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OFT considers undertakings instead of reference to the Competition Commission in car dealer merger

122/06    4 August 2006

The OFT has decided today not to refer the completed acquisition by Pendragon Plc of Reg Vardy Plc to the Competition Commission on the condition that Pendragon provides satisfactory divestment undertakings to address competition concerns.

The OFT has identified four local areas where the merger of the car dealerships businesses may substantially lessen competition in the provision of servicing and repair for new cars under warranty. Pendragon has offered to divest a number of dealerships within these areas to address the concerns raised by the OFT.

Vincent Smith, OFT Director of Competition Enforcement said:

'The findings of the recent independent evaluation study for the OFT on car warranties, and evidence from third parties obtained during this investigation, show that customers still predominantly have their new cars serviced and repaired at franchised dealerships. This merger leads to a substantial lessening of competition in terms of the choices available to such customers in a small number of local areas. The OFT will now proceed to consider further whether the proposed divestments are sufficient to restore competition for the servicing of new cars in these local areas.'

For details of the independent evaluation study see notes.

NOTES

1. The four local areas where competition concerns have been identified in relation to the supply of servicing for new cars are the areas around: West Yorkshire (Wakefield, Leeds and Castleford), Central Scotland (Motherwell, Airdrie and East Kilbride), Hartlepool and Northamptonshire.

2. Download Evaluating the impact of the car warranties market study, June 2006 (pdf 555 kb). This study found that although consumer awareness of alternative servicing options had increased, 86 per cent of consumers with new cars still went to franchised dealerships for servicing, partly due to their belief that this was still necessary to maintain the warranty.

3. The Reference Test — The OFT has a duty to make a reference to the CC if the OFT believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

4. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.

5. Under section 73 of the Enterprise Act 2002 the OFT may, instead of making a reference, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned, or any adverse effect which has or may have resulted from it or may be expected to result from it, accept from such of the parties concerned as it considers appropriate undertakings to take such action as it considers appropriate. In doing so, the OFT will have regard to the need to achieve as comprehensive a solution as is reasonable and practicable to the substantial lessening of competition and any adverse effects resulting from it.

6. Before accepting any such undertakings under Schedule 10 of the Enterprise Act 2002, the OFT shall give notice of the proposed undertakings and will consider any representations made in accordance with that notice.

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