Competition Commission of India slaps fine om 14 car makers..

One day old news but an important one. Competition Commission of India slapped fine of Rs 2500 cr on 14 automakers for not allowing competition in the auto components market. CCI gradually gaining teeth and understanding what is going on in Indian economy. This is a body which should have been formed long back as we have had all kinds of practices in the name of competition and private ownership.

I mean how do 14 players prevent competition? We are told in textbooks that large number of players ensure there is competition. But it is not the case here. These 14 car players have sort of formed a cartel and not allowed other players to sell auto components/parts of their brands:

The Competition Commission of India has imposed a combined penalty of over Rs 2,500 crore on 14 carmakers for indulging in unfair practices in the spare parts market, the latest in a series of tough enforcement actions by the newest among India’s regulators. Tata Motors faces the maximum fine of Rs 1,346 crore, followed by Maruti Suzuki Rs 471 crore, Mahindra & Mahindra Rs 292 crore, General Motors Rs 85 crore, Honda Car India Rs 78 crore.

The decision, spelt out in a 215-page order, says that auto companies indulged in anti-competitive practices as they did not make genuine spare parts freely available in the open market, upholding the contentions of a petition filed by a complainant in 2011. The fine has been calculated at 2% of average turnover.

“Given the way penalty has been calculated on Tata Motors, the method of computation looks flawed, said auto analyst Basudep Banerjee. Auto stock may see gap down opening on Tuesday due to negative sentiment.Honda Siel, Volkswagen India, Fiat India, BMW India, Ford India, General Motors, Hindustan Motors, Mercedes – Benz, Nissan Motors, Skoda Auto India and Toyota Kirloskar are the other companies on whom fines have been slapped.

Hyundai Motor India, the wholly owned subsidiary of South Korean carmaker Hyundai, had obtained a stay order from the Madras High Court against proceeding by CCI in the case. Companies have been given 60 days to comply with the order. It is likely that most companies will challenge the order.

It’s a welcome order for the consumers, say analysts. “This is the first case in which CCI penalised companies for violating section 3(4) of the competition act dealing with vertical agreements/restraints,” says Vaibhav Choukse, Senior Associate (Competition Law & Policy) at Vaish Associate in New Delhi.

CCI heavily relied on the international jurisprudence and the similar cases decided by the competition authorities of European Union, France, USA, he adds. “CCI also urged the need of an independent regulator and it may give its recommendation to the Government.”

The petition filed in 2011 alleged that the car makers “operate/authorise/regulate or otherwise control the operations of various authorized workshops and service stations which are in the business of selling automobile spare parts, besides, rendering aftersale automobile maintenance services.” he Commission has upheld most of the allegations. The commission ordered companies to “sell spare parts in the open market without any restriction, including on prices” and asked them not to place any restrictions or impediments on the operation of independent repairers/garages.

The commission also directed manufactures not to impose a blanket condition that warranties would be cancelled if the consumer avails of services of any independent repairer.

In deciding the penalty, the CCI considered the logic put forward by car makers that there are no “appropriate legislative and regulatory framework for safety and standards relating to spare parts and after sales services” and said this could be brought to the notice of the government.

So blame it on the govt for lack of regulation and when things go wrong in some other way, blame govt for having regulation.

Interesting stuff. This should hopefully make car parts cheaper. Cars have become like white elephants which cannot be done away because of lack of public transport in most cities. So both the maintaining cost and food cost of these elephants have become exorbitant over the years. One cannot do anything much about the latter as it depends on overall geopolitical situations. But some relief can come via lowering the maintenance costs. Having good roads will also help as cars break down often given how bad our roads are.

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