ACCC considers extended warranty periods tied to vehicle servicing exclusively within OEMs' authorised dealer network

On 18 December 2020, the ACCC announced its decision not to object to Mitsubishi Motors Australia Limited (MMAL) offering an additional five years on its manufacturers' warranty to customers who commit to servicing their vehicles exclusively within the Mitsubishi Authorised Dealer Network.

MMAL lodged a notification of exclusive dealing with the ACCC in early September and the ACCC's decision to allow the notification to stand follows a series of public consultations and numerous submissions received by the ACCC raising concerns about the potential for the arrangement to significantly harm competition from independent service providers outside of the MMAL network. Although the ACCC's decision could open the door for other importers and distributors to similarly strengthen their own authorised dealer networks by encouraging or offering incentives to customers to service their vehicles within their respective authorised dealer networks only, the ACCC did sound a warning on this front.

In announcing its decision, the ACCC specifically noted that, while there is no basis at present to conclude that the notified conduct has the purpose, effect or likely effect of substantially lessening competition, the ACCC recognises the importance of competition provided by independent mechanics and could revoke the notification at a later date if, following implementation of the warranty arrangement, there is evidence that it is materially harming competition to the point that the public benefit of Mitsubishi (or others) offering extended warranty periods does not outweigh the public detriment of the condition that consumers service their vehicles exclusively within the authorised dealer networks.

The aftermarket for vehicle servicing

New vehicle warranties typically impose conditions in respect of service scheduling and documentation, though consumers do not typically void their warranty simply as a result of having their vehicle serviced by an independent repairer.

The role that independent repairers play in various aftermarkets is important. In its 2017 report of the New Car Retailing Industry, the ACCC was of the view that the competitive discipline imposed by independent repairers on the aftermarkets for the repair and servicing of new cars remains valuable and of benefit to consumers, and that consumers also benefit from having a choice of providers to repair and service new cars.

The ACCC has on many occasions expressed concern that, if manufacturers/importers can tie consumers to having their vehicle serviced within their own authorised dealer networks, competition in the aftersales markets will be substantially lessened, as the competitive constraint provided by independent dealers (without which authorised dealer networks would have the ability to increase prices or reduce the quality of service provided to consumers) will be removed.

In response, manufacturers/importers argue that, owing to the highly complex nature of modern vehicles, trained technicians at authorised dealers are best positioned to ensure that vehicles are serviced at the requisite standards that are required and that, in the long run, consumers benefit from higher quality service and parts made available through their authorised dealer networks.

The legal landscape: third line forcing

The Competition and Consumer Act 2010 (Cth) prohibits the supply of services such as manufacturers' warranties exclusively on the basis that the consumer agrees to acquire aftermarket services from specified dealers (known as third line forcing, which is a type of exclusive dealing) if doing so has the purpose, effect or likely effect of substantially lessening competition.

It is open for businesses to offer exclusive deals of this kind if they are satisfied that they are doing so for a legitimate purpose (eg. to provide benefits to consumers) and that doing so would not have an anticompetitive effect. However, if a business wishes to obtain regulatory certainty, it may lodge a notification with the ACCC. If the ACCC is satisfied that the proposed exclusive deal will result in benefits to the public which outweigh any anticompetitive effects or other detriments, it will allow the notification to stand, in which case the business will obtain protection from legal action for the proposed conduct. This protection commences immediately on lodgement of the notification and remains unless or until the ACCC revokes it (on the basis that the conduct has an anticompetitive purpose or effect and there are insufficient public benefits to outweigh the detriments).

MMAL's conditional warranty offer

MMAL's proposal is as follows:

• all purchasers receive a standard five year warranty (subject to the usual requirements to meet the recommended servicing schedule for the vehicle);
• purchasers who exclusively service their new Mitsubishi vehicle with an authorised MMAL Dealer or service centre will receive an additional five years of warranty coverage (subject to continuing to service the vehicle within the authorised MMAL network for the entire warranty period).

MMAL submitted that its proposal will not result an anticompetitive effect on independent third party service providers and will in fact result in public benefits by offering purchasers up to 10 years of high quality service from trained technicians within the authorised MMAL network and the ability to transfer the benefit to subsequent owners, leading to higher resale values, and by removing the need for purchasers to separately purchase extended warranty coverage from third parties. Purchasers will also retain the ability to service their vehicle at independent providers outside the MMAL network if they choose to do so, without impacting on their standard five-year warranty.

Concerns raised with the ACCC

Following market inquiries, the ACCC received over 200 submissions from independent servicing and repair businesses, aftermarket suppliers, industry associations, consumer groups, government entities, members of the public and other private businesses.

The majority of submissions opposed MMAL's proposal, principally on the basis that the proposal will detrimentally impact on the viability of independent service and repair businesses and their ability to remain a competitive constraint on MMAL's authorised network – ultimately to the detriment of consumers who may be required to pay higher prices for parts and servicing within the MMAL network compared with those offered by independent repairers and service centres.

Specifically, interested parties raised concerns with the ACCC that:

• tying the extended warranty to servicing exclusively within the MMAL network will negatively affect consumer choice by undermining consumers’ ability to choose where to service their car and making consumers feel they have no choice of service provider without risk of losing their warranty;
• the proposal will contribute to existing consumer confusion and misconceptions about manufacturers’ warranties, extended warranties and consumer guarantees;
• the proposal will exacerbate difficulties currently experienced by independent mechanics in gaining access to technical information and data required to service and repair Mitsubishi vehicles;
• owners of Mitsubishi vehicles in regional areas where there is no convenient Mitsubishi authorised dealer or service centre, or owners who require emergency service or repair, will likely void their warranty;
• servicing and repair by authorised dealers often results in higher costs of parts and labour to the consumer; and
• it is false to assume that genuine parts and servicing will always result in a better outcome for consumers.

Submissions were also made to the ACCC that it is highly likely other vehicle manufacturers will seek to implement arrangements similar to MMAL's proposal, which would then significantly magnify the negative consequences of the MMAL proposal for independent mechanics.

What happens next?

The ACCC has given the greenlight to MMAL to proceed with its conditional extended warranty period proposal.

The ACCC's decision will, no doubt, be of interest to many more in the industry than just MMAL itself and could well be the catalyst for similar initiatives being offered by others moving forward.

It is, of course, not the end of the matter and the ACCC will continue to keep a watchful eye over competition between authorised dealer networks and independent service providers, promising to take action should it consider that competition is being unduly harmed by MMAL's initiative and any others that follow on within the industry.