Describe the significance of, and developments in, the automotive industry in the market.
The automotive industry is a strategic and significant sector in Spain. It is, alongside other strong industries (such as tourism, chemicals, and agriculture and food), one of the important elements of the Spanish economy. Spain is ranked second among European automotive manufacturers, and 12th globally. According to recent figures of industry associations, the automotive industry represents roughly 10 per cent of GDP and more than 87 per cent of all cars and components manufactured in Spain are exported abroad.
All major automotive companies have manufacturing units in Spain, with 17 plants currently generating significant activity and direct and indirect employment. In some cases, automotive plants have prompted the creation of ‘hubs’, which have attracted numerous component suppliers and service companies in their vicinity (this is the case for the SEAT Volkswagen plant at Martorell, close to Barcelona, and Ford’s plants in Valencia).
A highly skilled workforce, significant research and development, modern technology and a strategic geographic location continue to make Spain an attractive country for the automotive industry.
What is the regulatory framework for manufacture and distribution of automobiles and automobile parts, such as homologation process as well as vehicle registration and insurance requirements?
Pursuant to section 1 of the General Regulation on Vehicles (passed by Spanish Royal Decree 2822/1998 of 23 December 1998), the distribution of vehicles requires prior authorisation. This takes the form of type-approval (homologation), granted by the Spanish Ministry of Energy, Tourism and the Digital Agenda.
Vehicle type approvals are governed by European Directive 2007/46/EC of 4 September 2007 establishing a framework for the approval of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles. Directive 2007/46/EC has been implemented in Spain by means of Royal Decree 750/2010 of 4 June 2010.
Directive 2007/46/EC regulates a harmonised framework containing the administrative provisions and general technical requirements for approval of all new vehicles within its scope and of the systems, components and separate technical units intended for those vehicles, with a view to facilitating their registration, sale and entry into service within the EU. According to section 5, the vehicle’s manufacturer is responsible for all aspects relating to the type approval process and for ensuring conformity of production, whether or not such manufacturer is directly involved in all stages of the vehicle’s production.
In addition, there are other EU laws regulating type-approvals relating to specific aspects on vehicles: (i) Regulation (EC) 661/2009 of 13 July 2009 concerning type approval requirements for the general safety of motor vehicles, their trailers and systems, components and separate technical units intended therefor; and (ii) Regulation (EC) 715/2007 of 20 June 2007 on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) and on access to vehicle repair and maintenance information.
Regulation (EC) 661/2009
Regulation (EC) 661/2009 sets out the requirements for the type approval of motor vehicles, their trailers and systems, components and separate technical units with regard to their safety.
Pursuant to sections 4 and 5, manufacturers shall demonstrate that the following are type approved in accordance with its provisions: (i) vehicles, systems, components and separate technical units; (ii) all new vehicles sold, registered or put into service within the EU; and (iii) all new systems, components and separate technical units sold or put into service within the EU.
Regulation (EC) 715/2007
On the other hand, Regulation (EC) 715/2007 establishes common technical requirements for the type approval of motor vehicles with regard to their emissions. In this respect, manufacturers are obliged to fulfil all the type approval requirements provided for in the same. These obligations include meeting the emission limits set out in Annex I (Euro 5 and Euro 6 emissions limits and emission limits for the evaporative emissions test).
Furthermore, manufacturers shall ensure that type-approval procedures for verifying conformity of production, durability of pollution control devices and in-service conformity are also met.
Pursuant to section 4 of Spanish Royal Decree 750/2010, manufacturers wishing to type-approve vehicles, systems, components or separate technical units under the scope of application of the Decree shall be registered with the Manufacturers Registry.
Following the granting of type approval, vehicles and their trailers and semi-trailers shall be duly registered with the Vehicles Registry managed by the relevant traffic authority. Such traffic authority will depend on the autonomous region where the vehicle’s owner, lessee with a purchase option or long-term lessee has its legal domicile. In this sense, and as it infers from the latter, the registration request must be undertaken by the owner, lessee with a purchase option or long-term lessee. Additionally, the Vehicles Registry, in general terms, aims at identifying, among other aspects, the vehicle’s holder, the vehicle’s technical characteristics, the inspections conducted, compliance with the applicable insurance requirements and compliance with other legal provisions.
Insurance requirements apply to the use of vehicles for private or professional use, but the Spanish requirements are not materially different from those that can be found in other European countries.
Development, manufacture and supply
How do automotive companies operating in your country generally structure their development, manufacture and supply issues? What are the usual contractual arrangements?
The contractual arrangements and structuring of the development, manufacturing and supply in the Spanish automotive sector do not differ substantially from what occurs in other European countries. Some particularities may apply in the case of the Canary Islands (which enjoys a specific tax regime to protect investment and consumption in that overseas region and represents a challenge in terms of operational and transportation cost), but other than that the situation in Spain is similar to that in neighbouring countries.
How are vehicles usually distributed? Are there any special rules for importers, distributors, dealers (including dealer networks) or other distribution partners? How do automotive companies normally resolve restructuring or termination issues with their distribution partners?
As in many other European jurisdictions, vehicles are distributed through networks of ‘concessionaires’ or authorised dealers that represent the car manufacturers across the Spanish territory. There is, however, no specific distribution law in Spain (unlike in other countries, such as Belgium) and therefore general rules of contract law apply - in some cases in combination with franchise regulations, commercial agency rules or other specific subsets of Spanish contract law depending on how the relationship with a particular dealer is organised. There have been legislative efforts in recent years to introduce a new Commercial Code, including specific rules for distribution (which would encompass automotive wholesale and retail distribution), but it is not likely that a distribution law will be passed in Spain in the mid to long term.
Legal disputes between car dealers and manufacturers typically focus on the renegotiation or termination of concession or distribution contracts, while disputes involving suppliers normally relate to purchase levels or price renegotiation (particularly with key suppliers that make ad hoc components for specific car models or agree on particular pricing based on minimum purchase volumes). We understand, however, that these types of disputes are not specific to Spain and can be found in most other European jurisdictions as well.
Mergers, acquisitions and joint ventures
Are there any particularities for M&A or JV transactions that companies should consider when preparing, negotiating or entering into a deal in the automotive industry?
The structuring and implementation of M&A and joint ventures in the Spanish automotive sector do not differ from what can be seen in similar transactions in the industry in other European countries.
Incentives and barriers to entry
Are there any incentives for investment in the automotive market? Are there barriers to entry into the market? What impact may new entrants into the market have on incumbents?
According to the 2017 Annual Report of the Spanish Association of Vehicle Manufacturers (ANFAC), in 2017, though vehicle manufacturing dropped by 1.5 per cent (2.84 million units produced in 2017 compared with 2.89 million in 2016), the registrations of private vehicles increased by 7.7 per cent. However, recent data made available by ANFAC to the press show a negative trend both in vehicle manufacturing (with a drop of 1 per cent in 2018 compared to 2017) and in the registration and sales of private vehicles (with a 9 per cent drop in the first quarter of 2019 compared with the same period in 2018). This negative trend has raised concerns in the automotive market. In this context, the Spanish government has launched several plans and programmes to incentivise investment in the Spanish automotive market, boost the industry and contribute to generating more sales among Spanish consumers.
One of the most important programmes launched by the Spanish government for 2019 is the Programme of Incentives for Efficient and Sustainable Mobility, passed by Royal Decree 72/2019, of 15 February 2019, which is endowed with €45 million and provides for incentives for, among other, the purchase of alternative energy vehicles and the construction of electric vehicle charging infrastructures. It is also worth noting the Strategic Plan for Integral Support to the Automotive Sector launched on 4 March 2019, which establishes, as one of its fundamental pillars:
the promotion of investments in the automotive sector in Spain, especially aimed at investment in R&D&I and the production of more sustainable models in Spain. In addition, measures will be articulated by the Public Administration to promote investments in the field of innovation and in the commitment to new technological developments and digital transformation to favour the adjustment of the whole industry to the new context of the vehicles of the future, more efficient, less polluting, safer, connected and autonomous.
In terms of market entrance, there are no substantial legal barriers other than the usual requirements involving the establishment of a business or manufacturing plant in Spain; nor are there any particular restrictions on foreign investment (save in the case of investors from countries that are affected by international trade sanctions or embargo regulations).
Product safety and liability
Safety and environmental
What are the most relevant automotive-related product compliance safety and environmental regulations, and how are they enforced? Are there specific rules for product recalls?
The most relevant safety and environmental rules relating to automotive compliance are envisaged in the EU Directive and Regulations mentioned in question 2 (ie, Directive 2007/46/EC, Regulation (EC) 661/2009 and Regulation (EC) 715/2007).
Pursuant to Regulation (EC) 661/2009 and Regulation (EC) 715/2007, respectively, manufacturers shall (i) ensure that vehicles are designed, constructed and assembled to minimise the risk of injury to vehicle occupants and other road users, and (ii) equip vehicles so that the components likely to affect emissions are designed, constructed and assembled so as to enable the vehicle, in normal use, to comply with Regulation (EC) 715/2007.
Against this backdrop, the Spanish General Regulation on Vehicles provides for the following:
- registered vehicles may be cancelled from the Vehicles Registry in the event that the relevant competent authority, owing to wear or deterioration of the vehicle’s mechanical elements, certifies that said vehicle constitutes an obvious danger for its occupants or for traffic safety in general (section 35, paragraph 2 of the General Regulation on Vehicles); and
- in the course of procedures relating to the declaration of nullity, loss of validity or expiry of administrative authorisations for the traffic of vehicles, the competent authority is entitled to suspend the applicability of the relevant authorisation if it poses a serious danger to traffic safety (section 51, paragraph 4 of the General Regulation on Vehicles).
As for automotive-related product recalls in Spain, these are subject to the general product safety rules, which are based on the General Product Safety Directive 2001/95/EC.
Product liability and recall
Describe the significance of product liability law, and any key issues specifically relevant to the automotive industry. How relevant are class actions or other consumer litigation in product liability, product recall cases, or other contexts relating to the automotive industry?
Spain does not have a strong tradition in product liability litigation, and there have been no major automotive-related product liability disputes in recent years. This may change in the following years, as compensations to be paid for personal damages was substantially increased at the beginning of 2016.
On the other hand, the Spanish Procedural Act of 2000 established a completely new system of class actions, giving consumer associations a major role in these proceedings. However, to date these actions have been used in a very small number of cases, and rarely with regard to the automotive industry.
This does not mean that there have been no product recalls in the sector. The automotive industry has suffered several product recall cases in Spain, some of them particularly relevant. However, the main consequences of these product recalls have been reputational damages, and only very few relevant fines and sanctions have been imposed in recent years.
What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?
EU Regulation No. 461/2010 on the application of article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector, as well as its accompanying supplementary guidelines, is also applied by competition authorities in Spain to cases decided under either EU or Spanish competition law.
The main recent investigation and sanctioning proceedings conducted by the National Commission on Markets and Competition (NCMC) in the Spanish automotive sector include:
- In July 2015, the NCMC imposed a record combined fine of €171 million on 21 car manufacturers and distributors and two consulting firms for an alleged cartel consisting of exchanges of commercially sensitive information relating to motor vehicle distribution and aftersales services. The sanctioned companies represented more than 91 per cent of the Spanish market for car distribution. The investigation by the NCMC was triggered by a leniency application filed by one of the automotive manufacturers in Spain.
- Between 2015 and 2016, the NCMC imposed fines totalling roughly €53 million on a significant number of car dealers of different OMS distribution networks in Spain - as well as some consultancy firms and trade associations for their role as cooperators - on grounds of their participation in several cartels, through which they fixed prices or other commercial conditions and exchanged commercially sensitive information.
- In June 2016, the NCMC imposed a fine of €638,770 on car-wash equipment manufacturer Istobal (which also provides repair and maintenance services itself and via appointed third parties) for alleged anticompetitive conduct consisting of a refusal to supply spare parts and technical data to independent repairers.
As regards follow-on litigation, in recent years there has been a significant increase in private actions for damages suffered by victims of cartels in Spain (ie, civil law damage claims before the courts following administrative law sanctioning proceedings before the NCMC). It is expected that this trend will increase now that major developments regarding civil damage claims have been introduced into the Spanish legal system by Royal Decree-Law 9/2017. This regulation, which implements EU Directive 2014/104/EU on certain rules governing actions for damages for competition law infringements, aims to ensure that parties affected by cartels in Spain are effectively compensated by bringing specific private actions for damages. In that regard, given the recent activity of the NCMC and the European Commission against original equipment manufacturers, spare parts manufacturers and car dealers, the automotive sector is expected to be subject to increased damage litigation before Spanish courts in the near future.
Dispute resolution mechanisms
What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?
While class actions and litigation around recalls or product safety are rare, dispute and claims proceedings do affect the Spanish automotive industry. A great percentage of these disputes are related to business restructuring (ie, where a car manufacturer ceases its relationships with certain dealers). In recent years there have also been many insolvency related disputes. More recently, since 2015 a number of players in the automotive industry have been involved in antitrust litigation proceedings. Arbitration is not very common in automotive-related litigation.
In general, the Spanish system provides claimants with the possibility of obtaining quick and provisional solutions through interim injunctions, though it is fair to say that these are slower to obtain than those before some other European courts.
What is the process for dealing with distressed suppliers in the automotive industry?
Distressed situations and insolvency proceedings are complex. The way the automotive industry should deal with suppliers facing such circumstances must be determined on a case-by-case basis, depending on the factual circumstances at hand, by seeking securities and guarantees to guarantee fulfilment of suppliers’ obligations - and by considering not only the legal implications but also the economic impact that the relationship with the automotive manufacturer may have on a supplier’s overall performance and business continuation.
One particularity of Spanish insolvency law is that the mere declaration of insolvency of a company is not a valid cause for termination of agreements entered into by that company. This means that a car manufacturer cannot terminate a supplier agreement only on grounds that the supplier has gone into insolvency; the contractual relationship will continue unless other reasons for termination appear such as a material breach of the supplier’s duties.
Intellectual property disputes
Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?
In relation to intellectual property disputes, we first need to make the following preliminary remarks:
- Usually, first instance decisions are not publicly accessible in Spain (second instance decisions are). Moreover, courts provide aggregated data in their annual reports (number of IP claims filed per year but not per industry). Hence, given that not all cases move to the second instance - and that there is no unified data base or docket - it is difficult to provide figures on cases handled by civil or criminal courts involving IP disputes in the automotive field.
- Commercial courts handle all IP claims in Spain on an exclusive basis in the first instance. The most common venues for IP litigation in Spain are the Barcelona and Madrid commercial courts, as well as the EU Trademark and Design Court located in Alicante.
- The Barcelona commercial courts have been specialised in IP matters since January 2012. Courts 1, 4 and 5 handle all patent, utility models and design claims filed with the Barcelona courts on an exclusive basis; courts 2, 6, 8 and 9 handle all trademark and copyright claims; and courts 3, 7 and 10 deal with cases involving unfair competition, advertising and antitrust. There are six IP-specialised commercial courts in Madrid (courts 6-11) that have heard all patents, trademarks and designs cases filed before the Madrid courts since 2017. Valencia commercial courts have also specialised in IP matters since 2017. This guarantees consistency in judicial decisions and, therefore, predictability. Section 15 of the Court of Appeals of Barcelona, section 28 of the Court of Appeals of Madrid, section 9 of the Court of Appeals of Valencia and the EU Trademark and Design Appeal Court of Alicante (section 8), also specialised in IP, hear all appeals against the first-instance court decisions. More recently, since January 2019, the number of IP-specialised courts has been expanded, including commercial courts located in Granada, Las Palmas de Gran Canaria, A Coruña and Bilbao.
With the above in mind, below are some figures (which should therefore be read with caution):
- from 2008 to 2018 there were at least 29 civil proceedings involving IP rights in the automotive field in Spain;
- the majority of those cases involved trademark and trade name claims (22); seven involved patents, three related to designs and two related to copyrights, four of them including also unfair competition claims (a number of claims can be joined in the same proceedings);
- the most common type of infringement appears to be the use by workshops or car sellers of famous car brands (eg, Ford, BMW, and Opel). Other cases involved car parts or accessories, such as wheel rims, that encroach upon exclusive rights or continued sale of vehicles once the exclusive distribution agreement had expired; and
- in the cases subject to review, 12 out of 22 trademark infringement claims were admitted. All of the design infringement claims and the majority of the unfair competition claims were also upheld. In the majority of patent cases, however, the courts either dismissed the claims or declared the patent to be invalid.
Overall this data shows that, in comparison with other industries (for instance, the pharmaceutical industry), the number of disputes in the automotive sector does not appear to be very significant in Spain. However, we would be reluctant to reach such conclusion given that the figures provided above may not reflect reality. Moreover, Spanish courts - particularly, the Barcelona Commercial Courts and, of course, the EU Trademark and Design Court - have developed expertise in the field of IP law over a number of years and are rather sensitive towards the protection of IP rights. In our recent experience, these courts would decide upon ex parte preliminary injunctions within 24 to 48 hours. Common proceedings - with a hearing - may take 12 to 16 weeks. A judgment in the first instance may be issued within 18 to 24 months of filing - including infringement and invalidity claims. Finally, given the lack of technical background of Spanish courts, expert evidence in patent cases is key - as courts will rely substantially on it - and parties will usually file more than one expert opinion to support their positions.
Trade unions and work councils
Are there specific employment issues that automotive companies should be aware of, such as with trade unions and works councils?
As in other European countries, in Spain the legal relations arising from an employment relationship are governed by legal provisions and agreements emanating from national and international legislative bodies (international treaties, local laws and regulations), the will of the parties (collective bargaining agreements, employment contracts) and the customs and practices of the company itself (company agreements, company practices).
Most of the employment regulations established in the laws apply to all companies, without any specific regulations regarding specific industries or sectors (except regulations on health and safety, which may vary depending on the business activity concerned). This applies, for example, to working time, minimum wages, severance payments in case of dismissal, types of contracts, election and activity of workers’ councils and unions, etc.
Having said the above, in Spain it is possible to enter into collective bargaining agreements (CBAs) (ie, agreements that have been negotiated and concluded by employers and employee representatives and which are applicable to a more or less broad sector (at both a national or provincial level, as well as, on a smaller scope, those applicable to a company or work centre). These CBAs must respect the minimum rights established by law, and generally improve the employment conditions in the applicable area to levels above and beyond the minimum conditions legally set forth. As for automotive companies, a general CBA for the metal industry typically applies to companies in the automotive sector and related companies. However, most of the relevant companies in the automotive sector that operate in Spain have negotiated their own CBA at company level (for example, SEAT Volkswagen, Mercedes-Benz, Renault, Nissan, Ford and Iveco) or have side agreements with their employees (Volvo Group España).
It is also important to point out that automotive companies in Spain are highly unionised. They have not only works councils, but also national unions involved in relevant decisions. Likewise, in the case of renowned automotive companies, political involvement is also common when relevant decisions are taken (such as investments, divestments and restructurings); the scope of the political involvement (regional or even national) will depend on the company affected, its economic or social impact in the area, and the type of measure to be taken.
What are the most important legal developments relating to automotive technological and mobility advances?
In the field of autonomous intelligent driving, the most important recent legal development took place on 13 November 2015, when the Spanish Directorate-General for Traffic passed Instruction 15/V-113, regulating the authorisation to conduct tests or research trials of autonomous vehicles on roads open to general traffic. Under the terms of this instruction, a number of tests with autonomous vehicles have already been carried out and many others are expected to be performed in 2019. According to public declarations, the Spanish authorities are working on new regulations that, if passed by, would provide for a specific legal framework governing autonomous vehicles.
In respect to connected vehicles and connectivity services, there have been also many developments and it is likely that the Spanish government will develop specific rules in these fields in the next few years.
Sustainable mobility-related policies have triggered some important developments relating to electric and hybrid vehicles. For instance, certain cities (eg, Madrid) have passed local mobility regulations that allow drivers of electric and hybrid vehicles to access areas restricted to other vehicles.
Finally, with regard to shared and transportation services the most notable legal developments has been the approval of Royal Decree-Law 13/2018, of 28 September 2018, which will, in four years, prohibit app-based ride-hailing urban services (those that are initiated and finalised in the same municipality), unless local or regional regulation expressly allows it and, if so, in the conditions that would be laid down in those regional regulations. In this context, the region of Catalonia has passed by Decree-Law 4/2019, of 29 January 2019, which has imposed certain strict requirements on ride-hailing services, which has led platforms such as Uber or Cabify to consider suspending their services in that region..