Lower prices planned for consumers
New car buyers are not getting a fair deal. That's the conclusion of a European Commission report into new car sales. New EU legislation promises a new era for motorists, says Sandra O'Connell
For the past 15 years under a system known as block exemption, the European motor industry has been allowed to skirt normal EU competition rules which ban price fixing and the carving up of sales territories. Now, thanks to new proposals put forward by the European Commission, this state of affairs may be coming to a close. At the very least consumers could end up paying less for new cars.
The legislation - if given final approval by the Commission - aims to put consumers very much in the driving seat when it comes to buying and servicing their cars.
Under the proposals, car manufacturers will no longer be able to force dealers to sell only one brand. Retailers will also be permitted to specialise in either sales or after-sales service, as they wish. This is a change from the current situation, where dealers are obliged to provide after-sales service.
Dealers may no longer be restricted from selling outside a particular region but will be able to pursue sales freely across the EU.
The proposals should open the way to greater use of new distribution techniques such as internet salesand mean greater competition between dealers. It will make cross-border purchases of new vehicles significantly easier, and, predicts the commission, lead to greater price competition.
Published in February, the draft regulations aim to overcome restrictions identified in the commission's report on competition in the motor industry. Ultimately consumers should find it easier to compare cars and associated services offered by dealers while owners will have easier access to after-sales servicing and at potentially lower prices as independent garages compete with dealers for service business.
"The commission is putting car buyers first," said Commission President Romano Prodi at the launch of the draft regulations. "People want a real choice. They want to buy cars and get services wherever it is most advantageous, to have a choice of brands and models, and to have high quality after-sales servicing at a reasonable price."
The euro is already creating greater transparency when it comes to comparing prices. According to Competition Commissioner Mario Monti, "the new regulation will improve competition in both vehicle sales and servicing."
Evaluation studies conducted by the commission show competition between dealers is limited at best and dealers remain too dependent on car manufacturers.
Consumers have found it difficult to exercise their right in the Single Market to take advantage of price differentials between member states and buy their vehicle wherever the price is lowest.
THE new draft regulation does not prescribe a single rigid model for car distribution but rather leaves a set of choices open to car makers, distributors and dealers. Neither does the commission seek to define what criteria are permitted or how car makers should organise their networks. EU studies have, however, shown that many consumers would value the in-store choice and comparability available in multi-brand outlets, or car 'supermarkets'.
The new regulations would also remove any restrictions on dealers who wish to sell to consumers in other areas of the EU. They may not be penalised financially for this, and may not have a quota imposed on them by manufacturers. In addition, dealers may set up a secondary sales outlet or a delivery point in another part of their own country or in another EU member state.
These measures should, the commission believes, help to ensure that the Single Market operates to put pressure on the often high price differentials that exist between member states.
After-sales servicing will also change. Under the current system, every car dealer must invest in facilities to carry out repairs and maintenance on the vehicles they sell.
UNDER the new proposals, dealers may choose whether they wish to carry out repairs themselves, or sub-contract them to another authorised member of the manufacturer's network. These can be either dealer/repairers or repairers only. Greater competition should therefore lead to downward price pressure.
Not everybody is happy with the commission's proposals. The European Parliament last week voted to postpone any changes until at least 2005, a move led by German MEPs. The parliament's economic and monetary affairs committee had earlier voted to soften some of its reforms, fearing that liberalising the distribution market too quickly would ultimately damage the motor industry, especially smaller dealers, and could ultimately lead to job losses. However, neither move is likely to sway the commission.
The European car manufacturers association, ACEA, welcomed its intervention, but, as the parliament's role is purely advisory, its influence on the block exemption debate remains to be seen.
For its part, while accepting that some form of change is inevitable, the Society of the Irish Motor Industry (SIMI) is keeping an open mind. According to chief executive Cyril McHugh, Commissioner Monti's ultimate aim is to harmonise pre-tax costs of car purchases across Europe. As Ireland is on "the low side" in relation to pre-tax cost of cars, the need to lobby Government in relation to a reduction of levies such as VRT is of greater concern to the SIMI. It is this that actually accounts for the higher prices that Irish consumers have to pay for their cars, he says.