Updated: August 27, 2021 2:29:26 pm
India’s largest car maker, Maruti Suzuki India Ltd. (MSIL) has been fined Rs 200 crore by the competition regulator for a policy under which the company penalised its dealerships and its employees for offering additional discounts. The Indian Express examines Maruti’s conduct, and why it is against competition laws.
How did Maruti Suzuki restrict dealers from offering additional discounts to customers?
MSIL entered into agreements with dealers across the country to set maximum discounts under a discount control policy and enforced adherence to the policy through steep penalties.
MSIL used mystery shopping agencies to visit its dealership to check if additional discounts were being offered. If a dealership was found to have offered discounts higher than those authorised by MSIL, the company sought fines from the dealership, manager, team leader and direct sales executive involved in the offer.
In one case, a sales executive was fined Rs 5,000 while the dealership faced a penalty of Rs 50,000 for offering an additional discount of Rs 1,850 on accessories.
In another example, Maruti fined a Thiruvananthapuram-based dealership Rs 1 lakh for offering additional discounts on a Rs 4,500 basic kit.
Maruti Suzuki e-mailed dealers a schedule of penalties for violations of its discount policy, which escalated with every offence from Rs 50,000 for a first violation, Rs 1 lakh for the second, and Rs 2 lakh for the third and every subsequent violation.
Key evidence of Maruti’s enforcement of this policy was found in e-mails by Maruti to its dealers. In one e-mail to dealerships in the national capital region, the commercial head of MSIL-NCR said the company would “mercilessly initiate multiple penal action, if required, to stop this menace (additional discounting) at any cost.”
E-mails also showed that MSIL recommended that any sales executive found violating the discount policy twice be sacked and blacklisted from its network.
The investigation by the Competition Commission of India (CCI) also showed e-mail exchanges in which dealers sought permission to offer discounts above those prescribed by MSIL, and were denied permission to give additional discounts in some instances.
MSIL also directed how penalties collected for such violations would be used, and the CCI noted a case in which the penalties were used for advertising purposes.
Why is price maintenance considered anti-competitive?
Discount control mechanisms can be considered anti-competitive if they restrict inter-brand or intra-brand competition, and could lead to consumers not getting the best price for products. The CCI found that MSIL had the largest market share in the passenger vehicle segment and that Resale Price Management (RPM) by MSIL negatively impacted competition not only among its dealers but also competition with other brands.
“When a significant player such as MSIL imposes minimum selling price restrictions in the form of maximum discount that can be offered by the dealers, RPM can decrease the pricing pressure on competing manufacturers,” the CCI noted.
What is Maruti’s stance?
Maruti had argued before the CCI that its sole agreement with dealers did not impose any discount restrictions, and that it acted only as an adjudicator for discount agreements among dealers. The CCI, however, rejected this stance, noting that agreements under competition law does not necessarily need to be a formal agreement. The CCI noted that the e-mail exchanged between MSIL and dealers established an agreement to impose and enforce a discount policy.
An MSIL spokesperson said, “We are examining the order and will take appropriate actions under law. MSIL has always worked in the best interests of consumers and will continue to do so in the future.”
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