to the additional outlet of the distributor by the supplier himself who supplies motor vehicles to the initial outlet of the distributor without restricting opportunities of the distributors to obtain freely vehicles from another distributor of the same make of motor vehicles.

With the advent of this new competition rule limiting restrictions with reference to the distributors of motor vehicles, competition in the sector of motor vehicle distribution should increase since motor vehicle distributors are offered an opportunity to establish new additional outlets of motor vehicles at desirable locations.

Iraida Zogaite is associate partner at Jurevicius, Balciunas & Bartkus.

Jurevicius, Balciunas & Bartkus is a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms which includes Teder Glikman & Partnerid in Estonia and Kronbergs & Cukste in Latvia, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.