Price fixing: CCP suspects collusion among auto dealers

Serves notice on PAMADA; finds evidence of cartelisation.

ISLAMABAD:

The antitrust watchdog has busted a cartel of automobile dealers who have ganged up to fraud consumers seeking after-sale services of vehicles sold by connected car-assemblers.

The Competition Commission of Pakistan (CCP) has issued show-cause notices to the Pakistan Automotive Manufacturers Authorized Dealers Association (Pamada) and 44 of its members for cartelisation amongst automobile dealers, according to a handout issued by the antitrust watchdog on Monday. Under the CCP law, making cartels is prohibited and such unlawful activity may result in heavy penalties.

The CCP issued the notice at a time when it is struggling to enforce its quasi-judicial powers, as most of the cases have been granted stay orders by courts. The federal government has also failed to administratively and financially strengthen the commission.

The CCP had received a letter from the Insurance Association of Pakistan (IAP), informing it about a decision of Pamada to increase the price of body repairs and paint jobs.

The automobile manufacturers-cum assemblers – a market mainly dominated by three big players – have hired dealers to sell their assembled cars and spare parts.

The commission conducted an inquiry and carried out a search and inspection of the premises of Pamada.

According to the commission, the scrutiny of the impounded documents indicates that Pamada is possibly taking decisions with regard to fixing charges of automobile body repairs and paint jobs, fixing the prices of genuine automobile spare parts, dividing new automobile markets and restricting inter-dealership employment, indicating prima facie violation of the provisions of Section 4 of the act.

According to impounded minutes of a meeting between Pamada and Toyota held on February 7 this year, Pamada President Saleem Godil decided to boycott EFU Insurance due to company’s refusal to accept revised paint job rates of Pamada, findings of the CCP showed.

The CCP stated that the findings of internal inquiry suggested that collusion was taking place in the four relevant fields: automobiles sales, genuine automobile spare parts, automobile body repairs and paint jobs, and in hiring of experienced sales and technical staff by these authorised dealers in Pakistan.

With respect to the market for new automobiles, Pamada appeared to have taken decisions regarding the division of the market and allocation of quota with respect to new automobile sales. Similarly, Pamada apparently fixed the prices of genuine spare parts supplied by automobile manufacturers by strictly prohibiting its members to offer discounts, according to the CCP.

In the area of body repairs and paint jobs, Pamada took collective decisions regarding the rates of automotive body repairs and paint job services offered by its members, especially for insurance companies. And finally, Pamada took collective decisions to restrict the movement of human resources between automobile dealers.

The inquiry report noted that these arrangements between Pamada and its members apparently have the object and effect of preventing, restricting or reducing competition in the relevant markets.

The CCP’s inquiry observed that collusion and cartelisation are the most egregious form of anti-competitive behaviour. It also raises barriers, restricting entry of new players which further stagnates competition.

The automobiles sector in Pakistan is a relatively small one, with just a handful of major market players competing in the market. In this situation, any collusion in the sector will lead to a serious degradation of competition in the market, observed the CCP.

Published in The Express Tribune, October 21^st, 2014.

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