RMI: Brussels, we have a problem!

Independent car repairers may need access to certain repair and maintenance-related information from the original manufacturer to be able to do their job. When the Commission forced car manufacturers to provide so-called ‘RMI’ (Repair and Maintenance Information) to independent repairers it defended its move by claiming it would increase customer choice and competition for repair services. But when the Commission tried to force its RMI approach for cars also upon farm machines, some inconvenient truths started to emerge:

  • there is no comparable RMI issue in farm machines – so why is regulation needed?
  • the sector is much smaller and fundamentally different – so why was a cars-based approach used?
  • the rules will impose a costly, unnecessary burden on the many SMEs active in the sector – so why was their impact never assessed?

With the full RMI regime set to apply as of 2018, it is high time for a reality-check – and for the Commission to address some of the most blatant shortfalls and absurdities of its approach to the issue.

 

 

RMI – a very car-specific issue

Things changed dramatically for independent car repairers in Europe – who have been around for many years – with the arrival of electronic systems: suddenly, repairs were becoming an ever more complex exercise that was impossible to perform without having detailed information on the vehicle from the car manufacturer at hand. For the independent car repair shops this development presented a formidable threat: without the so-called ‘RMI’ information they would struggle to perform their tasks and would effectively be cut out of business.

The European Commission enters the scene – and regulates…
Seeing the problem, the European Commission wanted to preserve a level playing-field between the independent repairers on the one side and the car companies and their authorized repairers on the other. The regulatory objective was to maintain competition, making sure consumers would get good value for money when using repair services. In 2007, the Commission therefore decided to issue mandatory rules for car companies to provide appropriate ‘access to Repair and Maintenance Information’ to independent repairers (Regulation (EC) No 715/2007 and its implementing Regulations 692/2008 and 566/2011. For trucks, RMI provisions were introduced by Regulation 595/2009 (EURO VI)). These rules effectively forced car manufactures to share repair-related information in a standardized way with pretty much anyone interested to have it. Problem solved?

and keeps regulating, regulating & regulating…
Not quite, as things didn’t stop here. Once running, the Commission pushed on – strongly supported by the business lobbies of the independent car repairers and aftermarket distributors: EGEA and FIGIEFA (EGEA = European Garage Equipment Association, FIGIEFA = European Association for the Automotive Aftermarket Distributors). For obvious reasons, both lobbies were eager to conquer new commercial ground. However, this now meant entering entirely new territory – such as the world of agriculture – which they knew little about and had no constituency in, raising serious doubts as regards to their competence and democratic legitimacy to speak on the issue as a stakeholder. Nonetheless, the Commission was quick to listen to their demands. Not even one year later, in 2008, the Commission proposed to extend RMI provisions to motorcycles, tractors, and – much to everybody’s surprise – even to agricultural trailers and towed equipment, i.e., everything that is pulled behind a tractor.

Parliament fires a warning shot – that is ignored
Alarmed by the fact that the Commission had not even bothered to prepare an impact assessment, the European Parliament started its own study to assess whether an RMI regime modelled on cars would be a good idea for tractors. The result was sobering: contrary to the car sector, the report found that there were virtually no independent repair shops around in the market for tractors. Since the RMI landscape for farm machines thus looked very different to the one for cars, Parliament issued a note of caution, calling on the Commission to ensure that any new RMI regime should reflect the special characteristics of the farm machinery sector.

The Commission chose to ignore the advice. When developing the detailed rules for RMI in 2014, the actual effort could not have been easier: the paragraphs used for cars and trucks were simply copied and pasted into the respective draft laws for agricultural vehicles – two clicks, job done! Or so thought the Commission…

Some inconvenient truths

Suddenly, some inconvenient truths started to emerge: fundamental questions that one could have legitimately expected the Commission to assess before taking action had simply been brushed aside:

  • since there is no RMI problem to be fixed in farm machines – why was regulation started in the first place?
  • as there are fundamental differences in the sector’s commercial, legal and structural set-up – why was a cars-based approach used which ignored the sectorial specificities underlined by Parliament?
  • with the new rules threatening to impose a costly and burdensome regime on SMEs, why was their impact never assessed?

As the costs of this Kafkaesque move could become enormous, it is high time for a thorough reality-check of the proposals and for the Commission to amend the rules before they will fully apply as of 2018.

RMI: a non-issue in a small, yet hotly contested repair market
The most startling fact about the RMI file is that the Commission failed so obviously to explain before taking action what kind of problem they were exactly trying to fix: compared to cars, virtually no independent repair and spare-part distribution network has ever existed for farm machinery. The reasons are structural: the market is far too small, too specialised and the volumes are far too low. If there was a business case to be made, it would certainly have seen the light of day a long time ago, as has been the case with cars, particularly since the negotiation power of manufacturers is low and take-over of automotive parts is high.

Moreover, even without independent repairers, the market in the farm machinery repair sector has always been functioning and has been hotly contested. For high-value, long-lasting investment goods such as farm machines, customers will make a careful analysis of all costs including purchase and repairs before choosing a brand. Since machines last sometimes for up to 40 years such calculations not only include aspects such as the robustness and reliability of vehicles, but also the availability of spare parts and repair services.

A clash of regulations: RMI versus the Block Exemption.

At this point, it is importantto note that the very functioning of the market has been endorsed and secured by the EU’s specific legal regime governing repairs of farm machinery: contrary to cars, farm machine manufacturers are explicitly allowed under EU law to organize their sales and repairs with the help of their ‘own’ exclusive dealership network which is in charge of both the selling and proper repairing of vehicles (so-called Block Exemption - EU Block Exemption Regulation 330/2010).

This practice was granted for good reasons: repairers work with big, heavy, and highly complex machines, produced in extremely low numbers – even for high-selling tractor types, sales volumes are more than 100 times below the ones typically observed for cars! In such small-volume markets, ensuring full coverage of service and repairs (moreover, in the vast geographical areas of Europe’s rural countryside) can typically only be delivered by offering the manufacturer the unique right to organise them.

In other words, with RMI, the Commission’s industry policy directly undermined and attacked the delicate commercial balance in this small market which is protected by the Commission’s very own competition policy principles enshrined in the EU Block Exemption. Apart from the incoherent logic behind the Commission’s RMI approach and the serious doubts as regards to its legal soundness it is thus highly doubtful whether, even with RMI, a functioning independent repairers market for agricultural vehicles will ever be economically feasible given the low volumes, the geographical spread of service in rural areas, and the complexity of machines.

A race to the bottom: safety last
The vertical agreements also fulfil an important role with regards to the safety of the repairs performed. To have safe and well-maintained vehicles in the market and protect their brand reputation, original manufacturers only give repairers access to certain tools, training and information if they can prove that they have a sufficient level of skills and training to do them.

The RMI approach undermines the entire functioning of this delicate system, turning it on its head: although the new Regulation only mandated the Commission to create a ‘non-discriminatory’ level-playing field between authorized and the (hitherto nonexistent) independent repairers it will now – structurally speaking – put the authorized dealers at a disadvantage, as independent repairers will not be obliged to match any quality criteria. In other words, if ever you felt tempted to repair a modern-day tractor, a pesticide sprayer or fertilizer spreader you may well ask for the information from the manufacturers and start screwing. In terms of safety, which in this case also entails environmental safety, there is thus real concern that RMI could open a Pandora’s Box and start a race to the bottom.

Shifting profits without customer benefit: the free-rider’s dilemma behind generic spare parts
Another area where RMI rules will cause havoc is spare parts whose supply, so far, the original manufacturer has also been allowed to keep control of. Once again, the reasons for this protection are related to the structural limitations and specificities of the farm machinery market:

  • To supply parts in which no independent supplier is interested: for some parts, the volume is extremely low and thus very costly to supply. No independent generic supplier will ever keep stocks of such rare items, as there is so very little demand. Yet customers of expensive investment goods such as farm machines still need such parts even 20 years after purchase to be able to service, maintain and upgrade their equipment.
  • To supply fast when needed: during harvest time, a broken-down tractor the field needs immediate repair to avoid massive harvest and income losses for the farmer (due to delayed transport). Manufacturers can oblige authorised dealers to keep certain parts in stock. Yet this stock control also costs money.

Under the current regime, the efficiency-enhancing effects with authorized dealers clearly outweighed potential anticompetitive effects, and this was exactly the reason why vertical agreements were granted under EU law. the logical explanation provided in the Block Exemption Regulation: The likelihood that such efficiency-enhancing effects will outweigh any anticompetitive effects due to restrictions contained in vertical agreements depends on the degree of market power of the parties to the agreement and, therefore, on the extent to which those undertakings face competition from other suppliers of goods or services regarded by their customers as interchangeable or substitutable for one another, by reason of the products’ characteristics, their prices and their intended use. Vertical agreements containing restrictions which are likely to restrict competition and harm consumers, or which are not indispensable to the attainment of the efficiency-enhancing effects, should be excluded from the benefit of the block exemption.

Yet under RMI, generic spare part suppliers will not be burdened with any such (sensible) obligations. Free to cherry-pick, they will likely focus on easy, high-volume parts. Any related profits will end up directly with them. To be sure, this might well result in a reduced price for high-volume spare parts in the future. Following market logic, such reductions are, however, at the same time likely to trigger cost increases in low-volume, complex and specialised parts as it will become, technically speaking, more costly for the original manufacturers to provide these once they have lost market share in the more lucrative high-volume spare parts business to generic suppliers. Paradoxically, this means that, for the farmer, RMI might at best turn out to be a zero-sum game.

Creating costly websites – but why? And for whom?
Other dramatic effects of the new RMI regime are even more concerning: the new rules will oblige manufacturers to provide RMI via a new, dedicated website on which pieces of information can be bought when needed. This classic model is based on the availability of a permanent internet connection. This is an approach that is bound to causeproblems in the many rural areas with low (or virtually no reliable) internet connection. And it is markedly different from the tried and tested protected off-line solutions offered to authorised dealers by many manufacturers, to allow critical repairs in the field. Once again, the cars-based approach of an RMI website is missing out on the commercial and practical realities of farm machinery. The costs for manufactures to provide these adapted websites will be immense. Yet their efforts might be in vain. Will these websites really be used, particularly when they are not fit-for-purpose?

Harmful effects on SMEs
The most harmful impact of the Commission’s RMI plans results from the surprise inclusion of agricultural trailers and towed vehicles. This category of vehicles is produced in an extreme variety of models by an immense number of manufacturers, the vast majority of them SMEs. For instance, 70% of the more than 1,000 Spanish manufacturers of towed farm equipment sell less than 10 vehicles per year – in total! To make it worse, the Commission forgot to include an RMI exemption for small manufacturers of towed equipment – which, perversely enough, has been included for tractors.

Many of these SME manufactures do not even have authorised dealer networks. Their after-sales support service is limited to a telephone number to call. Still, while there would hardly be any market demand, each single one of them would have to prove compliance to RMI, even if they sell only one unit with a national type approval certificate.

The exact rules are not particularly clear on this point. Will SME manufacturers really be forced to spend millions of euros to make available RMI information in a standardized format which nobody will use? Imagine all those thousands of SMEs going to their national authorities having to present proof of compliance to the RMI provisions. For tractors there is still the small series provisions which allows tractors produced in low volumes to be exempted completely from RMI. Such an exemption was denied for towed vehicles. On this point, the Commission clearly did not understand the impact of its own proposals. While official EU discourse claims to uphold the interest of SMEs, the RMI website obligations for SMEs can only be called administrative harassment. It is foreseen that the European Commission is likely to correct this error and enable a small-series exemption for all agricultural vehicles before 2018, but will that be enough

RMI – in or out!?
The logic and reasons behind the exact scope of regulatory action on RMI remains shrouded in mystery. Clearly, towed machines should not have been included in RMI in the first place. But they were – which has led to even stranger constellations: different regimes will now apply to the same type of machine. For a towed sprayer for pesticides, RMI compliance will be needed. For the same machine in the mounted version on a tractor or in a self-propelled version, RMI will not be needed – where is the logic behind all of this, particularly when there was no problem to be fixed in the first place?

Reality-check: high time for the Commission to address the RMI shortfalls – before it is too late
To sum up, the Commission’s RMI approach on farm machinery reveals major deficits and flaws both in terms of the procedures used and the content produced. First and foremost, the RMI file reveals the deeply anti-democratic procedural nature of secondary EU legislation under the Lisbon Treaty. Once on a run – we can leave it to speculation in how far this was due to higher orders from the hierarchy, external pressure from the automotive repair lobbies or the uncontrolled reign of in-house officials – the Commission’s services could not be held accountable by anyone and could get away with a deeply flawed proposal: even when requested by Parliament, no impact assessment was produced. Instead, a simple copy-paste exercise was conducted of a car-based approach that failed to consider essential features of the farm machinery sector.

Even a superficial analysis would have quickly shown that RMI in the automotive sense is, quite simply, a non-issue in farm machinery. Ignoring this fact and further fundamental realities of the sector, it now looks as if the RMI regime in its current form will exert a number of harmful effects – and somewhat undermines the Commission’s very own competition policy principles enshrined in the Block Exemption. While it remains to be seen how exactly the new RMI regime will play out in certain areas, other areas require urgent review and correction. Most of all, to avoid a horrendous, yet unnecessary and useless cost burden on SMEs, the Commission must exempt manufacturers of towed equipment from the RMI scope before 2018.

This, in effect, should serve as a starting point for a broader and fundamental reflection on how to build a more sensible, coherent and flexible RMI approach for the sector, moving beyond the straightjacket obligations that force every producer – no matter how small or specialized – to provide RMI through a standardized website – a practice that does not even work for farm machinery. As the old farmers’ saying goes: it’s ok to be wrong, but remaining in error is foolish.

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