Probe on restrictive warranties on car parts
Genesis was asked by a player in the automotive industry to conduct an independent economic assessment of the impact of prescriptive warranty provisions used by original equipment motor vehicle manufacturers (OEMs) on South African consumers.
Similar conduct by OEMs has not been treated favourably by competition authorities in other jurisdictions. In South Africa no remedial measures have been taken to address the possible restriction of competition in the aftermarkets for automotive spares and repair of motor vehicles.
The purpose of the report was to highlight to the Competition Commission the significant positive impact that remedial intervention in motor vehicle aftermarkets could have in terms of competition and, hence, the cost of motor vehicle repairs in South Africa.
Genesis outlined in its analysis why the imposition of restrictive warranty conditions by OEMs was likely to raise competition concerns. These restrictive practices included the use of OEM branded parts and OEM approved service centres or panel beaters for vehicles under warranty.
In particular, Genesis showed that due to the firm-specific nature of motor vehicle aftermarkets, OEMs are likely to possess market power in the aftermarket for their parts and repairs. Genesis' analysis demonstrated that the benefits to consumers from enacting remedial measures to prohibit the use of such restrictions in motor vehicle warranties would likely run into the billions of rands.
Subsequent to Genesis’ engagement with the commission, the commission announced in February 2017 that it would hold an industry workshop to discuss recommendations to remedy conduct that it had identified as creating competitive distortions in automotive aftermarkets.
Following consultations with the industry the commission published the draft code of conduct for competition in the South African automotive industry in September 2017.
The code of conduct is focused on removing restrictions in the agreements between OEMs and dealers, insurers, and repair and maintenance providers which it believes have increased barriers to entry and negatively impacted on competition and prices. In particular, the code of conduct proposes the removal of restrictive warranty provisions requiring the use of OEM branded parts or approved service centres.