Turkey: Quantitative Distribution System In After Sales Market Of Motor Vehicles Is Once Again In The Agenda Of The Turkish Competition Authority

The Turkish Competition Authority ("TCA") has a long tradition and experience in motor vehicle industry. In February 2017, the TCA has introduced a new regulation on Vertical Agreements in the Motor Vehicle Sector ("Regulation no 2017/3") in order to achieve the aim of reaching out a more competitive market structure which is in line with the needs of the market.

Different from the previous regulation, the TCA adopted a more flexible attitude in the assessment of distribution agreements in the new motor vehicle sales market while preserving its relatively strict point of view in the after sales services in accordance with EU regulations. Moreover, the TCA abandoned the separate thresholds system and adopted a single 30 percent market share thresholds for both the new motor vehicle sales market and the after sales services market.

Accordingly, undertakings operating in the motor vehicle industry have been starting to reconsider their distribution agreements in sales and/or after sales services markets in order to benefit from the changing policy of the TCA. Ford/Otokoc¹ and Renault/Dacia's² requests for exemption were previously examined by the TCA after the introduction of Regulation 2017/3 in February 2017. Recently, the TCA announced its new decision³ in the after sales market of motor vehicles in relation to Fiat, Alfa Romeo, Jeep and Lancia brands operating under Tofas Group in Turkey.

In November 2017, Tofas applied to the TCA for requesting an exemption to implement a quantitative selective distribution system in relation to after sales market services of Fiat, Alfa Romeo, Lancia and Jeep brands instead of its current qualitative distribution system. On March 18, 2019, the Board announced its decision on the issue.

First of all, it is important to understand the difference between both distribution systems in order to better cope with the reasoning of those exemption requests of motor vehicle companies before the TCA. In qualitative selective distribution system, distributors are selected based on objective criteria required for the nature of service to be supplied, and suppliers have to allow all distributors meeting those criteria to operate under the framework of the network. On the other hand, in order to adopt a purely quantitative selective distribution system, suppliers have the right to make use of certain criteria that can directly limit the potential number of direct sellers. In this regard, undertakings operating in the motor vehicle industry generally have a tendency to prefer quantitative selective distribution instead of qualitative distribution system in order to achieve economies of scale, to protect brand image, to increase propensity to invest and to formulate dispersion of its distribution network based on the demand structure for each region.

In Tofas case, the TCA recognized that the quantitative selective distribution system of Fiat and Alfa Romeo brands was in the scope of the Regulation no 2017/3 and benefited from block exemption. At first, the TCA examined the market threshold and notified that the market shares of both brands are under 30 percent. Secondly, the TCA observed that the other clauses of the distribution systems of Fiat and Alfa Romeo brands are in line with the Regulation no 2017/3.

However, the TCA pointed out that the market shares in after sales services market of Jeep and Lancia brands was above 30 percent threshold level that is stated in Regulation no 2017/3. Therefore, Jeep and Lancia brands did not benefit from block exemption. Thus, the TCA examined after sales distribution agreements of those two brands under the four conditions⁴ of individual exemption listed in the fifth article of Competition Act.

Since the quantitative selective distribution systems of Jeep and Lancia ensure new developments and improvements, or economic or technical development in the production or distribution of goods and in the provision of services and do not eliminating competition in a significant part of the relevant market, the TCA concluded that the distribution system provided the first and third conditions of individual exemption

However, after its assessment of the agreements, the TCA remarked that the new developments and improvements do not benefit the consumer. Indeed, the TCA notified that with the new quantitative selective distribution system, the number of services and the alternatives of the consumer will decrease. Secondly, the TCA observed that the new distribution system limits competition more than what is compulsory for achieving the goals with the implementation of new distribution system.

In accordance with its analysis, the TCA concluded that the quantitative selective distribution system of Jeep and Lancia brands do not fulfill the conditions of individual exemption and the TCA denied the request of Tofas for both brands.

Footnotes

1. TCA's decision dated 08.03.2018 and numbered 18-07/118-64.

2. TCA's decision dated 21.06.2018 and numbered 18-20/353-174.

3. TCA's decision dated 1.11.2018 and numbered 18-41/658-322.

4. (i) Ensuring new developments and improvements, economic or technical development in the production or distribution of goods or services. (ii) Benefitting customer from the above-mentioned. (iii) Not eliminating competition significantly in the relevant market. (iv) Not limiting competition more than what is compulsory to achieve the goals set out in (i) and (ii).

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