Competition Bureau statement regarding the acquisition of Freedom Ford Sales Limited

OTTAWA, May 31, 2016 — On January 29, 2016, the Bureau issued a No Action Letter (NAL) indicating that the Commissioner of Competition does not at this time intend to make an application under section 92 of the Competition Act in respect of the acquisition of Freedom Ford Sales Limited by 1911265 Alberta Ltd. This transaction represents the latest of a number of reviews that the Competition Bureau has conducted involving car dealership acquisitions across Canada over the past year.

This statement summarizes the approachFootnote 1 taken by the Competition Bureau in its review of the proposed acquisition and other similar transactions.

In the course of its reviews, the Bureau conducted interviews with numerous market participants, including third party car dealerships and manufacturers. Views expressed in recently published academic literature regarding possible antitrust market definitions were also considered by the Bureau.

Background

Consistent with an ongoing trend of ownership consolidation in car dealerships in various Canada localities, an individual who already owned interests in several dealerships in Edmonton, Alberta and surrounding areas proposed to acquire the Freedom Ford dealership in Edmonton. The Bureau has also reviewed several other car dealership acquisitions across Canada, by both publicly‑traded and private entities, over the course of the past year. These include acquisitions of dealerships in major cities, as well as in smaller cities and rural areas. During the course of its reviews, the Bureau has considered evidence relating to many factors, including geographic and product market definition.

Analysis

Competition among new car dealerships is inherently local. However, increased price transparency in recent years (for example, owing to internet advertised Manufacturer Suggested Retail Prices and in some cases dealer wholesale prices and margins) has led the Bureau to consider, on a case by case basis, whether broader geographic markets may be appropriate due to a range of potential price constraints. This may be particularly appropriate in smaller cities or rural areas where there are fewer dealerships and, as a result, consumers are willing to travel further or price check outside of the local area to achieve a competitive price. Some local dealers in small towns indicated that they price match legitimate offers from dealerships outside of their local areas.

In its recent reviews of dealership acquisitions, the Bureau has considered various possible market definitions, including markets comprising all brands of vehicles, markets delineated by class of vehicle, a standalone luxury vehicles market, distinct markets for domestic and import vehicles, and markets consisting of same‑brand dealerships (i.e. intra‑brand competition). In general and within these segments, the Bureau has considered new vehicle sales and used vehicle sales as distinct markets; however, given that more competition generally exists for the sale of used vehicles, the Bureau’s reviews have focussed primarily on the sale of new vehicles. Based on information from market contacts interviewed over the course of the Bureau’s review of the Freedom Ford acquisition, the Bureau considered three possible new vehicle markets consisting of:

  • all dealerships;
  • GM, Chrysler and Ford dealerships; and
  • Ford dealerships only.

Under the first scenario, the Bureau considered that dealerships of any brand generally sell a comparable set of vehicle types or classes (e.g., sedans, SUVs, or pick‑up trucks). Therefore, from the perspective of a customer looking to purchase a vehicle, any new car dealership offering vehicles of a class offered at Freedom Ford could be an alternative. On the basis of this competitive set of alternatives, the Bureau considered a market consisting of all dealerships in Edmonton and the surrounding area.

Under the scenario where relevant markets may be delineated by class of vehicle, the Bureau considered that there are a limited number of manufacturers that offer light duty trucks comparable to Ford’s F‑series trucks. Therefore, a possible relevant market could consist of GM dealerships, Chrysler dealerships and Ford dealerships in Edmonton and the surrounding area.

Lastly, the Bureau considered a possible scenario where the relevant market consists only of Ford dealerships. Some market contacts indicated that consumers are increasingly conducting significant amounts of research online, narrowing their choices to one or two specific makes and models of vehicles, before visiting any dealerships. As a result, a customer of Freedom Ford may have already decided to purchase a Ford vehicle and, as a result, be shopping for the best price offered across various Ford dealerships.

Conclusion

The Bureau found that the acquisition of the Freedom Ford dealership is unlikely to result in a substantial lessening of competition due to the presence of effective remaining competitors under any likely market definition.

In future cases, the Bureau may conduct more thorough assessments of market definition as required to determine whether car dealership acquisitions are likely to substantially lessen or prevent competition. With regards to geographic markets, where local markets appear concentrated, the Bureau will assess the dynamics of competition on a case by case basis to determine the extent of price constraints that may exist outside of a local area. Factors the Bureau may consider in this assessment include the effect of increased price transparency online, vehicle price matching patterns by dealers, and data that shows the volume and location of vehicle purchases outside of the local area where the vehicles are ultimately registered and driven.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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