ECJ to rule on showrooms shake-up

The European Court of Justice (ECJ) will deliver its judgement next Thursday (7 September), on what is widely viewed as a test case for disputes between car dealerships and their suppliers.

It arises from attempts by the Commission to reform the car sector’s distribution system, weaken the grip of the carmakers and "put the consumer in the driving seat".

Danish, German and Austrian dealerships complain that suppliers have defaulted on their contractual obligation to provide sufficient notice of termination of contract.

The Danish case, filed by dealership Vulcan Silkeborg in March 2005, is the most advanced in the court process. The company is disputing the decision of car importer Skandinavisk Motor Company (SMC) to halve the notice period on supply contracts to just one year following the Commission’s 2002 reform of the so-called block exemption regulation, which had previously afforded car manufacturers protection from normal competition rules.

Prior to the reform, suppliers had been able to wield considerable control over the supply chain, dictating where dealerships were located and what they should sell. Worried about the effects of the overhaul, a number of suppliers, including SMC, which imports Volkswagen and Audi cars for sale to dealerships, took advantage of a contractual clause allowing the notice period for termination of contracts to be halved in the event of ‘thorough restructuring’ of the distribution network.

"SMC terminated all [contracts with] Audi dealers without giving any specific reason or without documenting why it was necessary to restructure the dealer network. They claimed that the block exemption was sufficient reason for the short notice," said Michael Goeskjær, of Copenhagen-based law firm DLA Nordic, who is representing Vulcan Silkeborg at the ECJ.

SMC has refused to pay compensation to dealerships, which according to Karl Ove Pederson, head of the Danish council representing Volkswagen, Audi, Seat and Skoda dealers (VASS), suffered substantial financial losses. "It has had an enormous effect. From our point of view, they should have had two years. Of course, they lost their Audi income in that year," he said, pointing out that dealers had previously invested large amounts of money into their businesses at the behest of SMC.

"If there had been two years of notice, [dealerships] would have known when the notice was served that they still had two years in which to continue business and generate income to repay loans and run the shop," explained Goeskjær.

On the same day, a parallel case brought by German dealership Autohaus Brunsteiner against carmaker BMW will be heard. The manufacturer had also argued that reform of the block exemption regulation meant far-reaching changes to the distribution system were required and followed the same course of action as SMC in Denmark, halving the notice period for termination of contracts to one year. The dealership declined to comment on the forthcoming hearing.

A slew of other cases are expected to follow. Austrian dealership Auto Peter Petschenig had hoped its complaint against supplier Toyota Frey Austria would also be heard next week. The case, which is currently in the process of being referred to the ECJ by the Vienna Commerce Court, is identical to its Danish and German precedents.

Norbert Gugerbauer, a lawyer at the Vienna-based firm Gugerbauer & Partner, who is representing the Austrian complainant, said: "It is clear that car distributors have just made use of the new situation to avoid a more complex but lawful adjustment of their networks. Instead, some of them want to misuse the introduction of the new EU regulation just to raise the requirements for their dependent dealerships by trying to terminate the current contracts subject to a short one- year period."

Following next week’s judgement, which will determine the legality of curtailing the notice period under the given circumstances, the Vulcan Silkeborg case will be referred back to the Danish court for a final decision on compensation. Goeskjær expects the entire case to be resolved within the next six months. "We are very optimistic," he said.

The European Court of Justice (ECJ) will deliver its judgement next Thursday (7 September), on what is widely viewed as a test case for disputes between car dealerships and their suppliers.