Effects of Monti shake-up too early to call

Date: 06/02/03

By Karen Carstens

LOOKING back at the work of his directorate over the past 12 months, Mario Monti has no doubt which of its initiatives would have the greatest impact in the years to come: the end of the car block exemption.

The European automotive industry underwent a seismic shock when the competition commissioner announced his reform of the 'closed shop' system in which cars have been sold and serviced in the EU.

Speaking at the World Economic Forum in Davos last month, Monti predicted that this legislative "milestone" would result in "substantial doses of competition" in the industry, which is predicted to double in size over the next decade as a result of enlargement.

Carmakers have until 30 September to open up their domestic dealer networks. And, from 2005, dealers will be able to open showrooms wherever they want in the EU - a freedom hitherto unavailable.

Ivan Hodac, the Czech-born secretary-general of the European Automobile Manufacturers Association (ACEA), is wary of predicting the long-term effects of the changes.

"It's too late for the philosophical debate, too early for the impact," he says. "It will take some time before we see the consequences for the industry, the dealer and the consumer."

Nevertheless, he warns that small and medium-sized dealers may be swamped by major cross-border operations.

"This may damage competition because it may lead to the creation of select dealers who will then buy and eat the smaller ones," he says. "The dealer associations are afraid the smaller dealers will simply disappear."

Indeed, some dealers predict that manufacturers will engage in a massive 'culling process' before the September deadline (see page 13).

Monti is unabashed by such comments. One of the factors which influenced the car block exemption reform was his concern over huge differences in pre-tax car prices across Europe. A Ford Mondeo priced at l18,000 before tax in the UK could, for example, cost only l12,000 in Denmark. Prices are expected to come down in the more expensive markets, but industry and consumers alike agree that member states still need to take decisive action in levelling the car tax playing field.

As Hodac puts it: "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."

Frits Bolkestein, the internal market commissioner, has called for the gradual removal of registration taxes, which range from 0% (France, Italy, the UK, Luxembourg,

Germany and Sweden), to nearly 100% in Greece and Finland and about 180% in Denmark.

Hanns Glatz, EU affairs manager for DaimlerChrysler, says the industry supports Bolkestein's position, but stresses: "It's just a policy paper at this point, not a directive or a legal instrument."

One area in which experts believe consumers will see an immediate benefit from the end of the existing regime is more competition for car repair and servicing. "We may well see new independents vying for business with the traditional franchised dealers," said Mike Bacon, a senior partner at KPMG Automotive Practice in the UK.

Nevertheless, the Commission agreed a deal last month with Germany's Audi that allows a number of repair shops to remain part of its authorised service network. Audi, part of the Volkswagen group, agreed to reinstate a number of contracts with the shops that it had terminated

Article discusses the likely impact of Competition Commissioner Mario Monti's recent reforms on the European automotive industry.