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Tuesday, 23 July, 2002, 15:33 GMT 16:33 UK
European car market set for shake-up
The European Commission has adopted new rules covering the way cars are sold and repaired across the EU.
The new rules, which should narrow the gap in pre-tax prices paid for cars by consumers, have angered both the automotive industry and politicians.
Consumer groups, however, are backing the change - as is the new generation of car supermarkets and online car dealers.
Not a free market
The new rules will replace the current "block exemption on motor vehicle distribution and servicing agreements" which has protected the automotive industry from free market competition for two decades.
The exemption agreements expire on 30 September this year, though car makers will not have to comply fully with the new rules for another year.
Consumer groups have long argued that the car industry's exemption from European competition law has allowed a rigid network of national or regional dealers, selected by car manufacturers, to flourish.
This has robbed consumers of choice and restricted competition in the supply of new cars and after sale services, according to the independent motor industry analysts MFBI.
British car buyers have been particularly hard hit.
During the summer of 2001, the pre-tax price of a Fiat Marea, for example, was £9,197 in the UK compared with £5,752 in Greece and £5,583 in Denmark, the European Commission said.
By the summer of 2002, it had become clear that the introduction of the euro, which introduced greater price transparency between EU countries, had failed to close the price gaps.
"The situation as of 1 May 2002 showed that no significant price convergence has yet taken place," the Commission said.
The pre-tax price of a Fiat Seicento was 63% higher in the UK than it was in Spain.
In the UK, the Seicento cost 7,975 euros. In Spain, it cost 4,893 euros.
Momentum for change has been building for years.
When, in May 2000, Mario Monti entered the podium at the Forum Europe Conference in Brussels, his message to the car industry was clear.
"It should be the consumer who is in the driving seat," he said, before launching a head-on attack on the way the auto sector did its business.
"Most motor vehicles are distributed in the same way, via exclusive and selective dealers who are subject to the same types of restrictions."
One restriction has been the assumption that car dealers must also provide after-sales services.
"In competition jargon, this is tying, which is normally considered a serious restriction on competition," Mr Monti said, insisting that "no technical reasons seems to exist for such a link".
Another restriction is the assumption that brand specialists are needed for the repairs of complex, modern cars.
Mr Monti acknowledged that, indeed, specialists might be needed.
But he did not agree that they "need to be dealers or service outlets belonging to the network of a manufacturer".
Under the new rules, car makers will no longer be allowed to demand that an authorised mechanic also sells new cars, and manufacturers will not be allowed to limit the number of, or decide on the location of, any authorised repairers.
Independent garages will be given better and fairer access to technical information, training, tools, repair shop equipment and original spare parts.
Consumers will be given greater freedoms to chose between original parts and parts made by independent specialists.
In fact, rather than being a freely competitive market, the European auto sector has for years been dominated by a handful of car makers - and as such it would be better described as an "oligopoly", Mr Monti said.
To extend consumer choice and make buying and repairing cars cheaper, Mr Monti wants to allow car dealers to open showrooms wherever they like within the European Union.
This change was accepted by the commission, but the clause will not come into effect until October 2005.
Under the new regime, dealers will:
Car makers will retain their right to select dealers and to protect their brand image.
Mr Monti's plans, which were announced in February, instantly provoked strong reactions.
In January, Germany's economics minister, Werner Muller, had written to Mr Monti, criticising his plans to modify the way the car industry was exempt from European antitrust legislation.
Mr Muller's letter mirrored the concerns voiced by the German car industry, which suffered a 1% decline in 2001.
Soon after Mr Monti put forward his proposal, German Chancellor Gerhard Schroeder warned that he would oppose some of the changes because he feared they could prompt car industry job losses.
The car industry is worried that supermarkets will shunt small car dealers out of the market, dilute car brand integrity and reduce the level of service for motorists.
In short, said the president of European Automobile Manufacturers Association, Jean-Martin Folz, the changes could "disrupt a system that works well".
The British car industry is also deeply opposed to Mr Monti's plans to "tinker with the lifeblood of the industry" which is "already in a fragile condition", Society of Motor Manufacturers and Traders (SMMT) chief executive Christopher Macgowan said.
Mr Macgowan said there was "no evidence of a shortage of consumer choice" and insisted that prices were "not influenced by the block exemption".
But consumer groups have welcomed Mr Monti's intervention.
Indeed, one of the reasons why he took action in the first place was a pile of 20,000 protest notes signed by UK consumers and sent to him by the British Consumers' Association.
Two years ago, the European Commission found that British drivers paid on average 10% too much for their cars.
Prices in the UK have fallen about 5-10% over the last year, after the government ordered the industry to stop "ripping off" consumers.
Even so, cars still cost more in the UK than elsewhere in the EU, reports from the UK Office of Fair Trading have said.
The car makers' collective grip on the market has enabled them to charge different prices for the same cars within the EU.
Mr Monti spoke of angry consumers from EU countries where cars were expensive - predominantly from the UK - travelling to other states to buy cheaper cars.
Many drivers were "unable to find a dealer... willing to supply them", Mr Monti said.
Following the forthcoming reforms, Mr Monti's backers insist that price differences within the eurozone, and within the EU at large, will vanish as the euro improves price transparency and as competition heats up.
In the Belgian city of Antwerp, the car dealer Autos Cardoen has started selling cars at a 25% discount to shoppers at the Colruyt supermarket in anticipation of the lifting of the block exemption.
Online car dealers are also gearing up ahead of the market changes.
Consumers will no longer "have to flog around lots of different dealers to be able to do their searching, so we believe there is greater choice", said online car dealer jamjar.com's Justin Skinner.
However, despite the approval of the new rules by the commission, EU governments will still have to approve the changes.
Industry analysts are not convinced that change is imminent.
"Price convergence - if it happens - will happen at a relatively slow rate," said Schroder Salomon Smith Barney automotive analyst, John Lawson.
"The devil's in the detail with these regulations. We don't know how quickly they'll happen, but I would suspect its over at least a couple of years," Mr Lawson said.
"In terms of the change in car markets, we would suggest that there's not going to be any big differences amongst the major [EU] countries in 2002."
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