Competition Commission of India (CCI) Penalizes 14 Auto Makers

The Competition Commission of India (CCI) recently imposed a penalty of Rs. 2,454.65 crore
on 14 car manufacturers for violation trade norms in spare parts and after services market (the Competition law). According to the inputs from the industry, it’s a major order imposed by CCI on the automobile sector in India. In this article, we’ll discuss the issue briefly.

  • Following are the 14 Companies that have been penalized by the Competition Commission of India (CCI)
# Name of the company The penalty imposed in rupees
1 Tata Motors    Rs 1,346.46 crore
2 Maruti Suzuki  Rs 471.14 crore
3 Mahindra & Mahindra  Rs 292.25 crore
4 Toyota Kirloskar Motors Rs 93.38 crore
5 General Motors Rs 84.58 crore
6 Honda Siel Rs 78.47 crore
7 Skoda Auto India Rs 46.39 crore
8 Ford India Rs 39.78 crore
9 Fiat India Automobiles Rs 29.98 crore
10 BMW India Rs 20.41 crore
11 Mercedes-Benz Rs 23.08 crore
12 Hindustan Motors Rs 13.85 crore
13 Volkswagen India Rs 3.25 crore
14 Nissan Motors Rs 1.63 crore

Why CCI imposed penalty on 14 car makers
The CCI investigation said that all the 14 companies had violated their norms related to their agreements with local Original Equipment Suppliers (OESs) and authorized dealers under Section 3 and Section 4 of Competition Act, 2002. The main points of these Sections are given at the end of the article.

  • According to CCI, through these agreements, the car makers follow restrictive practices and prevent the market for supply (of spare parts and other diagnostic tools) to work optimally.
  • Having “ a monopolistic control over the spare parts and diagnostic tools of their respective brands, the car companies charged arbitrary and high prices for their spare parts.”
  • Independent car repairers could not get branded spare parts and the necessary tools because of the 14 car makers’ fraudulent practices, by which the repairers failed to provide optimal service in the aftermarket.
  • The anti-competitive conduct of the opposite parties is not in the interest of any of these – consumers, service providers or dealers.
  • The anti-competitive behaviour has affected around two crore car consumers so far.

Immediate steps mentioned by CCI

  • The CCI has asked the car makers to “cease and desist” from anti-competitive practices.
  • Car makers need to build and operate systems for imparting training on independent repairers/garages and make availability of diagnostic tools easier.
  • They should consider to provide technical support and relevant training certificates on payment.

CCI’s remarks

  • The car makers should let Original Equipment Sellers (OESs) sell spare parts in the open market without putting any limit of any kind including those on prices.
  • OESs are allowed to sell spare parts under their own brand if they wish.
  • In cases OPs having patent rights on the spare parts they may charge a royalty amount as per carefully forged contracts so that they do not violate Competition Act.
  • The CCI is aware of the car makers saying there is no right regulatory and legislative set-up for safety and standards on spare part and post-sales service. When compared to areas such as European Union, the United States, France and developing countries like Brazil, China and South Africa this is a weakness in the system in India.
  • While some of these car makers have done well in providing user-friendly services in Europe, they have failed do so in India. Had they done so here as well, it would have brought a positive impact in mitigating the anti-competitive behaviour of the car makers.
  • The Competition Act, 2002
    The Competition Act, 2002 provides for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, keeping in view of the economic development of the country.

Section 3: Anti-competitive agreements

  • No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.
  • The right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.

Section 4: Abuse of dominant position

  • No enterprise or group shall abuse its dominant position.
  • There shall be an abuse of dominant position if an enterprise or a group

    directly or indirectly, imposes an unfair or a discriminatory —

    • Condition in purchase or sale of goods or service, or
    • Price in purchase or sale (including predatory price) of goods or services
  • (a) “Dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to — (i) operate independently of competitive forces prevailing in the relevant market; or to affect its competitors or consumers or the relevant market in its favour.
  • (b) “Predatory price” means the sale of goods or provision of services, at a price below the cost of production of the goods or provision of services, which may be determined by regulations, with a view to reduce competition or eliminate the competitors.