Car distribution between new European and Italian regulations

On 1 June 2022, the new EU Regulation on Vertical Agreements No. 270/2022 (the so-called VBER Vertical Block Exemption Regulation) entered into force, with which EU Member States will have to comply.

The new regulation exempts under certain conditions restrictions of competition in sectors where vertical agreements exist, including the car distribution sector, in which agreements between a car manufacturer and its dealers are established.

In order to foster competition and lower car prices, European legislation, among other things, allows the transformation of dealers from being independent of the parent company into mere ‘agents' with little decision-making power, e.g., on commercial policies and/or promotional campaigns.  

To the rescue of dealers, in order to mitigate the possible negative effects of this development in Italy, a regulation was introduced by the Draghi government's Ministry of Economic Development.

The effect was to disrupt the relationship between car manufacturers and dealers.

The rule is contained in Article 7 - quinquies of Law No. 108 of 5 August 2022 on "Dispositions on the matter of automobile distribution", which converted, with amendments, Decree-Law No. 68 of 16 June 2022, the so-called Infrastructure and Transport Decree.

The provisions of this Article - which apply to vertical agreements between the vehicle manufacturer, the importer, and individual authorised distributors for the marketing of new motor vehicles and motor vehicles that have not been registered for more than six months or have not travelled more than 6,000 km - provide that:

• these agreements have a minimum duration of five years; 
• the termination, on pain of ineffectiveness, must be communicated at least six months before the expiry date, in writing;
• prior to the conclusion of the agreement, the manufacturer or importer must provide the distributor with all information in its possession necessary to make an informed assessment of the commitments to be undertaken and their sustainability in economic, financial and asset terms, including an estimate of the expected marginal revenue;
• fair compensation is paid by the manufacturer or importer who terminates the agreement before the contractual expiry date, proportionate to the undepreciated investments, the goodwill generated, and in turn proportionate to the turnover of the last five years of the agreement;
• no equitable compensation is paid in the event of termination for non-performance or if termination is exercised by the distributor.

Car manufacturers have already moved in this direction in recent months. In some cases, dealers will turn into commission agents: companies that work in their own name, but on behalf of third parties; a hybrid formula that should guarantee reduced expenses for dealers against lower margins. Others would like to exploit the agent opportunity to sell electric cars, making thermal-engine dealerships die; still, others will remain faithful to the old system.