Competition and trade law: Commission fines Volkswagen for unfair sales practices

The European Commission has decided to fine the German car maker Volkswagen ECU 102 million for persistent infringement of EU competition rules. The fine is the largest ever financial penalty inflicted by the Commission on an individual company and is equivalent to 10% of Volkswagen's profits in the territories affected.

It is alleged that Volkswagen's practices have sought to partition the single market, contrary to EU competition rules.

The company prevented its Italian dealerships supplying Volkswagen and Audi Motors for export to German and Austrian final customers. The company penalised dealers who sold models outside their territory, for example by threatening termination of the dealer's contracts, actual termination of such contracts, reduction of profit margins and bonuses for dealers, and rationing deliveries to Italian dealers. All sales by Italian dealerships were monitored to check up on the Italian dealers and Volkswagen/Audi advised their dealers in Italy not to give the real reason for the refusal to sell to foreign customers.

The effect of the decision for VW is an automatic loss of the protection of the EU block exemption for vehicle distribution networks. This block exemption allows car makers' exclusive or restricted distribution arrangements with dealers subject to specified criteria, but bans practices to prevent tied dealerships selling to non-national dealers or foreign individual purchasers. VW/Audi dealers' contracts may therefore now be open to challenge before national courts of the Member States, at least in the territories affected by the decision.

If the Commission uncovers similar practices on the part of other producers in the industry, this will put into question the possibility of renewal of the block exemption on its expiry in 2002. This question will in any event probably be affected by the outcome of the Commission's current competition policy review of vertical restraints.