‘We don’t believe Monti’s reforms are beneficial to the industry, to the dealers – or the consumers’

Date: 26/09/02

Ivan Hodac is the voice of Europe's car manufacturers in Brussels. He tells Paul Gallagher why Commissioner Mario Monti's efforts to liberalise the industry may not result in a better deal for motorists

WHEN the European Commission unanimously endorsed a radical shake-up of the way in which cars are sold across the single market, it soon became

clear that the new rules would not suit everyone's taste.

The European Commission hopes its new block exemption regulation, which comes into force on 1 October, will break once and for all the car industry's stranglehold over dealers by giving them the freedom to open for business anywhere in the EU.

But whether the new regulation is good for competition or bad for business is still open to debate.

Once the car industry realised that Competition Commissioner Mario Monti and his staff were determined to make major changes to the existing regime, it was down to Ivan Hodac, secretary-general of the European Automobile Manufacturers Association (ACEA), to lobby hard for a compromise that would not leave the industry facing a potentially devastating hit to their bottom line.

Monti's assertion that the new regulation 'can only be good for business and good for the consumer' is not one that sits well with Hodac.

So how happy is he with the block exemption rules?

'I wouldn't use the word 'happy,'' he says. 'I think we can accept the changes to a certain extent. But we don't believe that these changes are beneficial to the industry, to the dealers or the consumers.'

The Commission firmly believes that comprehensive reform of competition rules for car sales and servicing will mean dealers will no longer be under constraints to reach consumers all over the EU, will improve after-sales servicing, and will introduce greater diversity and choice to consumers.

Yet Hodac has still to be convinced by Monti's 'bold and balanced' reform.

'It was a reform, yes, but 'bold and balanced'? It depends how you look at it. Only the future will tell us whether this is so.'

Whether the consumer will be happier now may depend on which member state they live in.

The Commission has regularly reported price differentials of up to 50 for the same car in different countries. Monti's balancing act will be great news for UK consumers who can expect a 20 drop in prices, but bad news for Danes and Greeks where pre-tax prices are relatively low and who look to be facing a price hike.

But Hodac argues that price differences should not be blamed on the block exemption.

'When you look at the UK the taxation system and currency fluctuation are the main causes of price differences.

'You don't eliminate this by ending block exemption. You eliminate this by bringing registration taxes close to each other and that has been recognised by many Commission services.

'I think we will have to even out taxation eventually. Because of the euro the market is becoming more transparent; it's much easier to compare prices.

'We will have a common currency across the EU in the long term and if you don't have the same VAT and registration taxes, you disturb the market.'

Under the new rules, dealers will be able to sell more than one brand in separate areas of the same showroom, rather than having to use different buildings.

Although the Commission claims that consumers would value the extra choice available in multi-brand outlets, the AECA argues that dealers who decide to extend their choice of brands will prefer to push high-profit margin models - thus limiting consumer choice.

But the Commission will force dealers to do this, as Hodac makes clear.

'The new rules don't say they have to open up their showrooms for new brands - that is absolutely up to the dealer.

'What is specified is that the dealer has the possibility under certain rules and conditions to sell more brands.'

The most controversial aspect of the regulation is the end of the 'location clause', meaning dealers will be able to open showrooms wherever they want in the EU, a freedom of extension hitherto unavailable.

Although the full impact of the change will be delayed until 2005 following an eleventh-hour concession to the industry, Hodac believes it is merely a stay of execution before small and medium-sized dealers are swamped by major cross-border operations.

'This is something not necessarily in the interest of increased competition; in fact, it may damage competition because it may lead to the creation of select dealers who will then eat and buy the smaller ones.

'The dealer associations are afraid the smaller dealers will simply disappear.

'The argument is that the consumer has easier access to various dealers; we are not sure this will be the case come 2005.

'Some businesses are family-run and may well vanish. This will disrupt the system.

'How can a consumer be happy with a disrupted system?'

One area that most consumers agree is in need of great improvement is the level of servicing, with recent surveys suggesting that there is no real difference in the quality of repairs carried out at franchise outlets compared to independent garages.

Come next Tuesday, dealers will be able to choose whether they wish to carry out repairs themselves, or sub-contract them to another member of the carmakers' network.

But Hodac sees this as more of a mixed blessing than an obvious benefit.

'Now that dealers don't have to do the repairs themselves, they can concentrate only on selling.

'But I don't think it will improve after-sales; it was better when it was with the dealership.

'The question now is where the official repairs are going to take place. Today, the official repairers are situated in such a way that you don't have very far to go.

'People are willing to drive an hour away to select the right car, but they are not going to do this for services.

'Unfortunately the regulation does not specify that we will have the right to say the official repairers have to be located in near proximity to the customer.'

So while intensive lobbying paid off with the delay until 2005 of the measures on dealers' showrooms, Hodac is clearly not entirely satisfied with the overall outcome.

'For the time being it's done, the regulation has been introduced. There is nothing left to talk about. We now have to look at fiscal aspects, taxation, environmental issues that are ongoing, of course.' So who are the winners of this particular bout? 'Kif-kif,' he replies in French, one of seven languages Hodac speaks (the other six being his native Danish, English, Czech, Russian, German and Dutch).

'There have been some improvements but mainly we simply are not convinced that the changes introduced will benefit the consumer. 'We don't see how these changes will bring prices down in a year, or even closer to each other. Fifty-fifty plus perhaps. It's a tough question.'

• IVAN Hodac, 55, became secretary-general of ACEA in September 2001.

A Danish citizen born in Czechoslovakia, Hodac is a recognised expert in international and European public affairs.

He began his career in 1976 as an assistant at the College of Europe in Bruges and later became consultant and secretary-general of the

International Federation of the Margarine Association of the Countries of Europe (IMACE).

From 1992 to 2001, Hodac was senior vice-president and head of the European office for AOL Time Warner.

Interview with Ivan Hodac, secretary-general of the European Automobile Manufacturers Association. He explains why Commissioner Mario Monti's efforts to liberalise the industry may not result in a better deal for motorists.