Describe the significance of, and developments in, the automotive industry in the market.
The automotive industry is a significant contributor to the UK economy, generating an annual manufacturing turnover of £77.5 billion in 2017 which, based on the first two quarters’ figures for 2018 is set to increase. The industry employed some 814,000 people in the wider industry in 2017, and this figure is also increasing in 2018. 2017 saw the first decline in car production in the UK for nine years; however, overall the industry remains strong, with output still the second highest in 18 years. The industry represents 13 per cent of the UK’s total exported goods, but this share of the export market looks set to reduce in 2018. In June 2017, 80 per cent of total production was exported to more than 160 markets worldwide, with over half of exports to the EU, followed by the US (14.5 per cent).Total production and exports to the EU and the US look set to rise in 2018. In 2017, 6.5 per cent of total production was exported to China, but this figure looks like it is falling slightly in 2018. (Statistics published by the Society of Motor Manufacturers and Traders Limited in 2017 and 2018).
In terms of consumer behaviour, registrations are running at a historically high level. In 2017, over half of car registrations were fleet registrations and this figure rose in the first six months of 2018. With an increasing focus on car emissions affecting air quality, the demand for eco-friendly cars, particularly electric and hybrid vehicles, is ever increasing and as such, alternative fuel vehicle registrations grew. Registrations of petrol vehicles also rose as the significant decline in demand for new diesel cars continues. Consumers are increasingly looking to online marketplaces to provide vehicle information and competitive deals, and in 2017 more than 8.1 million used cars were sold in the UK. Although this figure is down on 2016, it is still the second highest in history and shows the market for used cars remained buoyant in 2017, although the figures for the first two quarters of 2018 suggest that the market for used cars experienced a downturn in 2018.
The decision by the UK to leave the European Union (Brexit) has led to a great deal of uncertainty for the future of the UK’s automotive industry. The first six months of 2018 were less encouraging for the automotive industry when compared to the positive performance of the industry in 2017. For example, production output has fallen alongside apparent slowing demand in the new vehicle markets, job cuts have been announced and investment has stalled, with just £347.3 million earmarked for new models, equipment and facilities in the UK - this is half the sum announced in the same period last year.
The Brexit negotiations have not proceeded as smoothly as could be desired so far, although the EU/UK draft Withdrawal Agreement (including a proposed transition period and arrangements) has been published but not agreed. However, loss of access to the Single Market and a need to replicate regulatory compliance in both the UK and the EU could have a significant impact on the automotive industry, particularly if customs duties and other tariffs apply to future trade between the UK and the EU.
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?
Generally, in order to operate a vehicle on public roads in the UK, the vehicle must be registered and type approved. The Vehicle Certification Agency, an executive agency of the Department for Transport, is charged with issuing vehicle type approvals in the UK.
In the UK, there are two categories of type approval: an EC type approval, which, once granted, is accepted throughout the EU without the need for vehicles to submit to further inspection, or a national type approval (separated into national small series type approval and individual vehicle approval), which is only likely to be suitable for cars that are imported or manufactured in low volumes and where the manufacturer only intends to use the vehicles in the UK.
In making an application for type approval, a manufacturer’s production processes will be subject to a conformity of production assessment to ensure that all vehicles will be manufactured in accordance with a particular approved specification. Pre-production vehicles will also undergo examinations to ensure that safety and environmental standards are met (including, where appropriate, destructive testing).
Where automobile parts are manufactured or sold separately, generally, they must be tested for compliance with the vehicle to which they will be fitted. However, certain component parts can be tested for compliance in isolation (for example, seat belts).
With the UK looking to leave the EU in 2019, this has raised questions over whether the UK and the EU will negotiate some form of equivalence arrangements so that the EC type approval approach can continue after Brexit or whether this may result in significant changes to the approval process, both for the UK market and for UK manufactured vehicles being exported to the EU.
Depending on what is agreed by the UK and the EU, approvals issued by the Vehicle Certification Agency, following Brexit, may become invalid in the remaining EU member states. This would mean that to sell vehicles in the EU, companies holding such type approvals will be required to apply for type approvals to be reissued by another body that is authorised by the EU. In this situation, manufacturers would have to stop production until replacement type approvals are obtained. Products that have been ‘placed on the UK market’ before Brexit will continue to benefit from free movement to the EU market.
For use on UK roads or in UK public places, vehicles must be registered with the Driver and Vehicle Licensing Agency and hold a Vehicle Registration Certificate (V5C). The person named on the V5C is responsible for the vehicle as the registered keeper of the vehicle and has a number of registration and licensing obligations. Without type approval, a vehicle cannot be registered or licensed by a person in the UK. A V5C is not evidence of ownership of the vehicle and the owner and registered keeper are not always the same.
Under current legislation, the UK has a compulsory motor insurance regime, under which a person using a vehicle (or causing or permitting the vehicle to be used on public roads or in a public place in the UK) must have insurance cover against third-party damage, although there are some exceptions for motor traders. For example, if a vehicle is between registered keepers or registered as ‘in trade’ with the Driver and Vehicle Licensing Agency, it is excluded from continuous insurance enforcement. This is contrasted with the continental European approach, where it is generally the vehicle itself that must be insured, not the individual person.
The UK government has published the Automated and Electric Vehicles Bill, which contains new insurance measures in light of advances in vehicle technology. The proposed single, comprehensive motor insurance framework will allow a person who suffers damage in an accident involving a self-driving vehicle with automated mode engaged to have a direct claim against an insurer. Unlike the current third-party motor insurance framework, insured persons in the automated vehicle at the time of the accident will also be covered. The new act received royal assent in July 2018.
The Green Card is an international certificate of insurance currently issued by insurance providers in the UK, guaranteeing that the motorist has the necessary third-party motor insurance cover for travel in the country being travelled to. Currently, UK drivers benefit from the EU and the EEA being Green Card-free circulation areas. In this area, systematic checks of Green Cards as proof of third-party motor insurance have been abolished at the border of EEA member states and three third countries (Andorra, Serbia and Switzerland). If the UK leaves the EU with no deal in place regarding the transition period and future arrangements, access to the Green Card-free circulation area would stop. This would mean that UK motorists would need to carry a Green Card as proof of third-party motor insurance cover when driving in the EU, EEA, Andorra, Serbia and Switzerland.
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?
As automotive companies are global businesses the arrangements for the UK generally tend to mirror the global or regional arrangements. Original equipment manufacturers (OEMs) generally have a supply chain structure of Tier 1 (supplying directly to OEMs) and Tier 2 (supplying to Tier 1 suppliers) and so on. For common parts, OEMs tend to be sourced pursuant to pan-European arrangements but will also often have specialist local suppliers located in close proximity to manufacturing sites. In the case of the UK it is also not uncommon to see parts move across the border between the UK and the EU multiple times as part of the manufacturing process.
Arrangements with suppliers tend to be pursuant to purchase orders, which are governed by general terms and conditions established by an OEM. Typically, the commercial arrangements contemplate that the OEM will place orders for specific components supplied for particular vehicles over the life of a vehicle but do not necessarily include minimum purchase quantities. Prices are negotiated with respect to each vehicle (often annually) and longer-term agreements may be subject to price adjustment mechanics. Larger suppliers and specialist suppliers for hard-to-source components can often have more bespoke arrangements reflecting their relevant bargaining power.
For major OEMs design and engineering tend to be done internally, although it is not uncommon to see licensing or collaboration arrangements between OEMs for the use of new technology.
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?
In the UK new vehicles are generally sold through selective distribution networks, usually in the form of car dealerships. As such, manufacturers can control branding and sales processes including aftersales relations. Owing to the nature of selective distribution networks, manufacturers can sell directly to consumer or fleet companies, but generally not to other dealerships outside of their selected network.
Relationships between manufacturers and approved dealerships in practice tend to be long-term arrangements (although typically they will be subject to termination on two years’ notice) and the dealership will usually undertake warranty repairs as well as general vehicle sales services. Vehicle financing is increasingly common in the UK and takes a variety of forms, from manufacturers offering dealer financing for the dealership’s purchase of vehicles for onward sale to consumer car financing for purchase of new vehicles by individual consumers.
Fundamental issues across the distribution network (such as changes to a standard dealership contract) will usually be handled by the manufacturer dealer association, while localised issues with a specific dealer will usually be handled on an individual basis. In recent years there has been a consolidation of dealerships creating larger dealers that have given them greater individual negotiation power outside a dealer association.
The UK’s Motor Ombudsman (automotive dispute resolution body) self-regulates the UK’s motor industry through a number of Chartered Trading Standards Institute-approved Codes of Practice. These Codes cover accreditations for vehicle manufacturers, warranty product providers, franchised dealers and independent garages. While voluntary, compliance with relevant codes is frequently an obligation in contractual arrangements between manufacturers and dealerships or garages.
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?
There are no issues particular to the UK automotive industry that need to be considered in relation to the negotiation of an M&A transaction. EU or UK (or other national) merger control legislation may apply to transactions in the UK automotive sector in the usual way; there are no special sector-specific rules. The UK government plans that the European Union (Withdrawal) Act will transpose most EU law directly into UK law. Assuming that happens immediately after Brexit, most law in the UK will still be the same as it is immediately before Brexit takes effect and the same as in the EU. Post-Brexit, the UK government can decide whether or not it wishes to make changes to that UK legislation. However, transposing over 40 years of legislation will not be straightforward.
There are numerous references in EU law to a company or person needing to be present within the EU, or the involvement of an EU institution or agency, or access to an EU system or database, including EU institutions, agencies, systems and databases that are relevant to the industry. These references cannot simply be transposed into UK law. The UK cannot unilaterally legislate to continue participating in those EU bodies and systems. Depending on the outcome of the Brexit negotiations with the EU, the UK will very likely need to set up new bodies and systems to enable parts of UK legislation to operate post-Brexit.
The UK government is, and has been, reviewing its industrial policy and it is possible that it might seek to protect certain sectors, including the automotive sector, in the future particularly following the implementation of Brexit.
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?
There are a number of significant UK tax incentives to encourage investment in research-intensive activities that apply to the automotive sector (although not exclusively). These include R&D expenditure credit and R&D tax relief, to support companies that work on innovative projects in science and technology, both of which are available for large companies to reduce their taxable profits if they carry out qualifying research and development work. Where intellectual property is developed and exploited, a preferential Patent Box regime might apply. Although it has been amended to bring it into line with Organisation for Economic Co-operation and Development multinational requirements, the Patent Box offers a lower rate of corporation tax on eligible profits attributable to intellectual property. The Patent Box regime enables a company to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions.
Various ‘Enterprise Zones’ operate in the UK, with special measures on business rates and enterprise capital allowances to support investment in plant and machinery in these areas. Also, the UK government has committed to further general reductions in the rate of corporation tax to maintain a competitive business taxation environment.
Demand-side tax advantages are also available for ultra-low emission vehicles, to support demand in this sector. These include measures on fuel duty and vehicle excise duty, as well as the exclusion of ultra-low emission vehicles from planned future restrictions on employee salary sacrifice schemes (until April 2021). The government has also committed to significant expenditure to support ultra-low emission vehicles (including in developing charging infrastructure), renewable fuels and connected and autonomous vehicles through the National Productivity Investment Fund (a further £390 million is to be invested by 2020-21).
While a number of incumbent OEMs are embedded in the UK market, new challengers are continuing to disrupt the UK market, from tech companies to mobility service providers. With the rise of self-driving vehicles, electric vehicles and alternatively fuelled vehicles, we expect this trend will continue. Digital buying has already challenged traditional dealerships in the UK as consumers spend longer researching and analysing information online. In response, many dealerships and retailers have adopted digital strategies to ensure consistency between online and offline consumer experiences.
Brexit adds further complexity to the automotive landscape in the UK. There may be scope for obtaining local grants and a significant employer may also be able to obtain incentives in negotiations with the UK government.
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 UK implements the EU type approval Directive 2007/46 (in the Road Vehicles (Approval) Regulations 2009, as amended (the Approval Regulations)), and Regulations 715/2007 (relating to emissions) (the Emissions Regulations) and (EC) 661/2009 (relating to safety) are directly applicable in the UK. EU Directive 2000/53/EC on vehicle end of life has also been implemented in UK law by secondary legislation.
The Approval Regulations prescribe a series of technical standards (including requirements relating to vehicle emissions that are set out in the Emissions Regulations and requirements relating to vehicle noise) for passenger vehicles and their component parts, and must be met before a vehicle can obtain type approval (unless a relevant exemption applies). The UK type approval authority has powers to withdraw or suspend type approvals where vehicles are found not to conform to the approved type or deny approval where standards are not met. The type approval authority can also suspend type approvals where a vehicle is found to be a serious risk to road safety, or to seriously harm the environment or public health.
Recalls are carried out under Directive 2001/95/EC on general product safety (implemented in the UK by the General Product Safety Regulations 2005), and the UK authorities have also published a Code of Practice on vehicle safety defects and recalls, and a Manufacturer’s Guide to recalls in the automotive sector, which (while not strictly mandatory) are generally regarded as authoritative. A separate Code of Practice, and Guide, exist for recalls in the vehicle aftermarket.
Once a vehicle has been authorised for use on public roads in the UK, drivers must comply with various vehicle safety provisions to ensure that the vehicle is operated in a manner that does not pose danger to the general public (including the requirement for a driver to always be in a position to have full control of the vehicle and full view of the road and traffic ahead, and a motor vehicle to be attended by a person who is licensed to drive it unless the engine is switched off and the parking brake is applied). Most vehicles are required to pass a Ministry of Transport (MOT) test of vehicle safety, roadworthiness and emissions on a regular basis. The MOT rules changed from 20 May 2018, adding new defect types, stricter rules for diesel emissions and exemptions for some vehicles over 40 years old.
Given that the majority of the laws mentioned above find their basis in EU law, the above set of rules could change following Brexit, although, as noted in question 5, the UK government plans that the European Union (Withdrawal) Act will transpose most EU law directly into UK law immediately following Brexit. The UK’s plans for automotive compliance following Brexit will be a key issue for OEMs and other operators in the automotive industry to watch, and get involved with, as negotiations progress.
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?
Product liability cases in the UK automotive industry are generally brought by consumers under the UK Consumer Protection Act 1987 (implementing the EU Product Liability Directive 85/374/EEC). The impact of Brexit on this EU law-based strict liability regime will need to be closely monitored in the coming months. As noted in question 5, the UK government plans that the European Union (Withdrawal) Act will transpose most EU law directly into UK law immediately following Brexit.
The UK government has also expressed its ambition for the UK to be at the forefront of development, testing and use of driverless cars. The automotive product liability regime in the UK will need to adapt to this new technology, and product liability formed an important part of a major UK government consultation on driverless cars carried out in 2016. On 6 March 2018, the UK government commissioned a detailed review of driving laws over the next three years, including laws on product liability, to ensure that the UK remains one of the best places to develop, test and drive driverless vehicles.
Under the General Data Protection Regulation (GDPR), which came into force on 25 May 2018, cybersecurity will become a more pressing issue for connected or ‘smart’ vehicle manufacturers, which in the event of a data breach resulting in an accident could face dual liability as a ‘producer’ under the Consumer Protection Act 1987, and as a ‘data controller’ under the GDPR.
As noted in question 2, the UK government has published the Automated and Electric Vehicles Bill, which contains new insurance measures in light of advances in vehicle technology. The proposed single, comprehensive motor insurance framework will allow a person who suffers damage in an accident involving a self-driving vehicle with automated mode engaged to have a direct claim against an insurer. Unlike the current third-party motor insurance framework, insured persons in the automated vehicle at the time of the accident will also be covered. The new act received royal assent in July 2018.
The UK government’s Automated and Electric Vehicles Bill is currently being considered by the House of Lords. This makes provision for liability of insurers in the case of accidents involving autonomous vehicles that are insured at the time of the accident, and for liability of vehicle owners in case of accidents involving autonomous vehicles that are not insured at the time of the accident. The Bill is currently at committee stage and may still change before it is enacted.
Product recalls and other corrective actions are an important concern for the automotive industry in the UK. The competent authority (the Driver and Vehicle Standards Agency) is an active regulator, and manufacturers carrying out corrective actions are often subject to ongoing reporting obligations. The Driver and Vehicle Standards Agency has a specific team, the Vehicle Safety Branch, which is responsible for automotive safety issues in the UK. This team is the main contact for all safety defect and recall matters.
There are procedures for group litigation in the UK. Generally, group litigation is not as common in product liability claims in the UK as it is in other jurisdictions (eg, the US), in particular because the UK has an ‘opt-in’ system, and punitive damages are not available in the UK, although group actions are gradually becoming far more regularly used in the UK. Bearing this in mind, companies should be conscious of the growing risk of collective redress - especially in cases where the potential number of claimants, or the value of the individual claims of several potential claimants, is relatively high.
What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?
Distribution systems in the UK automotive industry are governed by EU competition rules, including the Vertical Block Exemption Regulation (330/2010/EU). This block exemption does not cover agreements relating to the purchase, sale or resale of spare parts for motor vehicles or the provision of repair and maintenance services for motor vehicles, as these activities are covered by a separate block exemption, which came into force on 1 June 2010 (the Motor Vehicle Block Exemption Regulation (461/2010/EU). There are equivalent UK competition rules under the Competition Act 1998, including parallel block exemptions, which apply to the UK automotive industry.
The prospect of Brexit has created uncertainty as to the application of EU competition rules. On leaving the EU, the UK will no longer be part of the EU competition law enforcement system, as noted above, the EU system has operated in parallel with the UK Competition Act 1998. This has legal framework, interpretation, transition and jurisdiction implications for enforcement of all competition issues with a UK dimension. As noted in question 5, the UK government plans that the European Union (Withdrawal) Act will transpose most EU law directly into UK law. Assuming that happens immediately after Brexit, most law in the UK will still be the same as it is immediately before Brexit takes effect and the same as in the EU. Post-Brexit, the UK government can decide whether or not it wishes to make changes to that UK legislation. However, transposing over 40 years of legislation will not be straightforward. In addition, if transitional arrangements are agreed, as intended, the EU competition rules and block exemption regulations will continue to apply to the UK for the transitional period as if the UK were still a member of the EU.
In recent times, the predecessor of the UK Competition and Markets Authority (CMA) has imposed significant fines on an OEM and five of its commercial vehicles dealers for anticompetitive behaviour including market sharing, price coordination and the exchange of commercially sensitive information. Following this, the CMA issued an open letter to the motor industry warning against unlawful contact between competitors.
In addition, the UK Supply of New Cars Order 2000 (as amended) prevents new car suppliers from:
- discriminating on price between dealers and fleet buyers;
- providing bonuses and discounts to dealers on pre-registered cars; and
- imposing restrictions on price advertising on dealers.
The UK currently, is a popular forum for private follow-on damages actions based on European Commission and UK competition authorities’ infringement decisions, including in the automotive sector. For example, there was recently a claim for damages before the UK Competition Appeal Tribunal, a specialist judicial body with cross-disciplinary expertise in law, economics, business and accountancy which hears and decides cases involving competition or economic regulatory issues, against automotive bearings suppliers.
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?
The most common disputes in the automotive industry are supply chain disputes and disputes with dealers. These are usually settled out of court. The most common forum for resolving disputes with dealers and suppliers located in the UK is the English courts. The English courts have power to grant interim relief including injunctions to compel performance. Where disputes concern international suppliers or joint ventures, it is common for the relevant contracts or joint venture agreements to provide for such disputes to be resolved through arbitration. Where arbitrations are seated in England and Wales, the English courts have the power to grant interim relief, including injunctions, in cases of urgency when the arbitral tribunal is unable to act.
There have also been an increasing number of technology licensing disputes as more technology companies enter the market. See question 12 for more detail.
As mentioned above, in question 8, there are procedures for group litigation in the UK. There is the potential for increased use of these procedures for collective redress particularly in relation to claims by groups of consumers or distributors, or both.
What is the process for dealing with distressed suppliers in the automotive industry?
OEMs and their suppliers enter into long-term and highly symbiotic relationships. ‘Tier 1’ suppliers contract directly with the relevant OEM. ‘Tier 2’ suppliers’ contractual relationships lie with the Tier 1 suppliers. In some cases, there will be additional links in the chain (eg, ‘Tier 3’ suppliers contracting with the Tier 2 suppliers and so on). The relationships are complex and interdependent on account of the high level of investment needed in new car models. Additionally, car models may be in production for a decade or more. Every model invariably requires bespoke tooling even though some aspects (eg, vehicle platforms) may be common among a number of models.
The need for collaboration between OEM and supplier will become all the greater over the next few years as the market adapts to continuing evolution in powertrain developments stemming from ‘Dieselgate’, which saw a number of vehicle manufacturers artificially reduce harmful emissions from their cars during tests, and its fallout. Particular examples are the development of new lean-burn engines and hybrid or electric power plants.
The result is that OEMs and their suppliers will often work together on the development of new models and their respective key components. Tooling and car parts are very often difficult to transfer between particular models and the supplier market. The result is that if a supplier encounters financial difficulty, it may take an OEM months and occasionally a year or more to ‘re-tool’ and ‘re-source’ from one supplier to another.
Production interruptions or delays may cause an OEM - and other supply chain members - daily and weekly losses wholly out of proportion to the financial worth or turnover of an individual distressed supplier. Those losses can quickly and easily run into significant sums of money. For that reason, major OEMs manage supply relationships closely. Where possible, they will dual-source (and on occasion even multi-source) components. In all cases, OEMs are likely to monitor the creditworthiness and ongoing financial viability of suppliers. OEMs’ terms and conditions almost invariably also lay down approval procedures where suppliers change hands or, on a worst-case basis, encounter financial difficulties. Where problems arise, OEMs will therefore often be willing to provide ongoing finance to suppliers, negotiating priority arrangements with their bankers or other creditors. Such negotiations are likely to be combined with rights of access and inspection. In our experience, OEMs will also seek to secure access to intellectual property rights and the ability to remove tooling and finished parts where a supplier gets into difficulty.
The relationship between the OEM’s rights and insolvency practitioners can also be complex. Where a supplier goes into liquidation or administration, the supplier’s administrator or liquidator will always seek to maximise recoveries from key OEM clients. In our experience, OEMs are frequently willing to fund production during an administration or liquidation in exchange for rights of inspection and the ability to influence, as a means of securing ongoing production, the identity of the purchaser of the business or assets of an insolvent supplier.
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?
Intellectual property disputes are indeed significant in the automotive industry, and they are going to become even more so as technological developments, both in production techniques and the vehicles themselves, gather ever more speed. Traditionally, IP disputes in the sector have been between auto manufacturers and those making spare parts, or very occasionally between manufacturers themselves. The underlying reason for this is that, unlike other products such as phones or laptops, the sole function of a car has traditionally been to move from A to B. That has been shifting in recent years, and will continue to do so at a great pace. All the complex issues that reside in standard-essential patents, protocols and cross-licensing are now relevant to the auto industry - not only directly, but also because this convergence means that ‘tech companies’ are entering the space and becoming auto manufacturers. Connected and Autonomous Vehicles are a key area of development for the automotive industry (this aspect is explored further in question 14).
The digital automation of the automotive industry is also already under way leading to increased productivity, greater flexibility and shorter times to market for manufacturers and suppliers.
As to how well protected the IP is, and how easy it is to resolve disputes, it is too early to reach a definitive conclusion. There have been long-running and very significant disputes in the more traditional ‘tech’ sectors over the past decade, including by non-practising entities (or ‘patent trolls’) - phones being a prime example. It seems likely that as the automotive and tech sectors continue to merge, disputes may well become more complex and common.
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?
There are no specific automotive sector employment regulations or laws in the UK. All basic UK employment laws and regulations essentially apply to employers in every industry or sector. While arguably one of the larger EU economies, the UK is the jurisdiction with the lightest-touch employment laws, and still has far more ‘employee-friendly’ legislation, for example, when compared to the US.
The automotive sector is heavily unionised. The trade unions are strong and usually represent a significant part of the workforce. There can often be more than one trade union recognised by a company. In the UK, there are no national, sector-specific or employer-association negotiated collective bargaining agreements (CBA) of general application. Locally negotiated CBAs may apply within particular unionised UK employers. These are commonplace in the automotive sector.
The CBA will usually cover certain groups of employees, or ‘bargaining units’, at the workplace. In the automotive industry, the CBA usually covers, among other things, remuneration, working time (including overtime and overtime payments), disputes in the workplace (such as disciplinary matters) and security of employment. It is not uncommon to see restrictions regarding compulsory redundancies and agreed enhanced redundancy payments.
In addition to UK trade unions, large employers in the automotive industry are often part of multinational groups with European works councils. This creates different levels of information and consultation obligations about issues affecting not just the UK workforce, but also those in other European jurisdictions.
Strong trade union presence can be coupled with political interest (and sometimes pressure) when there are perceived, and actual, threats to jobs.
What are the most important legal developments relating to automotive technological and mobility advances?
At present, the majority of road traffic laws in the UK assume that a vehicle will be controlled by a human driver who is engaged at all times and remains ready to resume control of the vehicle. This has allowed the operation of highly but not fully autonomous vehicles and, according to the Society of Motor Manufacturers and Traders Limited’s review of the automotive industry, in 2017:
- seven in 10 new cars were available with driver assistance systems;
- 58.8 per cent of new cars were available with Park Assist technology;
- 36.2 per cent of new cars were available with Adaptive Cruise Control;
- 66.8 per cent of new cars were offered with a self-activating safety system;
- 1.8 million buyers were able to benefit from collision avoidance technology; and
- 42.1 per cent of new cars were available with overtaking sensors.
Unfortunately, the current road traffic laws in the UK have acted as an impediment to the use of fully autonomous vehicles on UK public roads. Despite this, the UK government is committed to encouraging the development of new technologies in the automotive sphere and, to this end, a number of revisions to the legislative framework in this area are under way.
On 6 August 2017, the UK government published a code on the key principles of vehicle cybersecurity for connected and automated vehicles. This aims to ensure that throughout the automotive sector, the connected autonomous vehicle and intelligent transport system ecosystems and their supply chains, all parties are taking appropriate actions to ensure their vehicles are cybersecure.
As noted above, the UK government has published the Automated and Electric Vehicles Bill, which contains new insurance measures in light of advances in vehicle technology. The proposed single, comprehensive motor insurance framework will allow a person who suffers damage in an accident involving a self-driving vehicle with automated mode engaged to have a direct claim against an insurer. Unlike the current third-party motor insurance framework, insured persons in the automated vehicle at the time of the accident will also be covered. The new act received royal assent in July 2018.
Although the draft Bill is expected to see revisions before being published in its final form, the current version requires insurance to be made available that covers both when the human driver is in control of the vehicle and when the vehicle is in autonomous mode. The legal regime is structured so that when a car is driving itself, injured third parties can claim against the motor insurer in the usual manner, the disengaged driver can claim in a similar way on the insurance and motor insurers can recover against vehicle manufacturers. When a vehicle is conventionally driven, existing arrangements will continue to apply (ie, the motor insurer is liable for losses caused by the insured person). Following a recent amendment passed in the House of Lords, an insurer may only insure an automated vehicle if it is satisfied the vehicle meets certain standards and that the owner understands that if it makes any software alterations or fails to install any safety-critical software updates, the insurance policy may not cover them. The draft Bill makes it clear a vehicle will only be considered to be ‘driving itself’ when it is operating in a mode in which it is not being controlled, and does not need to be monitored, by a human.
Under the draft Bill the secretary of state can issue a number of secondary regulations on automated vehicles, including standards for automated vehicles, criteria to determine whether a motor vehicle is capable of driving itself and situations when it is and is not appropriate for a person to allow a vehicle to drive itself.
The UK government is under increasing pressure to put in place measures to reduce air pollution, including pollution caused by vehicles. It is anticipated that, in response, the UK government will pledge that all new cars in the UK will be ‘effectively zero emission’ by 2040, under plans to tackle air pollution and all sales of new petrol and diesel cars, but not hybrids, will be banned by 2032. This will be a huge change for the automotive industry and the continued development of other lower or zero emission power sources, such as electricity, for vehicles is key to its success.
In support of this move towards reducing air pollution, the draft Bill grants the secretary of state powers to implement secondary legislation to improve the infrastructure in place for electric vehicles. This forms part of a wider government strategy to encourage consumers to ‘go green’, building on similar initiatives that have been introduced (such as government grant schemes for new electric or hybrid vehicles that meet certain criteria). Investment by the UK government and the overseeing of the creation of a coordinated infrastructure, avoiding manufacturers and infrastructure providers working in R & D silos, will be vital for the widespread take up of new electric or hybrid vehicles. A further challenge to the development of zero emission vehicles, and the infrastructure required to support them, is the apparent slowing demand in the new vehicle markets referred to in question 1. Manufacturers have previously used some of the profits from the sale of petrol and diesel powered vehicles to fund their investment in the R & D, marketing and sales of new electric or hybrid vehicles (and other cleaner automotive technology). A downturn in those profits may have a significant knock-on effect on the development of new technology.
In addition, transportation services are increasingly popular in the UK. In response to growing industry pressure, regulations have been introduced that impose extra requirements on private hire vehicles (PHVs) that operate in London specifically, including a requirement for all drivers of PHVs to pass an English language test and for PHV operators to notify Transport for London of any material changes made to their operating model (which would include any changes made to an app that facilitates the use of services offered by the PHV operator). In response to the growth in ride sharing, Transport for London has also published a new policy statement that sets out principles to ensure the private hire market remains safe and inform future regulations.
The GDPR introduces a range of new obligations that will apply to any data collected from vehicles that can be linked to an identifiable living person. When designing vehicles, automotive manufacturers will have to abide by the principle of ‘privacy by design and by default’, which requires that privacy issues be addressed throughout the design process.
As the UK is still a member of the European Union at this point, the GDRP is directly applicable in the UK. The GDPR is also supplemented and particularised in the UK by the Data Protection Act 2017. The Data Protection Act 2017 effectively provides for the GDPR to remain in effect in the UK once the UK leaves the EU.
The current version of the new draft e-Privacy Regulation would require automotive manufacturers to obtain specific, freely given, informed and affirmative consent before collecting telematics, location or other data from vehicles, unless such collection is necessary in order to provide a service requested by the user. We do not expect the e-Privacy Regulation will pass into law until at least 2021, as it is being hotly debated.
Traditional car ownership models are starting to be challenged by the development and growing popularity of schemes that provide alternative forms of access to vehicles. Two examples are car subscription and car-sharing schemes.