Ministry of Commerce takes on car dealers

By : Abdel Aziz AlUwaisheg

On May 20, Saudi Arabia’s Ministry of Commerce and Industry published the results of its survey of consumer satisfaction with car agencies services. Last week, it publicly disclosed the name of one car agency that has been fined for breaking the law.

The survey results reconfirmed the general negative impressions about car agencies. Two thirds (67 percent) of respondents were dissatisfied with their services. Only one out of 18 car agencies received more than 50 percent satisfaction ratings from consumers, the rest fell far below. For the second year in a row, the ministry disclosed the names of 18 car dealers in question and their consumer ratings. Satisfaction with some agencies was as low as 14 percent. Compared to last year, only four dealers improved their performance, slightly, while the other 14 got worse marks this year.

The ministry, with the help of a team of academics, conducted the survey. Nearly 27,000 participants took part; most of them (87 percent) were university educated.

The survey results are discouraging. Not only is consumer satisfaction very low but it is also getting worse. Last year, when the ministry published, for the first time, the results of a similar survey, consumer dissatisfaction was recorded at 61 percent.

In addition to the survey, the ministry reported that it had received 4,270 complaints about car agencies’ performance during the second half of 2013. About 29 percent of them were related to inadequate maintenance or spare parts, 25 percent about failure to honor warranties, 22 percent about manufacturing defects and 14 percent about other breaches of contract.

Following last year’s survey, the ministry took several steps to improve agencies’ performance. It discussed the results with the agencies, urging them to improve those areas cited by consumers as unsatisfactory. It also made the results available to manufacturers and held meetings with some of them, encouraging them to take action to improve their agents’ performance. The ministry suggested that manufacturers establish offices in Saudi Arabia for monitoring, evaluation and quality assurance.

In addition, fines were imposed on a number of car agencies. Last July, the official Saudi Press Agency (SPA) reported that the ministry had empaneled the commission stipulated in Commercial Agency Law for the adjudication of agency cases and imposition of penalties against violators. It also reported that the commission had imposed four judgments against three unnamed car agencies for violations such as failure to deal with manufacturing defects and to provide spare parts and adequate maintenance. In addition, the ministry administratively fined eight agencies for violations such as failure to display prices and other necessary information and lack of informed consent in contracts.

For a while, the ministry refrained from publicly naming the car agencies involved in those violations. However, last week, the ministry ran a notice in local newspapers naming at least a violator, an agent for a luxury German car. The notice stated that the commission had imposed a fine on the car agency for failure to provide spare parts and ruled that the name of the agency be publicized in newspaper advertisement at the agency’s expense.
Publicizing violators’ names is an important development in the ministry’s efforts to improve car agencies’ performance. Quiet exhortations to both dealers and manufacturers have seemingly failed to make a marked difference. Fines have also failed to improve their services, as long as violators’ identities were kept secret.

Perhaps the naming and shaming could work, especially when combined with stiff penalties and close monitoring of agents’ performance.

Representatives for the car agencies have taken note. One trade representative lambasted the ministry’s decision to publicize the results of its survey, describing it as “illegitimate defamation” that ran counter to Saudi laws and “lacked scientific and practical methodology.” He further doubted the accuracy of its results, because the dealers “annually reap awards from the manufacturers they represent in appreciation of their services.”

The car dealers’ trade representative rebuttal was expected, but seriously flawed. The Ministry of Commerce is certainly authorized to publish the results of its findings as part of its duty to regulate trade and protect consumers. Lending scientific legitimacy to the ministry’s action is the fact the survey’s results are consistent in two years in a row, mirroring the thousands of complaints that it receives every year about the same car agencies. The fact that some dealers have won awards from the manufacturers does not refute that consumers, not manufacturers, are dissatisfied with their services. In addition, some manufacturers have fired some of their old agents and moved their business to other agents, not exactly a vote of confidence.

What the ministry has done is to break the silence that has for decades protected unlawful practices of a handful of agencies. A dealer monopolizes the sale and service of a trademark or two, and in some cases three or four, holding consumers at bay. Being sole agents or part of a small oligopoly, dealers first decide the price of new cars. Then, once a consumer buys a car, it is up to the dealer alone whether to provide the spare parts, when to service the car and how much to charge for all of this, regardless of any explicit or implicit warranties that the consumer may hold. In most cases, there is no competition to keep performance levels or prices in check, especially in new models with complicated proprietary technology that only the manufacturers can provide or maintain.

There is more to be done to bring about some fairness in the market. More pressure has to be applied on both dealers and manufacturers to improve service, such as more frequent and conspicuous disclosures of judgments against them by the commission.
Manufacturers have to consider selling directly to consumers, or at least open offices to monitor consumer satisfaction. In addition, we need to seriously consider putting restrictions on the validity of exclusive agency agreements that foreign car manufacturers sign with local representatives. As the ministry surveys have demonstrated year after year, those exclusive agreements have deprived consumers from the benefits of free competition.






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