Showroom revolution may backfire

Date: 17/01/02

PLANS to open up EU car distribution to increased competition could force carmakers to buy up showrooms, manufacturers are predicting.

The warning comes two weeks before Competition Commissioner Mario Monti is due to unveil his long-awaited reform of the car industry's block exemption from EU rules on distribution agreements.

The proposals would weaken the manufacturers' hold on their dealer networks by allowing the retailers to sell more than one make and to opt out of doing their own repairs and servicing.

The Association of European Automobile Manufacturers (ACEA) warns that, if the plan goes ahead, carmakers will be forced to respond by integrating sales into their own businesses.

'If it's no longer possible to have separate showrooms with separate sales personnel; it would clearly strengthen the strategy of going into direct sales,' said Hanns Glatz, DaimlerChrysler's director of European affairs.

The trend is already evident among makers such as DaimlerChrysler, which now owns around one in five of its dealers in Europe. Citroen, Renault and Fiat also have a growing number of owned outlets, while Ford has been acquiring stakes in its own franchised dealers.

Glatz is optimistic the Commission will think again. 'I'm pretty sure the Commission will not wish to adopt a block exemption which they know will lead to this sort of consolidation in the end.'

If they were forced to move exclusively into direct sales, the manufacturers say, it would push up their costs and reduce intra-brand competition between outlets for any one make.

Monti's spokesman dismissed the warning. 'That's a good joke,' said Michael Tscherny. 'They've been doing this for years and now they say they are doing it because we're forcing them to.'

High-end manufacturers are most concerned over the plan to allow multi-brand showrooms. Until now, dealers have had to maintain separate premises and staff for each extra brand they sell.

'If there's a single showroom where you have Mercedes on the one side and Hyundai on the other, customers tend to think Hyundais have some of the same qualities as Mercedes,' said Glatz. 'Some of the brand image rubs off.'

But consumers' groups, who have been campaigning for years for an end to the block exemption, do not see a problem.

'It's very unlikely that any one dealer will want to sell Mercedes cars next to Fiats,' said Jim Murray, director of EU consumers' organisation BEUC. 'Even if they do, I can't imagine many people coming in and agonising over whether to go the Mercedes way or the Fiat way.'

Under Monti's new block exemption proposal, carmakers would still be allowed to grant exclusive territories for their franchised dealers to operate in, but dealers could no longer be prevented from selling cars to other EU retailers.

Combined with the proposed abolition of supply quotas based on local sales areas, the measure offers an opening to supermarkets and internet retailers struggling for a foothold in the market, as well as the prospect of narrower price differences between EU member states.

Makers fear that the new rules allowing dealers to subcontract out repair services could leave holes in the map of servicing outlets, which could deter sales.

Manufacturers warn that opening up EU car distribution to increased competition could force carmakers to buy up showrooms.