OEM vs non-OEM

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OEM vs non-OEM

Post by Mud Dog »

Car parts probe: is this just the beginning?
(Hanna Barry)

Original equipment manufacturers (OEM) in the automotive industry are anti-competitive in refusing to allow cheaper alternative parts to be used to repair vehicles where safety is not a consideration. This is according to a number of insurance companies, brokers and aftermarket parts suppliers, none of which are willing to be quoted on record.

Gari Dombo, MD of Alexander Forbes Insurance told journalists on Monday that short-term insurers were being “held to ransom”, by vehicle parts suppliers. He said insurers needed to be allowed to use certified alternative parts to contain the cost of vehicle repairs, which currently account for between 60% and 70% of claim costs.

The Competition Commission on Monday announced it was investigating 82 automotive component manufacturers for collusion and price fixing in respect of 121 fairly arbitrary automotive components supplied to OEMs. The investigation forms part of a broader international investigation and in the main appears to relate to imported components, as opposed to locally manufactured and supplied parts, according to the National Association of Automobile Manufacturers of South Africa (Naamsa).

However, a body suggesting local players need to be investigated as part of the probe has approached the Commission, according to spokesperson Mava Scott. “If in the evaluation of the evidence there is a suggestion of some contravention, abuse of dominance or prohibited practice by OEMs, there’s nothing that stops the commissioner from pursuing further investigations,” Scott said.

An anti-competitive racket?

When you buy a new car the service plan, generally around five years, is included in the upfront unit cost. However, most local OEMs will remove the warranty on your vehicle (and the service plan) if you use a cheaper alternative part to repair your vehicle during that time, even if it is not a safety critical part and a purely cosmetic repair (such as a rearview mirror).

Insurers argue that in such cases, consumers should be allowed to use certified alternative parts, bringing down the cost of repair and, ultimately, the cost of their insurance premiums. However, Naamsa director Nico Vermeulen insists that OEMs are responsible to protect the integrity of their brand and to ensure the safety of their customers. Naamsa represents the interests of motor vehicle manufacturers.

“It is normal practice throughout the world that while the vehicle is under warranty, it has to be repaired by the appointed franchise dealer… and in line with the original design requirements,” Vermeulen said.

Similarly, BMW said it did not warrant any non-approved parts on its products, in the interest of quality assurance and reliability. “This is directly related to safety and warranty issues as we cannot vouch for the quality, safety or reliability of any part which has not been validated by the BMW Group,” Edward Makana, manager of group automotive communications, told Moneyweb.

According to one industry commentator, BMW insists on the use of original parts even on vehicles that are not under warranty, threatening to remove the BMW stamp of approval from panel beaters that do not comply. Makana could not be reached for comment on this.

VW said it would not unilaterally withdraw warranties if alternative parts were fitted, but might reject a warranty claim if a subsequent problem or failure of a component was due to a non-genuine part being fitted.

Insurers to meet with OEMs

The high cost of parts has long been a concern of the short-term insurance industry’s representative body, the South African Insurance Association (SAIA). Viviene Pearson, general manager of insurance risk at SAIA, confirmed that the organisation was meeting “at the highest level” with Naamsa in December to discuss the high cost of OEM parts.

“This meeting will include CEOs from insurers as well as the president and deputy presidents from Naamsa,” Pearson said. “It still remains a very viable idea to certify alternative parts to ensure quality while addressing the affordability issue.”

It’s not clear whether the South African Bureau of Standards (SABS) is willing to certify alternative parts, with some suggesting this is because the OEMs are significant SABS customers. SABS could not be reached for comment.

However, TÜV Rheinland, a Germany-based company that accredits motor vehicle parts around the world, has set up a parts accreditation capability in South Africa. “With the growth in imported generic parts and with the focus on quality standards it is likely that we will see growing pressure from insurers to utilise generic parts,” commented Peter Todd, founding director of motor vehicle repair management company, Repair Solutions, and former CEO of Mutual & Federal.

According to a spokesperson for a leading aftermarket parts supplier who preferred not to be named, OEM parts prices can vary between being 20% to 400% more expensive than alternative parts, even where these have been certified by third-party agencies to vouch for their quality.

He says motor manufacturers make most of their money through after-sales servicing and some OEMs will refuse to sell single parts to panel beaters (like a front light for instance) if they suspect the panel beater is sourcing accompanying parts (like a bumper) elsewhere, insisting the panel beater buys a basket of parts.
When your road comes to an end ...... you need a HILUX!.

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Life is like a jar of Jalapeño peppers ... what you do today, might burn your ass tomorrow.
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Mud Dog
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Re: OEM vs non-OEM

Post by Mud Dog »

Four years after the Competition Commission started engagements with the automotive aftermarket, its guidelines for the sector are finally about to go into force.

It’s been a long time coming and key players in the sector are said to be neither particularly delighted, nor unhappy about it, but when the final Guidelines for Competition in the South African Automotive Aftermarket go into effect on 1 July, it will open up competition in the vehicle aftermarket sector, drive down prices and benefit the consumer.

The guidelines were issued in December 2020 by the Competition Commission after it had received complaints about anti-competitive conduct in the aftermarket value chain. It then gave the sector until next month to ensure their businesses and business arrangements are compliant.

The commission has received complaints for more than a decade about exclusionary agreements and/or arrangements between original equipment manufacturers (OEMs) and approved motor-body repairers; independent service providers (ISPs) being excluded from working on vehicles under warranty; and insurers unfairly allocating work.

Rubbing more salt in the wound is that ISPs have been restricted from buying original spare parts; small and medium enterprises and historically disadvantaged individuals battled to get a foot in the market by becoming approved as motor-body repairers and dealers; and consumers are saddled with little choice when buying and fitting spares.

The commission has been working with industry stakeholders since early 2017 to resolve the market issues. Initially, it had hoped to facilitate a voluntary code of conduct, but when consultations with stakeholders bombed, it opted to issue guidelines instead, which apply only to the aftermarket, affecting vehicle service, maintenance and repairs.

Vehicle servicing, repairs and parts supply comprise about 80% of the aftermarket industry. Each year more than R10-billion is spent on motor-body repairs.

Vehicle cover accounts for a significant portion of South Africa’s short-term insurance business — around 45%.

Anti-competitive behaviour in the automotive sector is hardly unique to South Africa, so the commission conducted a review of work undertaken by its counterparts in the EU, US, Australia, Russia and China. These countries led in the promulgation of regulations, voluntary codes of conduct, or guidelines aimed at ensuring effective competition and facilitating consumer choice.

In some jurisdictions, vehicle manufacturers are barred from hindering original parts suppliers from supplying products to independent distributors. Independent repairers also have access to the vehicle manufacturers’ original parts to allow them to compete with authorised repairers and owners can use any repair shop for non-warranty work, while the vehicle is under warranty.

In South Africa, the commission was determined to lower barriers to entry and ensure greater opportunities for the previously disadvantaged, while increasing consumer choice and facilitating competition in the markets for spare parts and value-added products.

This, it hoped, would widen the pool of approved dealers and repairers, promote the entry of the historically disadvantaged; ensure that ISPs can undertake in-warranty work on vehicles; allow for greater competition in the selling of service and maintenance plans; drive down costs for consumers; and ensure fairer allocation of work by insurers.

What this means

OEMs must recognise and not obstruct a consumer’s choice to seek work on their vehicles at a service provider of their choice, but, if the consumer chooses to use an ISP while their vehicle is within its warranty period, the OEM is under no obligation to pay for any service and maintenance work undertaken.

Consumers can fit both original and non-original spare parts, at a service provider of their choice, during the in-warranty period but if there is any damage to the vehicle from that fitment, it could put the warranty at risk — but only the part specifically affected by the repair, so, for example, using aftermarket headlights or a windscreen will have no impact on the engine.

Insurance customers will be required to have vehicle repairs undertaken by an approved motor-body repairer during the warranty period, as allocated by their insurer.

ISPs are obliged to record in-warranty work done by them in customers’ service books and must disclose to consumers — explicitly — the risk of damage that could arise from the ISP’s work, including consequential damage to the motor vehicle, which may potentially void certain obligations of the OEM in terms of the warranty.

ISPs must also disclose to consumers whether they have adequate commercial insurance cover to perform the work that they will be undertaking on the vehicle.

If any damage is caused to the vehicle as a result of work done by an ISP, there is a risk that certain provisions of the OEM warranty will be voided — but other provisions of the warranty may remain severable and enforceable, which means the OEM concerned may conduct an assessment (at its cost), to determine liability. If there is a dispute, a consumer can approach the Motor Industry Ombudsman to investigate the matter in terms of the Consumer Protection Act.

OEMs must disclose certain information to consumers, such as the price of any pre-included service or maintenance plan, extended warranty or scratch and dent product, to enable them to make informed choices about the required maintenance of their vehicles.

OEMs may impose restrictions or prohibitions on ISPs from on-selling original spare parts to third parties.

There is no obligation on approved dealers to supply non-original spare parts.

Maintenance and/or service plans — typically three years/60,000km; four years/120,000km; five years/50,000km — which are sold with vehicles, are no longer to be bundled with the purchase price. OEMs and independent providers of value-added products must adopt measures to promote competition and consumer choice, by offering such plans of varying durations; and transfer plans or even refund a customer the balance of the product, if a vehicle has been written off by the insurer.

OEMs are “encouraged” to make available, on reasonable terms and conditions and subject to their intellectual property and data privacy rights, technical maintenance and repair information including information stored electronically or in the cloud. They must also provide training (or give access to training) to employees of ISPs who request it, at a reasonable cost that may not exceed that imposed on employees of approved dealers.

Reaction

During a recent media conference, the National Automobile Dealers’ Association (Nada), suggested that the guidelines were voluntary and while their members would abide by them, they would need up to a year to become fully compliant.

Mark Dommisse, Nada chairman, expressed concern that consumers might misinterpret the guidelines to mean that they can take their in-warranty vehicles to any workshop of their choice. That would be unwise because it could invalidate the warranty.

While there might be many complaints about dealerships, Dommisse said, in-warranty vehicles should rather be taken to a franchised workshop. Nada also has a national footprint with the best-trained staff. “Your car is worth a lot more if it has a history of being serviced using original parts, with properly trained technicians at authorised dealerships.”

Brandon Cohen, the convener of Nada’s legal and compliance committee, noted: “Fred in a shed or under the tree is not going to qualify as an ISP”, but because the sector has been opened up to more players, service wins.

He warned consumers against using backyard mechanics because if, for example, a cheap oil change seizes a vehicle’s engine, the OEM will investigate and the resultant damage will not be covered.

The guidelines appear to be more stick than carrot. The commission says the guidelines are not exhaustive, nor will they affect its discretion or that of the tribunal or courts to pursue anti-competitive conduct in terms of the Competition Act through enforcement.

Commission spokesperson Siyabulela Makunga said the commission intends to conduct periodic impact assessments to monitor compliance and stakeholders will be requested to provide relevant information and data.

“[After 1 July] the commission will also expect to receive information and complaints from members of the public as they deal with OEMs and insurers.”

Gunther Schmitz, the chairperson of the Right2Repair (R2R) SA, which has been championing more competition in the sector, hailed the implementation date, saying, “More choice and more competition always leads to better prices and better service.”

R2R would have liked to see more details on telematics, ie, the OEMs directing vehicle owners to specific workshops via the telematics systems in the motor vehicles.

“Rules on this are about to be implemented in several US states and in the EU. This is also crucial for dealerships, because telematics used wrongly will hand a lot of influence over consumer behaviour to the OEM, away from the dealership where the consumer is the customer,” Schmitz explained.

R2R is also not happy that the guidelines still permit OEMs to limit access to a vehicle’s security system and any anti-theft devices.

“By itself we would not have to worry about this, but unfortunately experience in the EU has shown that some OEMs might use this to limit access to repairs for independent service providers.

“As R2R we are going to take action if we see such anti-competitive behaviour, but of course we would prefer to work on more constructive topics.”

Complaints about anti-competitive conduct can be mailed to ccsa@compcom.co.za, after a CC1 form has been filled in. DM/BM
When your road comes to an end ...... you need a HILUX!.

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Life is like a jar of Jalapeño peppers ... what you do today, might burn your ass tomorrow.
Don't take life too seriously ..... no-one gets out alive.
It's not about waiting for storms to pass. It's about learning to dance in the rain.
And be yourself ..... everyone else is taken!
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