Generally, in Italy vehicles are distributed through selective distribution agreements entered into by local manufacturing companies, or the local representatives of foreign manufacturers, and autonomous Italian entities. The business dimensions of dealers vary mostly depending on the geographical regions they are located in. In the central-northern regions and within the main Italian cities, dealers are usually representative of rather structured and economically sound companies owning more than one dealership. In the south of Italy and in smaller towns, where there might be a more evident economic depression, dealers tend to be small, family-owned companies.
With respect to contractual relationships with personnel, sales agents are often linked to dealers by means of agency agreements.
Notwithstanding the aforesaid general distribution mechanism, leading Italian automotive brands have recently developed new forms of sale chains by which they set up fully owned large dealerships where manufacturers promote and sell multiple vehicle brands. Clients are therefore offered the chance to see different car types and receive different services (sale, maintenance, repairs, post-sale assistance, etc) within the same vast premises. Following the Italian lead, other German and French-based manufacturers have adopted the same business model in Italy and have recently opened fully owned car dealerships in the main Italian cities, such as Rome and Milan.
With reference to distribution agreements, due to the automotive market crisis experienced in the past decade, the number of mono-brand dealers has largely diminished over the years leaving space to multi-brand dealers, which are increasingly specialising in post-sale assistance services (eg, car registrations, services for disabled people accessing state benefits, maintenance, repairs, contractual warranties, etc) and captive services (such as loans, insurance contracts, leasing and car rentals, etc). To give an idea of dealers’ core business in Italy, only a small percentage (less than 15 per cent) is linked to the sale of used vehicles. The remaining percentage is connected to the sale of new vehicles and to post-sale services.
The recent economic developments in the automotive sector have also prompted the expansion of new mobility models in Italy, where the market is proving to be focused on increasing rentals and car-sharing relationships rather than traditional sale schemes. Today the number of rental or sharing vehicles in Italy has almost reached 1 million: on a daily basis, over 790,000 people use long-term rental services, 94,000 individuals choose short-term rentals and over 19,000 share their journey when travelling for work or leisure. Indeed, rentals increased in 2017 by 20 per cent and car-sharing (especially in the north) has increased by a considerable 35 per cent. The increasing trend is therefore moving towards more efficient, luxurious and high-performing cars (with fewer burdens from an insurance, tax and maintenance perspective) available to a wider share of users than before.
Moreover, interestingly, recently the Italian Supreme Administrative Court, by totally reforming the precedent Italian government’s position on the matter, ruled in favour of sales of vehicles online through e-commerce channels. Despite this new overture, the practice of selling cars online has still not caught on in Italy, probably owing to practical difficulties and a cultural approach to the purchase of cars, which is still linked to traditional schemes. However, things may evolve in the future.
From a contractual point of view, there is no specific national legislation in Italy on distribution agreements; hence the same are governed by general contract law rules with reference also to sale, supply and franchising agreements.
Under EU legislation (Regulations No. 330/2010 and 461/2010 and the Supplementary Commission Guidelines No. 2010/C 138/05), however, with specific reference to automotive distribution, there are given limitations applicable to these kinds of vertical distribution agreements (ie, those contracts entered into by two or more companies at a different level of the production or distribution chain, and relating to the conditions under which the contracting parties may purchase, sell or resell certain goods or services).
Selective distribution may be based on qualitative or quantitative grounds.
In purely qualitative selective distribution schemes, dealers and repairers are selected on the basis of objective criteria required by the nature of the product or service (eg, technical skills of sales personnel, layout of sales facilities, sales techniques and the type of sales service to be provided). These types of distribution agreements are usually deemed as not having anticompetitive effects, provided that they set legitimate, uniform, non-discriminatory and reasonable objective criteria.
On the other hand, distribution agreements based on quantitative grounds are seen as more restrictive as they set numerical limitations such as a maximum given number of permitted dealers or repairers, or a minimum level of sales.
Under the aforesaid EU legislation, there is a presumption that both qualitative and quantitative selective distribution agreements in the automotive sector do not limit competition if the parties’ share of the market does not exceed 30 per cent, provided they do not:
- impose fixed sale prices on dealers;
- impose geographical restrictions (albeit with some exceptions);
- restrict active or passive sales to end users;
- restrict cross-supplies between distributors within the same selective distribution system; or
- restrict the manufacturer’s ability to sell components as spare parts to end users or repairers or to others who have not been entrusted by a specific dealer.
With reference to time limits applying to the duration of vehicle selective distribution agreements, prior to the implementation, on 1 June 2013, of Regulation No. 330/2010 (which substituted the previous Regulation No. 1400/2002), such agreements were considered as not restrictive of competition provided they lasted for at least five years (in this case a non-renewal six-month notice period was necessary). On the other hand, in the case of unlimited duration of the distribution agreement, any withdrawal notice had to be of at least two years, unless the manufacturer indemnified the dealer or put in place a major distribution net reorganisation (in the latter two cases, the notice could be reduced to one year).
As soon as the market proved that the aforesaid legislation and time limits were in fact restricting competition rather than incentivising it, EU legislators amended the applicable provisions, by eliminating all references to limits on duration of such agreements.
As a consequence, the current legislation only permits an exclusivity regime for a maximum period of five years from the date the distribution contract is entered into. No automatic renewal provision, which is deemed to extend the duration to over five years, is valid.
With reference to termination provisions, there is no specific time requirement under Italian law for a valid notice to be given, provided it is adequate and reasonable. The adequacy of the term provided within the termination notice very much depends on:
- the reason for termination (eg, breach of obligations by the dealer, justified or unjustified withdrawal by manufacturer, etc);
- the contractual relations between the parties (eg, duration of the contract, exclusivity regime, number of dealerships, participation in the dealer’s capital share by the manufacturer, existence of an economic dependency, etc); and
- the reliance by the dealer upon the manufacturer’s business strategies or the manufacturer’s assurances or guarantees, which proved to be wrong or which induced the dealer to, as an example, get mortgages or loans, make infrastructural and technological investments, buy new premises, hire new personnel, etc.
In respect to restructuring of dealers, some criticisms arise. Recent trends have proved that most automotive manufacturing companies establish their own banks. On top of rendering financial services to private consumers, automotive banks also financially sustain dealers. This causes problems in Italy with reference to insolvency matters.
Indeed, considering that products, pre-sale and post-sale services, technological infrastructure, platforms, business and sale conditions and strategies are supplied, developed and often imposed by manufacturing companies, it frequently is the case that dealers are subject to economic dependency upon manufacturers. Understandably, distributers also tend to resolve their financial issues by seeking more available financial allowances, and at better interest rates, from the manufacturers’ banks. On the other hand, automotive companies have a high interest in ensuring that dealers do not become insolvent. However, they also need to make sure not to contribute to the further indebtedness of the distributor by financing it when it becomes apparent that such distributor will not be able to repay its debt, as this conduct is prosecutable under the Italian legislation.
In order to mitigate the risk of not recovering the purchase price of vehicles and spare parts to be paid by distributors in case of insolvency, manufacturers usually subject the sale of vehicles to a right of retention of title. According to this provision, title of ownership on vehicles will be transferred to dealers only upon full payment of price. This measure, albeit valid from a legal standpoint, often does not prove to be as effective considering that, in the case of receivership proceedings against dealers, the receiver often happens to disregard the retention title, leaving the manufacturer with the burden of starting long and costly legal proceedings to enforce its rights and recover its vehicles.
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