Car companies contest CCI's definition of market dominance

Car companies have objected to the basic definition of 'market dominance' used by the Competition Commission's investigation arm in probing anti-competitive practices in the sector. The objection comes in the wake of a 2,000-page report filed by the DG (investigation) alleging monopolistic practices by 17 carmakers in the spare parts business and in dealerships.

If the fair trade regulator endorses the view of its investigation unit, the industry cumulatively could have to pay as much as $2.5 billion in fines. The commission has the power to levy a fine of up to 10% of the carmakers' annual turnover, depending on the severity of the anticompetitive practices.

According to Abdul Majeed of PwC, car companies clocked a turnover of close to $25 billion in the year 2012-13, and the harshest penalty of 10% could turn out to be a maximum of $2.5 billion collectively. However, senior officials say the actual penalty could be reduced as the degree of monopolistic practices different carmakers are charged with may vary. A senior official in an auto company says the investigation has 'segmented' the entire spare parts market as being aligned to individual carmakers. For instance, all of Honda cars spare parts makers have been segmented as a single market distinct from that of any another carmaker.

The report found that since each carmaker has a stranglehold over the spare parts manufactured by its suppliers, this amounts to a monopoly. Suppliers are obliged to sell spare parts to a single carmaker, which gets to control both the distribution and the pricing. The Competition Commission is now reviewing the report and hearing the car companies out on the matter. Once its review is complete, the commission will then decide the degree to which it will endorse the report.

Photo courtesy: Reuters

Competition Commission chairman Ashok Chawla said the commission would take a few more weeks to take a final call on the matter. The investigation has also raised objection to an existing practice where car companies don't allow dealers to do business with rival automobile makers. "...It was found that dealers weren't permitted to open dealerships of any rival car maker, this sort of a business practice causes appreciable adverse effect on competition tantamounting to another instance of a monopoly," a senior official, privy to the report, said.

Car companies have opposed the segregation and pleaded with CCI that the entire car spare parts market be treated as one. Incidentally, industry body CII on Saturday issued a statement voicing similar concerns over the Competition Bill which "proposes to significantly alter the current position on abuse of dominant power under the Competition Act by introducing the concept of joint dominance". This is part of a number of requests made to the Parliamentary Standing Committee on Finance currently reviewing the Bill. Other requests include limiting the powers of the DG investigation, CCI.

The investigation team has defended its report saying it has been complied on the basis of the definition drawn from various judgments in the European Commission. According to the case laws in the European Commission, a relevant market for estimating the dominance of any player can be defined in terms of all the products/ services, which can be used interchangeably.

While applying this definition to the car market, the investigating team found out that even in the same segment of cars one can't use any products interchangeably and the carmakers have ensured this by keeping a tight control over the supply of their spare parts. In fact, the investigation threw up instances where a carmaker had charged 400% markup over the original spare part simply because of the control it held over the spare parts supply.