From July 1 next year, owners of vehicles under warranty can take their cars to any competent workshop for repairs or services without risking voiding their warranty.
The Competition Commission’s final guidelines for competition in the automotive aftermarket are good news for consumers, smaller players and new entrants to the market. Dealers, manufacturers and insurers are unlikely to be thrilled about the guidelines because more competition will threaten their monopoly.
The new regulations, issued by the commission after what it called a lack of co-operation by stakeholders in the sector, are the product of three years of consultation.
The investigation was said to be triggered by complaints by consumers as well as independent operators. Initially intended as voluntary, the guidelines are compulsory, and the sector will be required to comply.
Viewed as a “practical guidance” to industry players towards becoming more competitive and to promote greater participation of small businesses – especially historically disadvantaged players – the guidelines will require industry players to disclose certain information to consumers, enabling them to make informed choices.
A dispute resolution process and a self-monitoring mechanism by industry stakeholders are also mentioned.
Stakeholders include the National Association of Automobile Manufacturers of South Africa, the National Automobile Dealers Association, the SA Insurance Association, the Banking Association of SA, original equipment manufacturers (OEMs) and individual insurers. The Right to Repair (a leading voice lobbying for inclusion), the Motor Industry Workshop Association, the Motor Industry Federation, African Panelbeaters Motor Mechanics Association, the Tyre, Equipment, Parts Association and the Automotive Remanufacturers’ Association represented repairers and others in the aftersales value chain.
The guidelines will require industry players to adopt strategies and develop business models that allow small, independent and historically disadvantaged service providers to service and repair work on vehicles under warranty; encourage historically disadvantaged ownership of dealerships; ensure that insurers allocate work fairly to service providers on their panels; promote consumer rights to use original or non-original vehicle spare parts; remove OEM restrictions in the sale and distribution of those original parts; promote choice in the purchase of maintenance and service plans; as well as enable access to OEM training and technical information by independent service providers. This latter issue is likely to elicit push back from the industry over licensing and “commercially sensitive information”.
On Friday, Competition Commissioner Tembinkosi Bonakele said the guidelines were aimed at removing restrictions imposed by OEMs on car owners on the service providers for service and maintenance as well as replacement parts for their vehicles in accordance with international best practices.
“It will unleash entry and participation in the lucrative aftersales value chain by SMMEs and HDI-owned firms. This is in line with the commission's strategy of opening markets to support growth and transformation. We urge the OEMs to embrace the guidelines and comply as this asks them to do no more than what they do in their home countries and other parts of the world. For its part, the commission is absolutely committed to the enforcement of the Competition Act in accordance with these guidelines.”
The automotive sector comprises two related markets: the primary manufacturing market and the aftermarket, which is the industry’s after-sale market. This includes vehicle retail, the sale of spare parts and equipment (tyres, accessories, spares), service, maintenance and repairs. Dealerships act as intermediaries for finance houses, while insurance companies cover the costs of repairs or losses.
New vehicles are covered by the OEM’s warranty, which can apply to the entire vehicle as well as to particular parts and components. OEMs sell service and maintenance plans to consumers, with little transparency in the process, while third-party providers offer plans and extended warranties for vehicles out of the warranty period.
Under the new guidelines, OEMs may not obstruct a consumer’s choice to seek service, maintenance and mechanical repair work for their vehicles at a service provider of their choice, regardless of whether that provider is an approved dealer or an independent operator.
Motor-body repairs of insured vehicles must be undertaken by an approved repairer during the in-warranty period. Independent providers are required to disclose any risk of damage that could arise from its work, including consequential damage to the vehicle, which may potentially void certain obligations of the OEM
in terms of the warranty and disclose whether they have adequate commercial insurance. The commission raised concern about evergreen contracts between OEMs and approved repairers, saying some have been in place for decades.
“With few options available for insured consumers, the arrangements can be inefficient, often leading to delays for appointments to repair their motor vehicles (long lead times). Further, many consumers are compelled to travel outside of their geographic locations to have their (vehicles) repaired at often far-located … repairers,” it noted.
Insurers must, it said, approve any repairer that meets their standards and specifications, to undertake repairs on out-of-warranty vehicles. It has also called for more transparency in the panel appointment process.
Les McMaster, director at Right 2 Repair, welcomed the guidelines, saying they were a “nice Christmas surprise” because the guidelines were delayed and only expected next month.
“We didn’t get everything we wanted but we’re happy with most of it, particularly on data-sharing (with parts coded to VIN numbers) and in-warranty servicing, from which we had been excluded for years of the vehicle’s lifespan. It’s a win-win.
“A lot of ducks need to be put in rows, but we are now being included in many areas that we weren’t before.”
From July next year, all new vehicles will be sold without built-in maintenance or service plans.”
Filum Ho, the CEO of auto parts and glass specialist Autoboys, has also hailed the guidelines, saying they offer more inclusion, consumer choice and transparency.
“From the aftermarket perspective, we are really happy it gives us more access. One of the biggest wins is that OEMs must unbundle the vehicle’s pricing from the service plan – they have to be transparent what the vehicle and the service plan cost, and customers don’t have to buy the two together. You can go to a new dealership and buy service plan elsewhere – or choose not to have one.”
Dealerships will also not be able to refuse to service or repair vehicles if they have non-original, matching quality parts such as windscreens or tyres fitted. The warranty is severable and remains enforceable, meaning if a headlamp is defective, the OEM still needs to replace it he says. Some OEMs will also only sell spares to those in your network – that will no longer be allowed.
A further benefit to the consumer is when cars are written off: OEMs will either need to refund or transfer the service plan’s balance. “When you pay for a plan, there is a value attached to the balance of that plan. In the past, that balance just disappeared. They quite rightly have to refund you. The OEMs are going to hate this but it’s about protecting the consumer.”
The guidelines offer more inclusion too, which will support SMEs, for a healthy and vibrant economy. “This is not voluntary; originally it was meant to be voluntary. But we knew voluntary compliance would be lip service. We’re very happy that it’s not voluntary.”
The insurance association was unable to comment immediately on Friday. Naamsa said it is studying the final guidelines and will issue a statement in “due course”.
Nada could not be reached for comment.
* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.