Tata Motors, M&M to challenge CCI order of huge penalty

Tata Motors and Mahindra & Mahindra (M&M) on Tuesday said that they would challenge the Competition Commission of India's (CCI) order that imposed huge penalty on auto companies on Tuesday.

Mahindra & Mahindra (M&M) – the largest utility vehicle maker issued a statement on Bombay Stock Exchange (BSE) saying, "The company aggrieved by this order proposes to appeal against it before the appropriate forum."

CCI on Tuesday published an order against 14 automobile companies, imposing a penalty of 2% of the average annual turnover for the years 2007-08, 2008-09 and 2009-10. A total penalty of Rs 2,544.64 crore has been imposed by the competition watchdog, between the 14 manufacturers. Companies like Maruti Suzuki, M&M, Tata Motors, Toyota Kirloskar Motor, Honda Siel Cars India (now Honda Cars India), Mercedes Benz India, Nissan Motor India, General Motors, etc are among 14 companies, penalised for restricting the growth of the spare parts market, for abusing their dominant position and not allowing independent maintenance companies or garage owners to provide after sales services to customers.

Tata Motors has been imposed with the highest penalty of Rs 1,346.46 crore while M&M has been asked to pay Rs 292.25 crore.

According to a statement issued by Tata Motors on the stock exchange, "Out of the total penalty levied on 14 passenger vehicle manufacturers of aggregating Rs.2,544.65 crore, the penalty levied to Tata Motors is Rs1,346.46 crore being on the consolidated global turnover of the Tata Motors Group (instead of turnover only pertaining to Passenger Vehicle Business, in India)."

"The company would be filing an appeal against this order before the appropriate authorities," the company said.

Maruti Suzuki did not respond to the queries sent via text message, while Nissan did not provide any comment. Toyota said that it will study the order and take a decision in few days. Honda Cars India spokesperson said, "We are aware of order. However, there is no official communication from CCI to Honda Cars India as yet. Once we receive the same, we will evaluate the order and respond accordingly."

The order relates to competition law proceedings initiated in 2011 which aimed at investigating the conduct of certain auto companies for practices followed by these companies with respect to alleged restrictive covenants pertaining to supply of spare parts and other diagnostic tools in the aftermarket. According to estimates by automobile component manufacturers association (ACMA), mentioned in the report, the overall size of the automotive aftermarket in India is approximately Rs 330 billion and three-fourths of this constitutes spare parts and one fourth consists of maintenance and repair costs.

According to analysts, the order, even if it goes will not have much impact. According to an analyst from a domestic brokerage, who is not authorised to quote said, "Firstly for companies like M&M and Tata Motors, the amount specified, which is 2% of their overall annual turnover, includes the consolidated revenues from commercial vehicles and farm equipment segment for M&M. While it should be applicable only on domestic passenger vehicle sales. The companies have already challenged the decision and the amount charged as penalty is too small to make any impact."

According to analysts, the revenues from spare parts and services is less than 10% for the auto companies. While spare parts of companies like Maruti and Tata Motors are available with the non-authorised dealers also, experts said that the international players will have a major impact if the spare parts are available in an open market.

CCl has also ordered the automobile companies to undertake certain compliance within 180 days from the receipt of the order and has directed them to submit a report within 60 days of receipt of the order.