[volkman10]

Competition Commission slaps Rs 87 crore fine on Hyundai Motor India

It was alleged that the company has discount control mechanism whereby dealers are permitted only to provide a maximum permissible discount and not beyond the recommended range.

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[dZired]

The Competition Commission of India has slapped a fine of Rs. 87 crore on Hyundai Motor India for indulging in unfair business practices. The company has also been asked to cease all such anti-competitive practices from immediate effect.

According to the regulatory body, Hyundai has put in place a discount control mechanism, under which, dealers are permitted only to provide discount up to a pre-decided permissible limit. Through such practices, the company is trying to maintain resale prices of its cars. The automaker is also reportedly penalizing dealerships that aren't adhering to the aforementioned discount control mechanism.

The Competition Commission of India has termed this as an anti-competitive practice. The said penalty amount of Rs. 87 crore is equivalent to 0.3% of the company's relevant average turnover in the last three fiscal years, starting from 2013-14.

Hyundai India has expressed its surprise at the penalty and has claimed that its concerned officials are studying the regulatory order in detail and will take necessary steps to challenge it at an appropriate level.

Source: ACI and TOI

[shashanka]

Originally Posted by dZired

The Competition Commission of India has slapped a fine of Rs. 87 crore on Hyundai Motor India for indulging in unfair business practices. The company has also been asked to cease all such anti-competitive practices from immediate effect.
According to the regulatory body, Hyundai has put in place a discount control mechanism, under which, dealers are permitted only to provide discount up to a pre-decided permissible limit. Through such practices, the company is trying to maintain resale prices of its cars. The automaker is also reportedly penalizing dealerships that aren't adhering to the aforementioned discount control mechanism.
The Competition Commission of India has termed this as an anti-competitive practice. The said penalty amount of Rs. 87 crore is equivalent to 0.3% of the company's relevant average turnover in the last three fiscal years, starting from 2013-14.
Hyundai India has expressed its surprise at the penalty and has claimed that its concerned officials are studying the regulatory order in detail and will take necessary steps to challenge it at an appropriate level.
Source: ACI and TOI

I must be dense because I haven't got it yet. I mean, how are these steps anti-competitive. I'm in no way pro-Hyundai (on the contrary if you really get down to it, being a die-hard swadeshi at heart!) but I'm a little fuzzy about how to draw these conclusions.

[GTO]

Originally Posted by shashanka

I must be dense because I haven't got it yet.

Seriously! This is a stupid ruling. From the news article:

In a 44-page order, the regulator said the company's anti-competitive conduct include putting in place arrangements that resulted in resale price maintenance by way of monitoring of maximum permissible discount level. This was done through discount control and penalty mechanisms for non-compliance of the discount scheme, it added.

It was alleged that the company has discount control mechanism whereby dealers are permitted only to provide a maximum permissible discount and not beyond the recommended range.

Each & every brand caps the discount levels of its dealerships. This is done due to many reasons (erosion of brand value, brutal price wars, a rich dealer putting others out of business etc.). Heck, forget cars, in most other markets too (including clothes & hotels), you'll see management set an upper limit on the permitted discounts.

The second is even more silly:

and by mandating its dealers to use "recommended lubricants/ oils and penalising them for use of non-recommended lubricants and oils

Is the Competition Commission willing to pay the cost of engine repair if the internals get damaged due to non-recommended lubricants ?

Not to take away from the good work this commission does (e.g. enabling over-the-counter spare parts availability), but this rule is definitely under the water.

[shashanka]

Originally Posted by GTO

Seriously! This is a stupid ruling. From the news article:
Each & every brand caps the discount levels of its dealerships. This is done due to many reasons (erosion of brand value, brutal price wars, a rich dealer putting others out of business etc.). Heck, forget cars, in most other markets too (including clothes & hotels), you'll see management set an upper limit on the permitted discounts.
The second is even more silly:
Is the Competition Commission willing to pay the cost of engine repair if the internals get damaged due to non-recommended lubricants ?
Not to take away from the good work this commission does (e.g. enabling over-the-counter spare parts availability), but this rule is definitely under the water.

Thanks, GTO! - for once I'm relieved that my (lack of bean-counter skills and consequent) vague sense of unease at the ruling was not misplaced!

[moralfibre]

Instead of fining all manufacturers who prevent over the counter sale of spare parts, CCI is busy fining companies over non-existent issues. Relevant thread.

[ashishs]

A counter view here. When Jio came into the market it too was accused of killing the competition because it had deep pockets. The authorities however did allow some of the discounts to prevail. What was the end result. Vodafone and airtel were forced to offer better deals and the customer was the real winner. Sometimes a person entering a new market needs that extra edge over the old timers. If a new dealer or even a dealer with deep pockets wants to give extra discounts to lure away customers why should hyundai stop them. Is it not unfair to not allow these dealers a chance to operate on a strategy which promises them better future returns.

[jinojohnt]

Isn't this a 'secret' practice with others also? My Alto was invoiced at 5K extra because of this issue (invoice amount was 5K more than what I actually paid, because otherwise Maruti would cut their dealership).

[Moto$apien]

To the consumer and common man , this is a welcome move towards a free-err market . I was wondering if the commission acts on its own will or on a complaint of a customer / dealer who objected to the company policies?

It would do the commission a lot good for their public image, if they could share how they plan to utilize the fines collected.

[vinair]

May be the ruling is talking about this:
Imagine you are Hyundai and you have a price at which you sell to the dealer. This price already takes into account the discount offered to the dealer.
Now as a dealer, its upto them to play around with their margins. Now, for a least selling model, if the company has a grip to only give discount to an extent and not beyond, the dealer is in a state of desperation where he is not able to move inventory and report a sale. Hyundai in this case is not really going to loose anything as the discount offered is from the dealer side.

Now looking at the other side, Hyundai can still help the dealer move some aged inventory by providing a some additional discount (to some extent and only on any aged inventory). In this case, trust me, It's completely Hyundai's call on the % of discount or any other incentive it decides to pay the dealer. Dealer can accept or refuse. Hyundai cannot really be blamed here. This is only done to ensure the dealer doesn't get into a habit of seeking Hyundai's help every now and then to clear any aged inventory. Every product company does this and absolutely nothing wrong with it.

[haneeshN]

I am finding it difficult to understand the reasoning behind this decision. Any Manufacturer has the liberty to set the prices at which their products has to be sold and also the discounts. What's the point in owning a brand if you cannot set a limit on the discounts offered on your products.

Also, keeping the maximum allowed discount uniform across all dealers helps in maintaining the brand image in a way.

[vinit.merchant]

A very funny order. At first, just reading the first few lines, I thought they were being fined for allowing dealers to give out too much discount, and then thought about Skoda's/VW/etc.
But it is the other way round.

Then I also question, why Hyundai alone? Maruti has been doing that since ages now. No discounts more than those allowed by the company, else dealer will be fined. And think about 0.3% of the annual MS sales as fine

But in all probability it must be based on a complaint from one of the Hyundai dealers who got fined by the parent company.

[drsingh]

Originally Posted by haneeshN

I am finding it difficult to understand the reasoning behind this decision. Any Manufacturer has the liberty to set the prices at which their products has to be sold and also the discounts. What's the point in owning a brand if you cannot set a limit on the discounts offered on your products.

Also, keeping the maximum allowed discount uniform across all dealers helps in maintaining the brand image in a way.

Manufacturer has the liberty to set prices,but dealers should have the liberty to compete against each other.And customers should be able to get different quotes from different dealers.Max discount is akin to forming a cartel.But I suspect other Manufacturers also do the same.Maruti and Hyundai are the volume leaders ,so their 'malpractices' will be more 'visible'.

In Fact I recently Purchased a Wagon R and was surprised at the very close floor price I was able to negotiate at 3 different dealerships.

[haneeshN]

Originally Posted by drsingh

In Fact I recently Purchased a Wagon R and was surprised at the very close floor price I was able to negotiate at 3 different dealerships.

This is exactly my point. You got a more or less same price which according to me is good for the manufacturer though its not good for us as a consumer. As long as the difference in the quotes from multiple dealers aren't huge its fine for a brand but the moment there is significant difference then it'll put a question on the buyer's mind about the brand image (you might argue that won't be the case mostly but I believe it'll have an impact over the long term). That's why I think they put a cap on the maximum discount. When a manufacturer's vehicle is available at varied price ranges that indirectly affects the brand.

If a dealer has to still outsell the competition he can offer more value added offers like extended free services, free accessories etc. than just cutting the car price by a high value.

[Strangerintown]

Originally Posted by ashishs

A counter view here. When Jio came into the market it too was accused of killing the competition because it had deep pockets. The authorities however did allow some of the discounts to prevail. What was the end result. Vodafone and airtel were forced to offer better deals and the customer was the real winner. Sometimes a person entering a new market needs that extra edge over the old timers. If a new dealer or even a dealer with deep pockets wants to give extra discounts to lure away customers why should hyundai stop them. Is it not unfair to not allow these dealers a chance to operate on a strategy which promises them better future returns.

Not comparable situations at all. The CCI could actually have stepped in as per law, if a large deep pocketed dealer was using its deep pockets to abuse market position and put other dealers out of business. Here the restriction is being put by the principal and I too do not see how their action is uncompetitive. If anything, it ensures uniformity in delivery of value from the company to its customers through its various channel partners and hence ensures a consistent customer experience.

If Hyundai did not stop deep pocketed dealers from abusing the market, they might lose other dealers leading to customer inconvenience in the long run.