Competition and consumer issues for a changing industry address

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Introduction

Thank you, it is a pleasure to open your conference.

Whenever an industry goes through significant change, and is in transition, issues around competition, consumer protection and regulation inevitably come to the surface.

Those are issues that are also of interest to the Australian Competition and Consumer Commission and so I am pleased, today, to have the opportunity to provide the ACCC’s perspective on some recent developments relating to the automotive sector.

I propose to cover four topics:

• changes to the law allowing consumers to directly import new vehicles;
• the state of play in access to vehicle repair data;
• recent enforcement and other matters in which the ACCC has been involved relating to the automotive sector; and
• some other legislative changes and proposals which may be of interest to you.

Hopefully, I’ll also have time for a few questions from the floor.

Parallel imports

As you know, the Government recently announced it would introduce legislation easing restrictions on consumers importing new vehicles from 2018.

The ACCC recommended such changes to vehicle importation laws in its submission to the 2014 review of the Motor Vehicle Standards Act. The Harper competition review made similar recommendations in its final report last year.

The reforms to the Motor Vehicle Standards Act are limited. They permit a consumer to import a vehicle from the UK or Japan. The vehicle must have less than 500km on its odometer, and the consumer may not import more than one vehicle every two years.

The ACCC sees these reforms as good for competition and for consumer choice.

Consumer choice and business opportunities

Consumers should be entitled to weigh up all the relevant considerations and decide whether personally importing a car is right for them, or whether sticking to the established system of dealerships suits them better.

Just as the record industry said that allowing parallel importation of music would be the death of the local music industry, some in the automotive industry have voiced concern that reforms to vehicle importation laws will harm Australian consumers and businesses.

For example, the Federal Chamber of Automotive Industries has asserted that consumers “may end up with a vehicle that does not meet their needs or operate as required in Australian driving conditions.”

This would appear to be a little far-fetched. Consumers will only be able to import cars from the UK and Japan. These are markets that sell right hand drive cars and have similar safety standards to Australia. Also, the climatic conditions in Europe and Japan can be as extreme, if not more extreme, than conditions in Australia.

The issue does not appear to be one of safety or adaptability to Australian conditions, but one of choice.

With choice comes competition and opportunities for consumers and businesses alike.

New Zealand’s economy has benefitted from allowing the personal importation of vehicles: consumers have access to a greater range of cars and, in some cases cheaper cars; new businesses have emerged to assist consumers with the importation process; and existing businesses have grown.

We would expect to see similar benefits here in Australia.

The proposed laws will only have a negative effect on established Australian dealerships if their prices are not competitive, or if consumers cannot purchase the specifications of vehicles they want.

Consumers, however, will need to consider what recourse they will have if there is a defect with the vehicle.

Under the Australian Consumer Law, consumer guarantees automatically apply when buying a new vehicle in Australia.

The guarantees provide that vehicles will be fit for purpose, free from defects and as durable as a reasonable consumer would expect.

If a vehicle fails these guarantees, the consumer will have rights against the supplier and in some cases the manufacturer, who will have to provide a remedy.

There have been some fears that consumers who import cars will miss out on these important protections.

Until details of the scheme are settled, it is difficult to be precise about how consumer guarantees will apply to protect consumers from defects. For instance, if the scheme permits Australian businesses to import vehicles for individual consumers, protections may be more readily available than if individual consumers are required to purchase their vehicle directly from an overseas entity that may have no connection with Australia.

Consumers may also look at other ways to insure their vehicle with some options already on the market. For example, roadside assistance on one level, and warranty products that may currently exist or emerge as demand grows.

In any event, consumers are making assessments for themselves when they import other products and they should be allowed to do the same for cars.

We acknowledge that it will be important for consumers to have information about the operation of the scheme and the possible risks.

We also acknowledge that for those of you in the industry who may be affected by these changes, there will be challenges in adjusting to the new rules, but we expect that you will also find new opportunities arising from the changes.

Access to data

Let me turn to my second topic, which is access to data. We realise that access to data and information for the repair of vehicles is an important issue for members of the Australian Automotive Aftermarket Association (AAAA).

In 2012, the Commonwealth Consumer Affairs Advisory Council’s review into the sharing of repair information in the automotive industry found that:

The need to access specialised repair information has the potential to become a barrier to entry in the market for repairs. While it is not currently preventing competition in this market, policy-makers should closely monitor the ease with which vehicle repairers can access such information and be prepared to act if necessary.[1]

In response, in December 2014, the Federal Chamber of Automotive Industries, the AAAA, and a number of other relevant industry associations signed the Agreement on Access to Service and Repair Information for Motor Vehicles.  Under this heads of agreement, in February last year the Federal Chamber of Automotive Industries established its own Voluntary Code of Practice.

The AAAA has approached the ACCC in the past to determine whether this issue of access to data raises concerns under the anti-competitive conduct provisions of our Competition and Consumer Act.

To date, the examples or instances that the AAAA has asked us to examine, do not, in our view, contravene the law.

Many of the instances raised are unlikely to damage competition in the market, within the legal definition set out in the Act.

For conduct to be illegal in the circumstances described, it must have the purpose or be likely to have the effect of substantially lessening competition.

Even though the conduct doesn’t contravene the Act, it may still raise issues that need to be considered in more detail.

The Federal Chamber of Automotive Industries Code of Practice is one way to address these issues. The effectiveness of the code of practice is an issue to be decided by the industry, and ultimately may be a policy decision for the Government.

The ACCC will continue to look closely at allegations received from the AAAA, particularly if the conduct involves anti-competitive conduct.

Recent enforcement and other matters

I now wish to comment on a few enforcement and other matters in which the ACCC has been involved and which relate to the automotive industry.

GPC and Covs

Under our legislation, we look at mergers and acquisitions to determine if they are likely to substantially lessen competition.

We have a triage process so that we deal with the vast majority of matters very quickly—often within a few weeks—because many acquisitions by one business of another business do not have a significant effect on competition.

However, there are some matters, which in our view come close to the line, or cross the line, of the substantial lessening of competition test in section 50 of the Competition and Consumer Act.

A recent example is the acquisition by GPC Asia Pacific Pty Ltd of Covs Parts from Automotive Holdings Group Limited.

GPC is a distributor and retailer of automotive parts and accessories to trade and retail customers in Australia and New Zealand, through its Repco and Ashdown-Ingram brands.

In Western Australia, GPC owns 37 Repco stores and eight Ashdown-Ingram branches.

Covs Parts operated a network of 25 branches in Western Australia and supplied a broad range of automotive parts and accessories, primarily to trade customers.

GPC originally sought to acquire all 25 Covs Parts stores throughout Western Australia. Our concern was that the two firms were each other’s closest competitor and, in some regional towns, they were the only generalist suppliers of parts to trade customers.

We made extensive market inquiries of trade customers, specialist automotive parts suppliers, dealerships and retail-focused automotive parts suppliers, and in December 2015, the ACCC announced a decision to oppose the proposed acquisition on the basis that it would be likely to substantially lessen competition in several regional locations.

Following our decision, GPC and AHG addressed our concerns by excluding the Covs Parts stores in Albany, Esperance, Karratha and Port Hedland from the proposed acquisition. AHG also gave us an undertaking that it would continue to independently operate those four remaining stores that were not being acquired by GPC.

In February, we announced that we would not oppose the modified acquisition as the exclusion of those four stores and the undertaking mean these towns will continue to have two generalist auto parts suppliers, providing competition with each other and also providing more choice for regional trade businesses.

Yazaki

On the litigation front, in November last year, the Federal Court of Australia found a Japanese company, Yazaki Corporation, had engaged in collusive conduct.[2]

In the Court case brought by the ACCC, the Court found Yazaki made and gave effect to arrangements with a competitor including coordinating quotes provided to Toyota Australia for wire harnesses for the Camry.

As most of you in this audience know, wire harnesses are electrical systems that help distribute power and pass electrical signals to various components of a car. The 2011 Camry contained fifteen wire harnesses.

The Court has yet to decide the amount of the penalty against Yazaki for its contravention of the law.

Koyo

In a separate action, back in 2013, the Federal Court made orders, by consent, against Koyo Australia Pty Ltd, ordering it to pay $2 million in penalties for cartel conduct.

The Court found that in 2008 and 2009, Koyo Australia had made and given effect to two separate cartel arrangements to increase the price of ball and roller bearings to their aftermarket customers.

Again, as you know, the bearings are an essential component in products such as motor vehicles, mining conveyors, household electrical items and farm machinery.[3]

One of the ACCC’s priorities is to detect and deter cartel conduct, so please don’t agree with your competitors on prices or customers.

Informed Sources

On petrol retailing, we have had long-running concerns about a petrol price information exchange service operated by Informed Sources (Australia) Pty Ltd.

Following a lengthy investigation, we took court action in 2014 against Informed Sources and five petrol retailers that subscribe to the service, namely:

• BP Australia Pty Ltd
• Caltex Australia Petroleum Pty Ltd
• Woolworths Ltd
• 7-Eleven Stores Pty Ltd, and
• Coles Express.

We alleged the price exchange service allowed retailers to communicate with each other about their prices, which had the effect or likely effect of substantially lessening competition in the retail sale of petrol in Melbourne.

In December, we resolved the court proceedings. I am pleased to say we have undertakings that will provide greater transparency and reduce the potential for any adverse effect on competition.

The undertakings provide that Informed Sources and the petrol retailers will only exchange pricing information if they make it available so that consumers have access to it, for example via phone apps, at the same time the retailers do. This arrangement is due to take effect from next month and, hopefully, making the pricing information available to third party app providers will promote innovation in the way the prices are presented to consumers.

The pricing information will help consumers make better and more informed decisions about where and when to buy petrol by helping them to identify the best time to buy and the sites with the lowest price.

More importantly, it should encourage price discounting by bringing the discounter more business in response to their discount.

Capped servicing

Another intervention I would like to mention involves capped price servicing.

In 2012, Kia Motors Australia Pty Limited represented to consumers that its scheduled service prices were capped at a maximum price.

In particular, Kia’s website said ‘the capped price applicable for each service is the maximum you will pay for your scheduled service’.

However, Kia’s terms and conditions allowed scheduled service prices to be amended at any time and, in fact, these prices had been changed by Kia four times since 2012.

We considered that Kia’s advertising of its capped price servicing offer was misleading.

Last year, following an investigation by us, Kia agreed to amend the terms and conditions of its capped price servicing offer to consumers.[4]

Kia fully cooperated with the ACCC’s investigation and agreed to a number of steps to address our concerns.

We intervened because businesses, which advertise capped price offers or represent that consumers can fix the maximum charge for services, must ensure that these offers are not eroded by other terms and conditions which permit the business to increase the price.

While we investigated this as a consumer protection matter, we are also mindful that practices such as these have an effect on competitors in the car servicing business.

Fiat Chrysler Australia

Last September, we also accepted an undertaking from Fiat Chrysler Australia, the distributor of Jeep branded vehicles amongst others, to review its handling of warranty claims and to compensate consumers whose claims had been wrongfully refused.

There had been widespread consumer dissatisfaction about poor handling of complaints, including one consumer who even engaged in a Kickstarter campaign called “Destroy my Jeep” which culminated in him hiring excavators to publicly destroy his vehicle.

It is important to note that under the Australian Consumer Law, a consumer’s rights are not limited by a manufacturer’s warranty, and we will be concerned by blanket refusals to consider warranty claims after the expiry of the manufacturer’s warranty or through the strict application of conditions of those warranties.

VW

Another matter which we have been investigating recently is Volkswagen’s emission issues relating to its so-called “defeat device”. We expect shortly to conclude our investigation and will make an announcement of the action we propose to take in relation to that matter.

Product safety

Product safety is another area in which we have a role. It requires constant vigilance from everyone in the automotive aftermarket.

Just this week, three online retailers each paid a $10,200 infringement notice issued by the ACCC for supplying high lift jacks that we alleged had failed the mandatory safety standard for vehicle jacks.

Among other things, the standard requires a jack to:

• hold its nominated capacity for 30 minutes without suffering a loss of height to the head cap of 5mm or more
• lift double its nominated capacity for a minimum of one minute, and
• display warning labels and other markings.

All traders—big and small, and whether selling online or offline— should have adequate measures in place to ensure that the products they supply comply with the relevant standards.

Review of the Australian Consumer Law

Finally, let me say something about two other legislative developments.  The first is that a review of the Australian Consumer Law has commenced.  This is a national law that is part of our statute, but is also part of the consumer protection laws of each State and Territory.

The ACL Review started in March this year, with the release of an Issues Paper inviting submissions. If you would like to have your say on the review and haven’t done so already, submissions close on 27 May this year.

One of the many issues raised in the review is whether the Australian Consumer Law should include a “lemon law”. Such a provision would allow a consumer who has purchased a motor vehicle, for example, which is a “lemon” due to its repeated problems, to return the vehicle and obtain a full refund.

Whether or not we get a “lemon law” remains to be seen, although it will be too late for the consumer who destroyed his Jeep.

It is important to realise that the Australian Consumer Law also protects small businesses as well as consumers.  For example, a small business could be the victim of unconscionable conduct, which is prohibited by the Australian Consumer Law.

Business-to-business unfair contract terms

The other legislative development I wish to mention falls into this category.

From 12 November this year, the law that protects consumers from unfair contract terms in standard form contracts will be extended to protect small businesses in their dealings with other businesses.

The law will apply to standard form contracts with an upfront price of up to $300,000 (or $1 million for contracts running for more than 12 months) where one of the parties has less than 20 employees. This could include, for example, a contract between a small independent repairer and a car part supplier.

A term will be unfair if it creates a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the party advantaged by the term, and would cause financial or other detriment if it were relied upon.

Examples of terms that may be unfair include terms that allow the larger business to unilaterally vary or terminate the contract, and terms that require the small business to indemnify the larger business for losses that may have been caused or contributed to by the larger business. The price payable under the contract can’t be challenged as unfair.

The ACCC is educating businesses about the new law, and working with businesses to bring about voluntary changes to agreements before the law becomes enforceable in November.

Closing remarks

In conclusion, the ACCC is about making markets work. We do that through explaining the rights of consumers and small businesses, encouraging competition and enforcing the law.

With more than 18 million registered motor vehicles in Australia in 2015 and with buying a car being such an important purchase, it should come as no surprise that the ACCC takes a keen interest in the automotive industry, including the aftermarket sector.[5]

I hope you all have an interesting day today and enjoy your gala dinner this evening.

I’m now happy to answer any questions if we have time.

Thank you very much.