Auto Industry Guidelines: A practical interpretation from lawyers' perspective

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In August 2020, the long-anticipated Antitrust Guidelines for the Automobile Industry ("the Guidelines") finally lifted its veil in the book Collection of Antitrust Regulations and Guidelines 2019 authored by the Anti-Monopoly Bureau of China's State Administration for Market Regulation (“SAMR”). It has been four years since its last draft for public comments, and though its validity is still in question, the Guidelines shows the attitude of antitrust authorities on automotive issues and sheds light on antitrust compliance in the automobile industry.

I. The Battle against Automotive Monopoly

The automobile industry is a critical component of economic growth in China and is heavily regulated. Back in 2005, to regulate the distribution of automobiles, China applied measures1 to promote the 4S model and required the selling of automobiles to be conducted solely by authorized dealers in single brand stores (“4S stores”) that provided the full service of sales, after-sale support and spare parts. While such measures had helped to build systematic and efficient distribution systems of automobiles, in recent years, it appears that this system has granted automobile manufacturers too much power resulting in frequent monopolistic practices. In addition, with the dealers switching from pure sellers to service providers, more and more monopolistic issues are seen not only in the sales market but in the service and spare parts markets as well. From 2014 to November 2019, antitrust authorities in China has investigated manufacturers and dealers of a series of automobile brands and imposed an accumulative fine of 2.5 billion RMB. To rectify the monopolistic behaviors in the automobile industry, an antitrust guide is required for both the antitrust authorities and the automobile companies.

II. Major Aspects of the Auto Industry Guidelines

The Guidelines appear more like a compliance guideline than a binding regulation. It gives extensive explanations to the rationale and detailed element of each rule with practical examples. There are four aspects of the Guidelines that are worth more attention.

A. Definition of Relevant Markets

The Guidelines provides a comprehensive description of the main products and market participants in the industry, and explains the authorities’ approach on market definition, which are of great reference value to companies in investigation cases or merger notification. Most importantly, it suggests a definition of service markets based on brands, which may redefine automobile companies with small shares in the sales market as dominant in the after sales market of their own brands.

Also, it proposes that the geographic market for passenger car retail could be identified on a provincial or regional level, which echoes the recent enforcement record of Chinese authorities.2

B. Safe Harbor Rules for Vertical Restrictions

The Guidelines adopts the safe harbor rule for undertakings with a market share below 30%, where it is assumed that they do not have significant market power and therefore certain vertical territory or customer restrictions set by them could be assumed to qualify for the exemptions under the PRC Anti-monopoly Law.

Such exemptible vertical restrictions are limited to the following types:

  1. The restriction of active sales by a dealer outside its business premise;
  2. The restriction of active sales by one dealer into the exclusive territory or to an exclusive customer group reserved by the manufacturer to another dealer;
  3. The restriction of sales to end users by a dealer operating at the wholesale level of trade; and
  4. The restriction of a dealer's ability to sell spare parts to customers who would use them to manufacture the same goods as those produced by the manufacturer.

Nonetheless, the vertical agreements cannot be assumed to be exempted if they involve hardcore restrictions including:

  1. The restriction of passive sale by dealers;
  2. The restriction of cross-supplies between dealers; or
  3. The restriction of the ability of a dealer or a maintenance service provider to sell spare parts to end-users.

It can thus be seen that the above safe harbor rule bears great similarities to the Block Exemption Regulation of the EU3. Yet different from the EU regulation, the safe harbor rule in the Guidelines only looks at the market share of one party of the agreement rather than both, echoing the universal practice where generally only one party, usually the one initiating the restrictions, of a vertical agreement is fined in an antitrust case.

C. Individual Exemption for Particular RPMs

Though not applicable to the safe harbor rule, four types of RPM practices are mentioned in the Guidelines as common cases in which automobile companies may apply for, and likely to be benefit from, an individual exemption.

The four types of RPM practices are:

  1. Short term (within 9 months at current stage) promotion for new energy vehicles;
  2. Sales by manufacturers to large customers via dealers who function as intermediaries;
  3. Sales by manufacturers via dealers in the context of public procurement; and
  4. Sales by manufacturers via dealers on e-commerce platforms.

For the scenarios in (2) to (4), dealers act as intermediaries who are responsible for product delivery, receiving payment, issuing invoices etc., while the transaction is negotiated purely between the manufacturers and the buyers. As the intermediaries are only assisting the transaction, it is different from the dealers in the general sense.

D. Restrictions in the After Market

Under the 4S model, the repair and maintenance services of automobiles are mostly provided by 4S stores, leaving little room for independent repairers. With the booming of after-sale support business, various types of vertical restrictions and abuses of dominance are commonly seen. It is therefore one of the goals of the Guidelines to promote free competition in the after-sale market.

  1. Vertical Restrictions on Dealers and Repairers

    The Guidelines requires manufacturers not to impose unreasonable vertical restrains on authorized dealers or repairers, including exclusive sourcing of spare parts from original manufacturers and refusal to supply spare parts to independent repairers.

    One conspicuous and inherent feature for vertical restraints is that some practices, such as tying and imposing unfair trade condition, could fall under the category of either vertical monopoly agreement or abuse of dominance. The Guidelines makes a clear distinction between the two types of monopolistic practices, and provides indications on how a certain practice would be analyzed by the authorities. For example, compared to its draft version, the Guidelines deleted the expression that restricting the sale by repair tool manufacturers to independent dealers and repairers is a hardcore vertical restraint, and it has instead emphasized this practice as abuse of dominance.

  2. Dominance in the After Market

    The Guidelines requires automobile manufacturers not to abuse their dominant position to restrict the production and sales of spare parts, and the availability of technical repair information, equipment and tools to independent repairers.

    Regarding restrictions of production of spare parts, the Guidelines refer particularly to dual-label spare parts, which bear both the label of the automobile manufacturer and that of the spare parts manufacturers. This provision seeks to help build the brand awareness of spare parts manufacturers, increase their competitiveness and thereby enhance market competition.

    It is worth noting that, as the after markets may be defined based on automobile brands, it is possible that most automobile manufacturers might have dominant position in the after-sale market of their own brands.

III. Outlook

The Guidelines provides a rather detailed compliance guidance to automobile companies, yet besides the validity of the Guidelines itself, certain issues remain unclear. For example, in the technically-focused automobile industry, how should the potential conflicts involving intellectual property be resolved in matters such as sales of two-label pieces and provisions of repair technical information. Also, considering certain practices listed by the Guidelines have been prohibited by the Measures for the Administration of Automobile Sales, how conflicting rules of law are to be resolved in practice remains to be tested. Most importantly, whether companies in other industries can refer to the Guidelines, i.e. the safe harbor rules, in assessing their business practices. It is expected that with more public enforcement and private litigation, the answers to these questions will unfold. In the meantime, automobile companies need to review and update their antitrust compliance manuals in accordance with the Guidelines.


  1. The measures were called Measures for the Implementation of the Administration of Automobile Brand Sales and was replaced in 2017 by Measures for the Administration of Automobile Sales which permits sales by unauthorized dealer and multiple brand sales in one store.
  2. For example, in the decision against Toyota issued by SAMR in 2019, the fine was calculated based on Toyota’s turnover in Jiangsu Province rather than in China. See decision here (last visited on 20 August 2020).
  3. See Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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