China's auto market is high and zero: cars can't afford to repair

● In the Chinese automotive aftermarket, the zero ratio can reach an abnormally high 12:1, while the foreign market is usually 3:1. The British "Financial Times" said that China has become a multinational car company. Cars can't afford, can't afford it, where is the root cause?

● In the Liu Dahua case and Xu Liang case, the plaintiff’s request was rejected by the Changsha Court and the Qingdao Court in the first instance. The disputes in both cases were tying repair services when the 4S shop sold the original parts. Why do consumers always lose when they resort to the Anti-Monopoly Law?

●The original spare parts are exclusively provided, and the maintenance technical information is closed. It is the root of the abnormal high ratio and 4S shop tying repair service. It is imperative to carry out anti-monopoly regulation on the automobile after-sales market.

China's auto market has shown that the profit of the whole vehicle has declined, and the industrial chain and value chain have extended to the after-sales market. With the growth of car ownership, the car repair industry has become a livelihood industry that consumers cannot do. However, in recent years, 4S shop accessories are expensive, maintenance costs are high, and roadside shop maintenance quality is not guaranteed to cause various problems.

It is imperative to carry out anti-monopoly regulation on the automobile after-sales market. We need to define the automobile after-sales market, analyze the restrictions on competition effects and welfare losses caused by the closure of the original parts supply and maintenance technical information, and trace the abnormalities. Zero root ratio, the root of the original parts tying repair service.

Price, territory and customer restrictions in the automotive aftermarket

According to the survey, in China's automotive 4S channel parts distribution, resale price restrictions and customer restrictions are more common. For cars that implement nationwide warranty, the geographical restrictions on the distribution of parts are broken. In the repair service, in some areas, there is a phenomenon in which the vertical limited working hours of the OEM and the horizontally defined working hours between the 4S stores are intertwined.

Vertical price, geographic and customer restrictions are essentially the same regardless of whether they occur in car dealerships or after-sales. Among them, the resale price limit is particularly significant because it distorts the free pricing power of the operators.

The horizontally limited working hours between 4S stores is a price cartel that is prohibited by the Anti-Monopoly Law, and the possibility of demonstrating that the act meets the exemption condition is minimal.

How to define the automotive aftermarket

According to the types of business involved in the automotive market, the relevant markets that can be defined include automobile distribution, financing, insurance, leasing, and aftermarket. At present, the vertical monopoly behavior in China's automobile distribution and after-sales market is more significant.

In the automobile dealership market, there is no reason to define the automobile dealership market by brand because there is a significant demand substitution between the same model and the same price. Unlike after-sales and distribution, the after-sales market may be defined by brand. Based on the anti-monopoly theory and law enforcement records developed by the US and European precedents, it is necessary to define the aftermarket of durable goods by brand under certain conditions, mainly including after-sales parts and maintenance market.

The maintenance and repair requirements for specific brands and models use applicable accessories, including original parts and non-original parts (commonly known as “deputy parts”). Among them, non-original parts of comparable quality may become strong competitors of original parts. When the non-original parts compatible with the whole vehicle are limited, the user is locked after purchasing the new one. The locking effect is the objective reason for the distortion of the zero-to-zero ratio, and it is also the fundamental rationale for defining the automotive aftermarket by brand.

In particular, because of the limited quality of non-original parts that are compatible with high-end brand cars, car owners are highly dependent on original parts, and high-end car suppliers will be recognized as dominant in their branded automotive aftermarket.

Accessory and repair technical information should be available

Car maintenance and maintenance safety requirements, high technical content, and environmental impact, require qualified technicians to use original parts or non-original parts of comparable quality, based on the maintenance technical information of specific brand cars.

There are two types of repairers, authorized and independent, in the aftermarket. The former refers to the members of the auto supplier authorized maintenance network (China is currently mainly 4S shops and special repair stations); the latter includes independent repair centers, fast repair shops, road rescue operators and so on.

Independent repairers compete with authorized repairers through lower working hours and spare parts costs, and the lack of competition between the two types of repairers will result in consumers paying high prices. The competitiveness of an independent repairer depends on the availability of accessories and repair technical information. Europe, the United States, Korea and Japan have passed the competition law and automobile emission regulations to ensure the availability of accessories and maintenance technology information.

Questioning the overpriced pricing of original parts

In April 2014, China Insurance Association and China Automotive Industry Association released data on the zero ratio of 18 common models. The survey involved a model with a zero ratio of up to 12:1, while the data showed that the foreign market zero ratio is usually 3:1.

Once it is determined that an automobile supplier has a dominant position in the market of its branded automobile after-sales market, and there is evidence that the original parts supplied to the 4S shop are still suspected of being overpriced after deducting the objective factors such as taxes and fees, resulting in an abnormally high zero ratio. Unless the supplier can prove that its pricing is fair, its actions will constitute unfair high prices prohibited by Article 17 of the Anti-Monopoly Law.

Questioning the original parts tying repair service

In Liu Dahua v. Dongfeng Nissan's monopoly operation auto parts case and Xu Liang v. Guangzhou Honda Tongbao 4S shop case, the plaintiff's request was rejected by Changsha Court and Qingdao Court in the first instance in 2011 and 2013 respectively. The disputes in both cases were tying repair services when the 4S shop sold the original parts to the owner. The key to the dismissal was that the plaintiff did not complete the burden of proof that the defendant had a dominant market position.

In the two cases, the plaintiff filed a lawsuit in accordance with Article 17 of the Anti-Monopoly Law. First, it was necessary to define the relevant market, thereby proving that the defendant had a dominant position in the relevant market, and then proved that the defendant abused the dominant position. It is extremely difficult to complete the above three steps to prove responsibility. In the challenge of the original parts tying repair service, the anti-monopoly civil lawsuit almost entered the dead end.

In practice, tying repair services occurs when 4S stores sell accessories. Some 4S stores have explicitly tying, claiming that their tying behavior is based on the distribution agreement, and the OEMs are not allowed to sell the parts separately; there are also some 4S stores that use covert tying, claiming that not repairing the 4S shop will result in the exclusion of warranty liability. Can anti-monopoly administrative law enforcement make a statement to consumers?

The tying may constitute an exclusive purchase obligation for the tying commodity, which is a vertical restriction of competition and may be regulated in accordance with Article 14 of the Anti-Monopoly Law. The owner of the car requires the purchase of the original parts separately, in order to repair the car to an independent repairer with low working hours. 4S shop tying repair service when selling accessories, excluding competition from independent repairers.

The challenge is that the vertical rules of the anti-monopoly law regulate agreements between producers and suppliers in different parts of the supply chain, such as distribution agreements and supply agreements. The relationship between the 4S shop and the end user is not subject to the regulation of Article 14 of the Anti-Monopoly Law. However, by initiating the Article 14 clause, breaking the original equipment supply and maintenance technical information closure, it is possible to adjust the tying behavior from the root cause, while correcting the distortion height and zero ratio.

Break the original accessories for the exclusive

Breaking the original accessories is the first measure to deal with the abnormal zero ratio and tying. Original parts refer to the parts printed by the OEM or produced by the OEM and printed with the OEM logo. The dispute between Liu Dahua and Xu Liang was caused by the auto supplier's 4S shop to control the original parts supply and marketing channels (commonly known as "original parts exclusive"). Original parts are designed for typical vertical restraint competition, and their legality should be evaluated in accordance with Article 14 of the Anti-Monopoly Law.

According to the survey, the 4S channel is currently prevalent in the exclusive supply of original parts, and the exclusive supply and exclusive purchase as a means to achieve.

The exclusive supply performance is that all the original parts are “returned to the factory”, and the accessory manufacturers only supply the original parts to the OEMs and not to other channels; the OEMs only sell the original parts through the 4S channels. Exclusive supply is also shown in the prohibition of “export” of 4S stores, that is, 4S stores can only sell original parts to end users for maintenance purposes, and prohibit the sale of original parts to independent channels between 4S stores and 4S stores.

Exclusivity purchases show that 4S stores are not allowed to “outside” accessories. 4S shop can only purchase original parts from the general distributor or its designated entity. It is not allowed to purchase original parts from other channels, or purchase non-original parts of comparable quality.

Original accessories are designed to help improve after-sales service efficiency, quality and professionalism, and to address the “free rider” problem of accessory suppliers and the problem of proprietary technology. However, exclusive supply excludes competitive purchasers, exclusive purchases exclude competitive suppliers, and cumulative use will weaken competition at the dealer and supplier level and promote collusion, keeping prices at a high level, and eventually appear to be abnormally high.

The original accessories are specially designed for the loss of welfare in our country is very significant. The OEM only sells the original parts through the 4S channel and prohibits the export, which makes it difficult for independent channels to purchase the original parts, hindering the development of the car fast repair and fast insurance, and reducing the choice of consumers. The owner can not buy the original parts in an independent channel, which is the premise that the 4S shop can tie the repair service. The prohibition of export also indirectly promotes the long-term existence and proliferation of fake parts in roadside shops and auto parts cities, laying a hidden danger for automobile safety and environmental protection.

The prohibition of external mining limits the choice of 4S stores, resulting in the replacement of non-original parts of comparable quality into the 4S channel. 4S shop accessories become the main reason for the loss of customers outside the warranty period. It is forbidden for outside mining to break, and 4S stores will become more and more difficult to compete with independent repairers for foreign customers.

It is necessary for the anti-monopoly law enforcement agencies to consider the limited competition effect of the original accessories, especially the cumulative effect of similar agreements, which leads to the over-pricing of the original parts in the Chinese market and damages the welfare of consumers. We can learn from the experience of Europe, America, Korea and Japan to promote the multi-channel circulation of original parts and accessories, so that the price of accessories can return to a competitive level. At the same time, it promotes access to authorized channels through third-party certified, traceable, and comparable quality accessories.

Guarantee repairer to obtain maintenance technical information

Ensuring the availability of maintenance technical information is the second key measure to deal with abnormal zero ratio and tying. If the independent repairer cannot obtain the technical information necessary for testing and repairing the vehicle in a timely and sufficient manner, its market position will be weakened, and the services provided may cause safety hazards and high emissions, which will eventually lead to the maintenance of the authorized channel maintenance price at a high level.

Automotive suppliers are the only source of all maintenance technical information for a particular brand of car. Authorized maintenance agreements are a type of vertical agreement and should be regulated in accordance with Article 14 of the Anti-Monopoly Law. If the auto supplier refuses to provide maintenance technical information to the independent repairer, the effect of restricting competition caused by the authorized maintenance agreement will be strengthened, and the efficiency of the agreement will not be sufficient to offset its anti-competitive effect. Automobile suppliers have a dominant position in their branded vehicle maintenance technical information, and refusal to provide maintenance technical information may also violate Article 17 of the Anti-Monopoly Law.

The definition of maintenance technical information can refer to the relevant experience of EU competition law and automobile emission regulations. When judging whether a car supplier refuses to publish a piece of information violates competition law, the European Commission will judge the following factors. First, whether the information belongs to maintenance technical information or commercial information that can be legally retained; is it ultimately used to maintain the car or for other purposes. Second, judging whether retaining the technical information has a significant impact on the completion of the work of the independent repairer and constitutes a restriction on competition. Third, if technical information is provided to the authorized repairer in any form, it should be provided to the independent repairer without discrimination.

In order to require auto suppliers to comply with their commitment to provide technical information to independent repairers, the European Commission made four decisions in 2007 involving eight brands including Mercedes-Benz. The European Commission defines the automotive maintenance technology information market by brand, stating that the automotive supplier can refuse to provide technical information that may cause third parties to bypass, lift or tamper with the vehicle anti-theft device, calibrate the electronic device or interfere with the device. However, when refusing to provide the above information, the manufacturer must ensure that the absence of such information does not prevent the independent repairer from performing normal repair work.

Where to go to repair the car by the consumer

Obtaining accessories and repair technical information is a necessary condition for competition in the automotive aftermarket. 4S shop purchases non-original parts that are traceable and of comparable quality. The right of independent repairers to purchase original parts and obtain technical information for maintenance shall be protected according to law.

Accused of flooding of counterfeit and shoddy parts in China, auto suppliers have overturned the fact that the argument that consumers should insist on the exclusive supply of original parts and to close the technical information of maintenance has been harmed by consumers. This argument is like defending the protection of intellectual property rights in China. Therefore, the Anti-Monopoly Law should not regulate the abuse of intellectual property rights, and there are causal delays.

In-depth study of China's market, critical reference to other countries' experience, guaranteeing the availability of accessories and maintenance technology information will promote the openness and effective competition of the automotive after-sales market, and help protect China's already fragile ecological environment. When 4S shops compete effectively with independent repairers, even if there is an abnormally high zero ratio, high-priced sales of original parts and tying repair services, consumers will have sufficient and guaranteed options to break through. Where to fix the car? The choice should be controlled by the consumer.

Call for anti-monopoly law enforcement system

Automobile distribution and after-sales involve many stakeholders, and the interests of competition, intellectual property, industrial development, employment and product safety are criss-crossed. The automobile dealership channel is diversified, the 4S model competes with the new distribution model, and the automobile sales and after-sales are separated from the unity. This is the trend of the Chinese market.

In the investigation, the OEMs emphasized that their after-sales parts are produced by the foundry and use the intellectual property of the OEM, so the products must all be returned to the factory. There are various explanations for the closure of the original accessories and maintenance technical information. The definition of the foundry agreement, the "single standard" and "double standard" accessories and other intellectual property issues, as well as the certification of non-original parts, the certification of technical quality, the performance of the three guarantees and the competition of foreign customers, sensitive Complex, to be discussed in depth.

The vertical monopoly behavior of China's auto market leads to welfare losses that cannot be ignored. Existing industry regulations, especially the "Automobile Brand Sales Management Implementation Measures" have evolved to some extent as a shield for monopolistic behavior. The premise that the market plays a decisive role in resource allocation is that the market is not abducted by monopolistic behavior, calling for anti-monopoly law enforcement to play a role in regulating the automobile market and protecting competition and consumer welfare.

(The author is an associate researcher at the American Academy of Social Sciences in the United States)

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