India Slaps US$421M Penalty On Automakers

Following China’s crackdown on monopolistic practices in the auto industry, the Competition Commission of India (CCI), the government body that enforces the country’s Competition Act 2002, has slapped hefty fines on 14 automakers in India, which had been found to have “imposed absolute restrictive covenants and completely foreclosed the after-market for supply of spare parts and other diagnostic tools".

According to the CCI, its investigation revealed that the companies charged had violated fair competition practices in regards to their agreements with local Original Equipment Suppliers (OES) and authorised dealers; restrictions in the agreements effectively denied independent car repair centres from obtaining original spare parts and diagnostic tools and thus were not able to provide aftermarket services for the cars from these 14 marques. The regulator went on to accuse the automakers for charging unnecessarily high and arbitrary prices for spare parts, and estimated that around 20 million car owners were affected by this.

The highest fines have been imposed on Tata Motors (Rs 1,346.46 crore/US$222M), Maruti Suzuki (Rs 471.14 crore/US$78M) and Mahindra & Mahindra (Rs 292.25 crore/US$48M) respectively. The other automakers affected are Volkswagen, Mercedes-Benz, BMW, Fiat, Ford, General Motors, Hindustan Motors, Skoda Auto, Honda, Nissan and Toyota; collectively, the penalty amounts to a staggering Rs 2,545 crore (US$421M). The individual amount was determined by each company’s average turnover, of which 2% was penalised, and has to be deposited within 60 days of receiving the Order.

The CCI pointed out that these car companies committed to consumer-friendly practices in other countries – for instance, in Europe – but did not made similar commitments in India, and labelled their conduct as “deplorable.” On top of the fines, the companies are required to undertake certain compliances within 180 days.

As emerging auto markets, like China and India, continue to grow, it is not surprising to see government regulators crack down hard on what they deem monopolistic practices which, in the end, empties the pockets of the consumers. India, however, is taking it a step further by requiring automakers to allow third-party suppliers to license genuine parts, and to remove the condition that using non-approved repair centres would void the vehicle’s warranty.

However, Tata Motors, Maruti Suzuki and M&M have all confirmed that they would be challenging the Order. Maruti Suzuki India’s Chairman, R C Bhargava, told the Press Trust of India, "I believe what CCI has done (is) that they have not understood the entire issue of spare parts of cars. What they are saying may apply to other industries (but not in auto)... There is a lack of understanding of the difference.”

In other words, Bhargava is slamming the CCI for not taking a holistic view of the car industry before reaching its conclusions, and that reducing the costs of spare parts would reduce their quality, which may affect the vehicles’ safety, performance and environmental impact.