Carmakers to face fines if they thwart reform with price hikes

Date: 14/02/02

By Laurence Frost

EUROPEAN Union cartel-busters are warning car manufacturers they will face tough fines if they respond to the liberalisation of their distribution networks with coordinated price increases.

The message comes amid concerns that consumers in some countries could end up paying more for their cars after the planned reform of the industry's soon-to-expire block exemption from normal EU competition rules.

'We will remain vigilant,' said a spokesman for Competition Commissioner Mario Monti. 'We have the means to react rapidly to anything which does not represent normal market functioning.'

The tight control manufacturers exert over their dealer networks under the current block exemption has enabled them to maintain significant price differentials between EU states.

They argue that higher taxes in Greece, Finland and especially Denmark - where consumers pay 218 in duties on a new two-litre saloon - have forced them to lower pre-tax list prices in order to keep their cars affordable.

But the carmakers fear Monti's plans to loosen their hold on dealer franchises will open the floodgates to exports from these countries, threatening already-squeezed margins elsewhere in the EU.

Alfredo Filipponi, spokesman for the European Automobile Manufacturers' Association (ACEA), predicted 'a sort of levelling', with prices going 'down in some countries and up in others' when the new rules come into force in October 2003.

But the commissioner insists competition between brands is strong enough to prevent manufacturers from being able to increase prices in higher-tax states without resorting to collusion.

'If a certain manufacturer puts its prices up the consumer will react, and may well decide to buy another make,' Monti's spokesman said.

'So the only way manufacturers can raise prices is in a concerted way - and that's illegal.'

The EU executive monitors car prices across the member states twice a year. Last summer's results showed that pre-tax prices in Germany were at least 20 higher than those in Greece for most of the 81 models covered by the report.

European consumer group BEUC is concerned that Monti's draft reform would still allow carmakers to maintain price differentials and clamp down on exports.

'It's reasonable to expect dealers to be influenced by their previous relationships with manufacturers, especially to start with,' said Dominique Forest, economic advisor to the group.

Under the plan, dealers would be free to sell cars elsewhere in the EU or to exporters, but could still be given 'exclusive' sales territories by their manufacturers.

'If you have a territory which is wide enough to be profitable without having to sell to third parties, you might well not want to risk jeopardising your relationship with the manufacturer,' said Forest.

Monti's warning on price fixing comes amid a generalised EU crackdown on cartels that saw €1.4 billion in fines imposed by the Commission in 2001. The figure represents a world record for penalties imposed by a single authority in one year.

EU cartel-busters are warning car manufacturers they will face tough fines if they respond to the liberalisation of their distribution networks with coordinated price increases.