Car report findings in full

The car market is set to see major changes

Trade and Industry Secretary Stephen Byers has accepted the main recommendations of the Competition Commission which has been investigating the supply of new cars to UK consumers.

The investigation's main findings and recommendations include:

High car prices

The Competition Commission found that in recent years car prices in the UK have been 10-12% higher than in Germany, France and Italy for similar makes and models.

The Commission says that although car prices have fallen around 6.5% in real terms in the last four years, the average private buyer pays around £1,000 more than his European counterparts after taking into account discounts, trade-in allowances, and financial benefits.

The Commission said that the strength of the pound has exacerbated the situation, with prices in the UK moving from an average of 3.5%-7.1% higher than in Europe during 1993-97 to an average of 10.1% to 12.6% in 1998-99 .

Monopoly

The Competition Commission says a complex monopoly operates in the car industry in favour of the 17 suppliers who together control 94% of the UK car market.

It says that the root cause of the problem is the selective and exclusive distribution system operated by car manufacturers through their dealer networks.

The result is adverse to consumers, resulting in the raising of the prices of new cars sold to private customers, the restriction of innovation in retailing and a reduction in consumer choice by limiting the choice of retailer.

Remedies

The Commission recommends substantial changes in the system of car distribution, most of which have been accepted by the government.

They include:

• Prohibiting suppliers from discriminating in pricing between fleet buyers and private buyers

• Ensuring the dealers with large volumes of cars also get volume discounts

• Allowing dealers to advertise car prices other than recommended retail prices for new cars

• Prohibiting car manufacturers from refusing to sell cars to dealers who sell below recommended prices

• Ensuring that dealers can take advantage of cheaper prices of cars by importing from other European countries without direct or indirect restrictions.

The franchise system

The government is unable to accept one Competition Commission recommendation - to abolish the franchise system - as this is covered by a block exemption granted by the European Commission and scheduled to expire in 2002.

The DTI will be discussing the best way round this problem with the EU Commission.

The government has also held fire on the formal abolition of recommended retail prices for new cars, but has said this will be considered if other remedies need to be reinforced.