BMW has become the first car manufacturer to cut ties with its Irish distributor in response to European Commission moves to encourage competitiveness

The marque will take direct responsibility for importation from October 1st, the date on which the commission's block exemption regulation comes into force.

The current distributor, Frank Keane Group, will step into retailing with some staff transferring to the new BMW subsidiary.

Frank Keane has held the BMW franchise for 36 years but has some previous experience as a retailer.

The motor industry has warned that the block exemption regulation may raise car prices because it will force manufacturers to harmonise pre-tax prices across the EU.

Pre-tax prices in the Republic are lower than the European average to off-set the relatively high levels of vehicle registration tax. BMW says it has already harmonised prices and they will not rise further when the directive become law.

Most of the major car dealers operate wholly-owned Irish distributors and will not be affected by the block exemption directive. But those employing independent Irish dealers are set to follow BMW's lead over coming months. The biggest independent importer is Dr Tim Mahony, whose Killeen Investments distributes Toyota in the Republic.

Sales of BMW have climbed sharply since the mid-1990s and sales were €220 million last year, when 4,500 cars were sold, compared with 800 in 1993.

"It is a priority for both parties that customer service levels, together with sales and service performance, remain at a very high level during the transition period," said a spokesman for the group.

BMW UK will oversee imports to the Republic. It said the move was "part of a European strategy policy to take responsibility for distribution in all markets".