Competition Commission of India’s (CCI’s) combined penalty of ₹ 2,500 crore on 14 car companies is unlikely to seriously dent their financials.
At an individual company level, for example, the highest fine of ₹ 1,346.5 crore levied on Tata Motors Ltd is a tenth of its annual consolidated profit and a minuscule portion of its revenue. The same is true for most others like Mahindra and Mahindra Ltd and Maruti Suzuki India Ltd. That is the reason the listed auto company shares hardly reacted to this news.
That said, while the spare parts revenue is hardly 8-10% of the total revenue (going by listed company annual reports), auto analysts say profit margin in this business is substantially higher than that on vehicle sales. Obviously, this is at the expense of the customer, which is the point made by customers and the CCI order.
The order says that car companies’ denial of access to diagnostic tools and spare parts results in monopolistic practices and helps the car manufacturer sell spare parts at high prices. Now, auto firms may, after this order, mark down component spare parts prices, which could have a marginal impact on profitability. Also, stringent enforcement can make manufacturers offer details of the mechanics of the vehicle through manuals, which would be helpful to the customer.
But the moot question is: what real impact will the CCI order have and when? There are precedents across other industry sectors where CCI fines have proved to be empty threats and are still pending action. About two years ago, a host of cement companies were levied with huge fines for alleged price control, which is still being contested, pending a decision by the Competition Appellate Tribunal, where the companies appealed. Another older case in point is DLF Ltd, where no action has been taken yet after the company appealed against CCI’s fine of ₹ 600 crore for allegedly abusing its dominant market position in the real estate segment.
M&M and Tata Motors have said they would challenge the CCI penalty on them. Others may also follow the same route. In this case, they would have to pay a small amount of margin money upfront and challenge the order. This would neither affect their earnings nor their valuation.