48. There are three types of possible suppliers of spare parts upstream, who may be in competition with each other61: vehicle manufacturers, original equipment suppliers and secondary equipment suppliers. However, the number and type of suppliers present in a specific market will depend on the type of parts.
61 "Interbrand competition" does not mean competition between parts for vehicles produced by different manufacturers, as parts are usually designed solely for a specific make of vehicle. Accordingly, with the exception of interchangeable parts such as tyres or lubricants, competition between manufacturers for spare parts for their vehicles is impossible. Interbrand competition is therefore competition between suppliers of parts upstream and, more specifically, between the manufacturer channel and the independent channel, as defined in the previous section presenting the repair and maintenance sector.
1. THE DIFFERENT TYPES OF SUPPLIER
a) Vehicle manufacturers
49. Vehicle manufacturers only produce approximately 20% in terms of value of the spare parts they assemble. These are essentially sheet metal body parts and engines. They purchase the remaining 80% from equipment suppliers62 before assembling them to produce new vehicles. Likewise, vehicle manufacturers only produce a small number of the spare parts they sell. They purchase most of them from equipment suppliers, usually
"original equipment suppliers" (“OES”), who manufacture parts for new cars63. All spare parts distributed by vehicle manufacturers display the manufacturer's logo, irrespective of whether they were manufactured by the vehicle manufacturer itself or purchased from an equipment supplier. These parts are often referred to as "OEM parts64" or “manufacturer-branded parts".
50. It is generally in the vehicle manufacturers' interest to negotiate the terms and conditions of supply of spare parts with the equipment suppliers at the original assembly stage, when competition between equipment suppliers is intense65. Moreover, the spare parts are often manufactured at the same time as the original assembly parts. The spare parts may be needed during the production cycle or the model’s "series production". Vehicle manufacturers can also hold parts manufactured during series production in stock. Due to this twofold negotiation for original parts and spare parts, vehicle manufacturers can obtain much lower prices than those proposed by the equipment suppliers in the independent channel, as observed in the 2006 Autopolis study66. Spare parts represent approximately 10% of vehicle manufacturers' turnover and 30% of their profit margins67.
62 Due to the quantity of parts needed to assemble a new vehicle, there exists a large number of equipment suppliers of very varying sizes. As stated by the European Commission in cases involving the vehicle spare parts sector, the original assembly and OEM spare parts markets are European, and indeed global, markets, whereas the Independent Aftermarkets are national markets (see, for example, Valeo/Labinal (COMP/M.2036 of 4 August 2000) and Johnson Controls/Robert Bosch/Delphi Sli (COMP/M.3789 of 26 June 2005). The ten largest international equipment suppliers, which include Bosch, Delphi, Denso, Veleo and Faurecia, all report annual turnover in excess of €10 billion.
63 Vehicle manufacturers sometimes use different equipment suppliers for the production of spare parts and original assembly parts.
64 Original Equipment Manufacturer.
65 Competition between equipment suppliers for original assembly contracts is often fierce as such contracts represent 80% of their turnover on average and can place them at an advantage for the spare parts contracts.
66 The Autopolis study of September 2006, carried out by the certifying body Thatcham on the consequences for the security of consumers and third parties of the proposal to amend Directive 98/71/EC on legal protection of designs and models, observes that "the factory margin is very low for original assembly parts, moderate for OEM spare parts and high for independent spare parts". This is supported by figures submitted by equipment suppliers in the course of the inquiry.
67 Sources: replies received from manufacturers in the course of the inquiry and AUTO-INFOS no. 1282, December 2009.
b) Original equipment suppliers
51. Equipment suppliers who produce parts to be fitted to new vehicles can also sell spare parts to the vehicle manufacturers to be sold on, and can directly supply wholesalers in the independent channel (often referred to as the "IAM" or Independent Aftermarket"), who sell them on to repairers, most of whom are independent. European Commission Regulation 461/2010 requires manufacturers not to prohibit co-branding of parts intended for new vehicles (see description of the regulatory framework in section 2, part I). OEM parts manufactured by an equipment supplier therefore usually display the logos of the vehicle manufacturer and the OES. Spare parts sold by equipment suppliers usually display only the equipment supplier's logo, so that downstream operators know that the part is
“original”68. Parts manufactured and sold by original equipment suppliers are also known as "OES parts"69.
52. In most cases, an original equipment supplier’s turnover from spare parts can be broken down into one-third from the manufacturer channel and two-thirds from the independent channel70. Although spare parts only represent 20% of original equipment suppliers' turnover, they represent 50% of their profit margins71. Despite the fact that the sale of spare parts to independent distributors is often very profitable, some very large equipment suppliers decided not to supply spare parts to the IAM (see discussions on the unavailability of parts in the Independent Aftermarket, in section 2, part II).
c) Secondary equipment suppliers
53. Lastly, the so-called "secondary" equipment suppliers only manufacture parts to be used as spare parts and only supply wholesalers in the Independent Aftermarket (who may then sell the parts on to repairers in the vehicle manufacturers' approved networks). A secondary equipment supplier for a specific part may also be the original equipment supplier of another part. Although the original equipment suppliers already have the tooling necessary to produce spare parts, the secondary equipment suppliers need to first manufacture the tooling. The importance of this entry barrier varies from part to part; the manufacture of a specific spare part will only be profitable for a secondary equipment supplier above a certain volume of demand.
54. Reputation is another barrier. Potential customers downstream know that parts bearing the original equipment supplier's logo are identical to the original parts fitted on the vehicle.
68 In its Guidelines on the application of Regulation 461/2010 (§19), the European Commission defines
"original parts" as follows: "’original parts or equipment’ means parts or equipment which are manufactured according to the specifications and production standards provided by the motor vehicle manufacturer for the production of parts or equipment for the assembly of the motor vehicle in question. This includes parts or equipment which are manufactured on the same production line as those parts or equipment." This definition therefore goes well beyond the concept of parts manufactured by original equipment suppliers.
69 Original Equipment Supplier.
70 Source: London Economics report for the European Commission's Directorates General for Competition, June 2006, page 255.
71 Source: ibid, page 200.
This is not the case for parts manufactured by secondary equipment suppliers. This is why the European Commission introduced the concept of "matching quality" parts, in other words, parts that "must be of a sufficiently high quality that their use does not endanger the reputation of the authorised network in question". It is the equipment supplier who determines whether a part it manufactures is of "matching quality" or not, although the European Commission provides that "as with any other selection standard, the motor vehicle manufacturer may bring evidence that a given spare part does not meet this requirement"72.
55. Three other types of parts may also be used by repairers, although their use remains fairly limited: so-called "adaptable" parts, the quality of which does not match (and may be superior to73) the quality of the original parts, but which satisfy the "assembly feasibility"
criteria for the vehicle; "reconditioned" parts, also referred to as "like-for-like replacement parts", which have been reconditioned by changing certain components or worn parts74; and parts known as "second-hand" parts, which were previously fitted on one vehicle and are used for another vehicle, after reconditioning, if necessary.
56. According to the independent distribution franchises questioned, matching quality parts account for between 10% and 40% of their catalogue references. However, they admit that these figures are very approximate and difficult to calculate. A survey of 300 repairers conducted by ICDP in March 2012 suggests that 80% of the parts used by repairers are original parts and 5% are second-hand parts75.
2. THE NUMBER OF SUPPLIERS DEPENDS ON THE TYPE OF PART
57. The number of suppliers varies depending on the part. Possible situations include a manufacturer's monopoly, a duopoly between the vehicle manufacturer and the original equipment supplier, an oligopoly between the vehicle manufacturer and several original equipment suppliers (if the vehicle manufacturer uses several original equipment suppliers), or an oligopoly between the manufacturer, one or more original equipment suppliers and one or more secondary equipment suppliers (this may be the case for interchangeable parts that can be used on vehicles produced by different manufacturers76).
72 Paragraph 20 of the Guidelines on the application of Regulation 461/2010.
73 Essentially used for tuning.
74 Reconditioned parts can include: alternators /starter motors, compressors, clutches, engines, etc.
75With regard to the other two categories of parts, the survey does not differentiate between matching quality parts and adaptable parts, as it does not use the definition given in the European regulations. The survey found that 12% of the remaining 15% of parts correspond to "parts that do not necessarily comply with the manufacturer's specifications" (which the survey refers to as "adaptable parts"), whereas 3% correspond to
"low price parts", which the survey defines as parts for which "price is more important than quality".
See the article (in French) at: http://www.apres-vente-auto.com/actualite/4480-exclusif- etude-icdp-la-piece-dorigine-resiste-bien.
76 Such as tyres, most lubricants and batteries.
58. However, this last situation is rare. Spare parts usually tend to be specific to a make and also to a particular model, or even to a particular production series, despite certain vehicle manufacturers' efforts to standardise, or ‘commonalise77.
59. The number of suppliers capable of supplying a specific part will depend on the volume of demand for spare parts. Potential demand depends on the type of part (some are changed frequently, others very rarely) and the number of vehicles on which the part is fitted.
Accordingly, given that parts are often specific to a particular model, the multiplication of models since the start of the century has greatly inflated the number of referenced parts78. This has led to a reduction in the size of the markets for spare parts corresponding to each part reference. Secondary equipment suppliers may therefore have less incentive to manufacture parts, resulting in a reduction in the number of downstream suppliers.
However, the extent of this phenomenon is difficult to ascertain because of the very large number of parts referenced and the number of possible configurations for each part reference.
60. The number of suppliers of a spare part will not only depend on market opportunities and the volume of demand. Regulatory and contractual provisions may also reduce the number of suppliers for certain types of parts.
61. In France, manufacturers hold a legal monopoly over visible spare parts, which they protect by design rights and copyright, even if they have been manufactured by equipment suppliers (see section 2, part II). In some cases, the vehicle manufacturer will authorise an original equipment supplier to distribute the visible parts it manufactures in the independent channel. These so-called "semi-captive" parts are essentially windscreens, windows and lights. This means no matching quality parts can be distributed in France as a substitute for visible parts protected by design rights.
62. Vehicle manufacturers also have a de facto monopoly over certain parts which cannot be reprogrammed for security reasons in order to prevent theft, such as on-board computers.
63. Lastly, the manufacture of parts by equipment suppliers under subcontracts79 may also lead to a reduction in the number of suppliers. The vehicle manufacturer, as the owner of the tooling, can prohibit an equipment supplier from using the tooling to produce spare parts for the independent channel. Under this type of contract, which is often referred to as "a tooling arrangement", the vehicle manufacturer may authorise the equipment supplier to
77 In other words, to use common spare parts for several different makes of vehicle.
78 The number of part references increased by 10% every year during the noughties (source: TCG Conseil).
79 Under which "a motor vehicle manufacturer provides a tool to a component manufacturer which is necessary for the production of certain components, shares in the product development costs, or contributes necessary intellectual property rights, or know-how, and does not allow this contribution to be used for the production of parts to be sold directly in the aftermarket". See Commission notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article 85(1) of the treaty introducing the European Economic Community (OJ C 1 of 3.1.1979, page 2), and the European Commission's Guidelines on vertical restraints in agreement for the sale and repair of motor vehicles and for the distribution of spare parts for motor vehicles (§23). The European Commission states that so-called
"tooling arrangements" between suppliers of components and vehicle manufacturers constitute a possible indirect restriction corresponding to a hard-core restriction as defined in Article 5 b) of Regulation 461/2010.
sell parts in exchange for the payment of royalties. It is very difficult to estimate the proportion of spare part references concerned by such tooling contracts. However, section 2, part III, which contains a detailed analysis of the reasons for the unavailability of parts in the independent channel, demonstrates that the existence of such contracts may result in the unavailability of spare parts in the independent channel.
B. THE INTENSITY OF "INTERBRAND" COMPETITION BETWEEN MANUFACTURERS