Maruti Suzuki fined Rs 200 crore by CCI over dealer discount policy

The Competition Commission of India (CCI) fined Maruti Suzuki India Limited (MSIL) a total of Rs 200 crore on August 23 for anti-competitive conduct linked to how it pressured dealers to discount automobiles.

A statement issued by the CCI read: "The Competition Commission of India passed a final order against Maruti Suzuki India Limited (MSIL) for indulging in anti-competitive conduct of Resale Price Maintenance (RPM) in the passenger vehicle segment by way of implementing Discount Control Policy vis-à-vis dealers, and accordingly, imposed a penalty of Rs 200 crore upon MSIL, besides passing a cease-and-desist order."

It further added: "CCI found that MSIL had an agreement with its dealers whereby the dealers were restrained from offering discounts to the customers beyond those prescribed by MSIL."

"In other words, MSIL had a 'Discount Control Policy' in place for its dealers whereby the dealers were discouraged from giving extra discounts, freebies, etc. to the consumers beyond what was permitted by MSIL. If a dealer wanted to offer additional discounts, prior approval of MSIL was mandatory. Any dealer found violating such Discount Control Policy was threatened with the imposition of penalty, not only upon the dealership but also upon its individual persons, including direct sales executive, regional manager, showroom manager, team leader, etc."

In 2019, the CCI started an inquiry and was looking into claims that Maruti restricts the number of discounts its dealers may provide, thereby suffocating competition and hurting consumers who could have benefited from reduced pricing if dealers were allowed to operate freely.

The case took birth when an anonymous e-mail was submitted by a putative dealer against MSIL, alleging resale price maintenance by the automaker in specific locations, according to a 10-page report provided earlier by the CCI. MSIL is said to have implemented a similar discount control strategy across India, particularly in cities where more than five dealers operate in a single city.

According to the current CCI investigation, MSIL hired Mystery Shopping Agencies ('MSAs') to implement the Discount Control Policy by posing as consumers at MSIL dealerships to see whether any further discounts were being provided to customers. If found guilty, the MSA would report it to MSIL management, who would then send an e-mail to the offending dealership with a "Mystery Shopping Audit Report," and asking for clarification. A penalty would be levied on the dealership if MSIL was not satisfied with the dealership's clarification.

The Competition Commission of India (CCI) determined MSIL's conduct to be in violation of Section 3(4)(e) read with Section 3(1) of the Competition Act, 2002, since it resulted in an adverse effect on competition inside India.

Reacting to the CCI order, Maruti Suzuki said: "We have seen the order dated 23 August 2021 published by the CCI. We are examining the order and will take appropriate actions under the law. The MSIL has always worked in the best interests of consumers and will continue to do so in the future."

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