Tuesday, June 14, 2011

Right to Repair in Europe? It Is Called “BER” and Consumers There Are Not the Winners - Stephan Brackertz

The “Right-to-Repair Coalition of 2011” is backed by the AAIA and says that the US lags behind Europe in protecting small businesses and competition. A claim to be lagging behind is generally a prick in the side worth investigating. So let’s take a look…


Let’s look at what the coalition arguments are in Massachusetts. The intent of the bill is to allow “independent auto mechanics access to the same repair information available to dealership mechanics.” (Boston.com 7/6/2010 Mass. Senate approves Right to Repair Act).

The statements by the coalition to support the bill are sweeping:
  • Manufacturers should provide the same repair and diagnostic information to independent workshops that they do to franchised dealers.
  • Ensure consumer’s choice of where to get their car fixed.
  • Provide savings to consumers, upwards of $300 to $500 per family annually.
  • Protect Massachusetts drivers and their families by requiring safety bulletins and recall information is distributed to all repairers, not just dealer franchises.
  • Protect 32,000 jobs in Massachusetts related to the automotive industry.

Not only are these bold statements – but, another justification on top could be that Europe already has this kind of stuff. Superficial comparisons to Europe might make for disastrous precedents in the States. Unlike in the US, the European rules originally set out to squeeze OEMs, not to slaughter them. There are some significant differences:
  • The EU regulation does not require OEMs to share training with independent workshops. Training is, of course, a key differentiator for providing repair quality. In the US, I suspect that there are some differences between authorized dealers, Pep Boys training and AutoZone’s training …. and this could be a key differentiator for them. Even bureaucrats understand this.
  • The EU does not require OEMs to provide specialized tools to independent workshops. The expectation is simply that repairers will have access to tools somehow through third parties. Hey, if low class restaurants want those fancy tweezer tools for eating escargots they will have to buy them, not get them for free from five star temples.
In terms of the market structure: change comes slowly in Europe. The US market is hypercompetitive for the end-customer; Europe is not yet so hypercompetitive. End-customer service retention in Europe generally hovers around 50%, depending on the country (vs. 25-30% in the US). Blame it on wine, cheese, Oktoberfest and all the things that distract you from worrying about where to repair your car.
  • By and large, end-customers still believe they have to go, exclusively, to the dealer during the warranty period. While this isn’t true, many customers are still blissfully unaware.
  • What we Europeans don’t like to admit is that Internet adoption in Europe is behind the US. We have been slower to adopt the power of the Internet and, as such, our societies are a few years behind the US in Internet literacy and usage.
  • Lastly, some markets still have regulation in place that protects certain exterior body parts from aftermarket competition, creating purely captive body parts. While this legislation is about to expire, it has been one of the reasons why dealers have held a good grip on the collision repair business (and its associated profits).

Unlike in the US, where the OEM aftersales organizations passively wait to see what will happen, the automotive industry in Europe is strongly organized and lobbies hard with Brussels bureaucrats. At least as hard as the independent aftermarket; some would say even harder. This means that a lot of legislation is fairer for OEMs. In particular, during the last two recession years lawmakers have seen the need to support carmakers and to ease off from overly strangulating regulation.

Most importantly, Europe has a different legal model than the US; one without lawyers that sue at every corner, one without enormous punitive damages. All this means that, while a complaint about unfair competition or slow provision of technical information will be taken seriously, it goes through the intricate mills of the Competition Commission. That may mean years go by before resolution and no incentive for frivolous lawsuits.

In the last few years, Europe’s automakers have discovered what pharmaceutical companies would call a “blockbuster” drug… the service contract. European customers have been eager to sign up for service contracts (no hassle, one price product including service and maintenance for the first say 3-4 years of ownership). Service contracts, of course, have the side effect of binding customers more closely to dealers. Nothing wrong with this, as long as OEMs aren’t forcing these contracts onto customers (and they do not).

And, what has happened in the marketplace as a consequence of “right to repair” being introduced in Europe?
  • Since the introduction of BER, a number of independent third parties have sprung up that offer diagnostic tools, repair information databases, and tool support for all makes. Independents mostly get their information from these aftermarket third parties, rather than from OEMs.
  • Manufacturers have begun to charge workshops for technical information. This means dealers now have to pay for what was previously free or close to free (reducing their profitability). The impact has been acceleration in the decline in the number of dealers (as well as independent workshops). This is bad for network coverage and consumer choice.
  • Repair quality at independent workshops has not necessarily increased. The information that third parties provide to independent workshops is still error prone and sometimes sloppy. This information has to be purchased and not all repairers will buy all of it (some will skip some months / quarters of updates to cut costs).
  • Repairs at independent workshops are still not cheaper than at dealers. There is no sign of those substantial annual savings per family from right-to-repair. The reason is that independents sell spare parts more expensively than dealers do. In addition, while their labor rates are much lower, they often bill you more hours.
  • There is no substantiated evidence of job creation. Really, how would you even come up with an estimate like 32,000 jobs protected? And, how do you protect against lower labor costs and harder schooling in China?

Bottom Line: So, what can we learn from the European experience? Europe is different from the US. You can’t conclude from Europe’s experience that the US will be OK with Right to Repair legislation. Lobbying is extremely important for OEMs. Europe is an example of how OEMs successfully bundle their strength vis-à-vis aftermarket lobbyists. Service contracts and other “service products” can help to defend parts and labor sales – with or without right to repair legislation. Third party information aggregators in the aftermarket may grow stronger, with all the adverse side effects market concentration may have for OEMs. Information is a high quality product. Quality and speed can make all the difference. Treat it like a physical product and fight for your right to bring this product to market your way. Increased repair quality at independent workshops is a weak argument, as are arguments associated with lower repair cost and job creation. In the end, the end-customer suffers… because higher cost structures are passed on to consumers and because lower workshop profitability means fewer workshops from which to choose.

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