[TusharK]

The Competition Commission of India (CCI) has slapped a fine of Rs. 200 crores on Maruti Suzuki for anti-competitive practices.



The CCI has asked Maruti Suzuki to "cease and desist" from indulging in such practices. The carmaker has 60 days to deposit the fine.

Reports of the allegations had first surfaced in 2019. Following a thorough investigation into allegations of forcing dealers to limit discounts, the CCI found that Maruti Suzuki was involved in practices that stifled competition among dealerships. It is said that if dealers had been allowed to operate freely, consumers would have benefited from lower prices.

The CCI also stated that Maruti not only indulged in such activities with its dealers but also imposed penalties on those who didn't abide by its instructions. However, Maruti, in its response stated that it did not impose a discount control policy on dealers and that they were free to offer any discounts they wished to customers.

Source: Reuters

Link to Team-BHP News

[saikarthik]

Good move!

Does it imply that, for fast moving vehicle models, the OEM has no say on discounts that are being offered by dealers? And dealers have power to offer discounts and cannot quote OEMs stopping them.

[IamNikhil]

CCI should investigate other auto brands as well, especially Hyundai. The unfair practices of the auto industry need to be brought into the limelight.

Good to see CCI actually going into action mode these days.

[red_nemesis]

That's great news for customers.

As per CCI, not only did they force dealers, they enforced this through 'Mystery Shopping Agencies' that would do audits in the guise of being regular customers. They would then report to Maruti with audio/video evidence as proof.

[pannags]

Originally Posted by TusharK

Reports of the allegations had first surfaced in 2019. Following a thorough investigation into allegations of forcing dealers to limit discounts, the CCI found that Maruti Suzuki was involved in practices that stifled competition among dealerships.

We've seen this for time immemorable from the likes of Sony, Siemens, Apple, and why, other car brands as well. This is how many product brands operate.

I think this is completely unfair on Maruti, because it is not only entirely their prerogative what prices they wish to sell their products for, but also as to how they govern and ensure that.

Edit: I'm saying that singling out Maruti for what is a norm with many big players is unjustified. They should bring in appropriate reforms to ensure that customers get the benefit of fair competition.

[fawad0222]

Auto industry definitely needs strong regulations. Spare parts policy is another area which needs urgent intervention. Hyundai and many others don't allow their OEM parts to be sold outside and charge exorbitantly and avoid competition.

[Bibendum90949]

With the sort of support(fair and unfair) received over the years to Maruti from all quarters, glad to know that CCI has shown the spine to bell the cat.

On a side note, Wouldn't Maruti legally challenge this order?

[zaid_ames]

This is a good move by CCI. But I feel that regulation bodies in India still have a long way to go. Also there is a big need for the authorities to stand up to the Consumer-Dealer-manufacturer issues. Dealers as well are "No saints" as well. As we keep reading many posts from our fellow bhpian's regarding multiple issues with their brand new cars for which they have invested lacs of hard earned money and how the dealers & manufacturers make them go in circles rather than owning up the issues with their products. Would really want to see some strict changes in this area as well.

Regards,
Zaid

[Punatic]

This is just sad:

To enforce the Discount Control Policy, MSIL appointed Mystery Shopping Agencies (‘MSAs’) who used to pose as customers at MSIL dealerships to find out if any additional discounts were being offered to customers.

Source: The Hindu Business Line

[gopalnt]

While I welcome the move, I also understand the logic of it. Maruti is the manufacturer and they have a right to decide on the price that they want to sell their products. Dealers are like agents and they are supposed to execute what is being told by them. For Maruti, their interest will be to see that their cars sell based on how good their car is not how cheap it is.

[greenhorn]

I don't get the hate for mystery shoppers. It's a fairly industry standard practice used by manufacturers of biscuits to mobile phones. Apart from discounts manufacturers pay dealers various incentives as their contribution for other marketing and promotional activities. These funds are contingent on certain conditions, with compliance to some suggested compliance being one of them. Dealers turn around, and instead of spending them on these, spend it as cash discounts on cars which is not what the manufacturer provided the funds for. Hey as customers we all like a good discount, but then manufacturers need to protect their interests too. Ultimately, the manufacturer is not banning discounts - they are just denying misspent incentives which dealers take for granted, and suddenly it feels like a penalty.

[Venkatesh]

The Competition Commission of India (CCI) press release



Commenting on the CCI report a company spokesperson from Maruti Suzuki India said

[shady_lawyer]

I'm going to weigh in with my thoughts here and attempt to offer a layman's perspective. Company A manufacturers a car and bills the dealer Rs. 100 for it. That Rs. 100 is the ex-factory price which the manufacturer wants for its product. Let's assume taxes don't exist for this simple example. The dealer then pays Rs. 100X5 for the 5 cars to the manufacturer and has the car delivered to itself.

Lets assume the dealer margin on each car is Rs. 10, so the price on the websites etc you'll see is Rs. 110. Now assume the dealer wants to sell 3 cars Rs. 90 because he believes that it will fetch him more business, by being perceived as a place where people will get a good deal.

Good for consumers right? Now "A" says sorry no can do, you'll set at nothing less than 105. This is called re-sale price maintenance and in simple anti-trust law its illegal. No person is entitled to maintain price in the retail market, why because its as good as carterlisation, where each supplier says we'll each quote between Rs. 100-101 and then split the profit while applying for a tender. It artificially holds the price independent of market forces, which is what has been happening in the car market. Take any manufacturer and you'll find a refrain that cars are "over-priced". To some extent there is price-gouging by the manufacturers.

There is a reason apart from profits as well to do this. Each dealer is tied into the DMS, now this DMS apart from keeping track of actual vehicle sales also adds to dealer accounts training expenses, publicity expenses, promotion expenses, etc etc. Where is this money going to come from, dealer margin! So in effect the consumer is being harmed because a potentially lower price is not being made available for reasons independent of the market, which is what anti-trust law frowns upon. Also like it or not, image issues. No manufacturer is going to be pleased when it realises that its goods are being sold at a discount.

The sad part however is that CCI has a long way to go in fixing the market. Their action against Hyundai was set-aside by the Appellate Tribunal for the same practice, on legal grounds of the Commission failing to define certain parameters properly. The Supreme Court in another matter has stayed penalties against car manufacturers indulging in spare part locking up, for similar reasons.

These manufacturers are brutal when It comes to RPM, these mystery shoppers report back to the H.O and dealer evaluations suffer heavily resulting in losses by the Crores in held up inventory, unfavourable financing terms upon the dealer etc. I'm not defending dealers, they are funny in their own practices, but the manufacturer is no saint either. The ultimate loss is upon us, however.

All I'm saying is that if a dealer wants to sell a car at a deep discount and make a loss, that his headache, once a manufacturer receives its ex-factory price it should ideally have no control over pricing. Car pricing needs to be dependent upon market forces. Look at the USA, used cars are now more expensive than new one's because new cars that are in demand, can't be made fast enough. That's the market determining the price, good, bad or ugly.


For those who are interested in the Hyundai litigation (I'm not aware if this has travelled up to the SC or not)


https://nclat.nic.in/Useradmin/uploa...2337253f81.pdf

For a pro/con debate on RPM see this https://poseidon01.ssrn.com/delivery...pdf&INDEX=TRUE


PS-I accept all this is an over-simplification and works off a lot of assumptions I've deliberately glossed over factors that affect anti-trust law for the sake of simplicity.

[Altocumulus]

The allegation is absolutely true. I have myself faced situations where dealers said that they can't go down on a price because it is a rule from Maruti and the max they can do is give a couple of more stupid freebies.

However saying that, it is also true that dealers took advantage of it as well. If bychance a dealer offers more than the other, the dealer losing out sends out a formal complaint as well against the other. I have faced this with Renault as well.

[naru80]

Just a reality check: A CCI order is not binding, it is usually appealed. So it doesn't really have the desired effect.

The standard practice is that the company appeals to SAT/SC and the case drags on for years.

Case in point: CCI "fined" Hyundai 420 crore in 2015. The decision was appealed. SC stayed the fine in 2021.

https://www.livemint.com/Companies/Z...n-Hyundai.html