Manufacturers jealously guard their EU free trade exemption

Date: 11/01/1996

By Geoff Meade

A RARE - and possibly unique - car showroom sits beside the main road in the middle of an industrial estate on the outskirts of Antwerp.

Inside you will find brand new cars at knock-down prices - Mercedes, Ford, Opel, Saab, Volvo, you name it - sitting cheek by jowl as customers browse along the aisles.

It is the nearest Europe has come so far to an off-the-shelf motoring supermarket where consumers can pick and choose, comparing makes and models under one roof.

But despite years of campaigning by consumer groups, it is likely to remain an oddity in a world where car-makers have jealously and successfully defended their brand name territory.

For, apart from the upper echelons of the perfume sector, cars remain the only significant product allowed to defy EU laws on free competition.

An exemption from the free trade rules which are the backbone of the EU was first granted in 1985, on the grounds that cars are not like other consumer goods: they are highly-specialised products, requiring specialised attention and after-sales service.

It is an argument which consumer organisations, outraged when the exemption was extended last summer for a further seven years, simply don't accept.

They say car-makers are not honouring their pledge that, in return for retaining exclusive dealerships and distribution networks, they would ensure that consumers could shop around for the best car deals they could find anywhere in the EU.

In practice, insists Brussels-based consumer watchdog BEUC, the system is used to keep before-tax car prices high in markets which can take the strain and to prevent buyers bargain-hunting in neighbouring countries where prices are, for good commercial reasons, pitched lower.

The Commission decision to allow the system to continue, says BEUC director Jim Murray, has done nothing to improve choice or bring down high car prices.

“This is very disappointing. Even with some modifications to the system, there is no significant change for consumers. There will still be obstacles put in the way of buying cheaper cars abroad,” he insists.

Indeed, even as the decision was going through the Commission last July, Austrian motorists were lodging complaints in Brussels about obstructive car dealers across the border in Italy who were alledgedly preventing them from taking advantage of prices as much as 30&percent; lower than those in Austria for an identical vehicle by refusing to sell them to non-nationals.

Competition Commissioner Karel Van Miert tried to mollify consumer groups when he renewed the block exemption by announcing that, for the first time, “multi-dealerships” would be allowed, permitting the selling of more than one make of car at a time.

Was this what BEUC had been demanding for years - dealers, freed from the manufacturers' yoke, allowed to sell different kinds of car under the same roof?

No. It turned out to be a meaningless gesture because although dealers can no longer be stopped by their “exclusive” supplier from selling other makes, the second franchise must be under different management and on different premises.

“This is not going to work,” said Murray at the time, conjuring up images of grocery shoppers trying to compare different brands of breakfast cereal by commuting between supermarkets.

“Multi-franchises only work if there are economies of scale. What is the advantage for the consumer or the dealer in this arrangement?” he asked.

The Commission said the demarcation rule was to ensure “no possible confusion between the makes” - a safeguared not deemed necessary in the marketing of other consumer goods.

Another peculiar Commission adjustment to the regime was to ban direct marketing by one car dealer in the territory of a neighbouring dealer for the same car. Nothing can prevent general television and newspaper advertising by any car dealer across the invisible dealer network boundary, but since 1 July last year, it has been illegal for a dealer to send direct mail shots outside his or her territory or to try to persuade individuals to cross the boundary to buy a new car.

BEUC remains puzzled. The Commission originally warned car-makers that any price gap wider than 12&percent; for identical cars in different national markets would jeopardise renewal of the exemption deal. But figures show that, although margins have narrowed in the last 15 or more years, the before-tax gap is still excessive.

In 1989, the average price difference between Belgium and the UK, for example, fell from an average 51&percent; in 1981 to 31&percent;. By 1992 it was 23&percent;. But as recently as December 1993 the Commission conceded that “all European car manufacturers still have price differentials of 25&percent; or more for at least one model”.

None of this matters if car buyers can shop around. But, insists BEUC, backed up by the steady flow of complaints direct to the Commission, they cannot. Dealers either refuse point blank to see foreign customers, or put them off with excessive delivery times, hidden surcharges and warnings that guarantees and after-sales servicing commitments will not be honoured. A recent blatant case of discrimination came from the French car industry, which campaigned to stop French consumers buying cars in another EU member state. Renault, Peugeot, and Citroën published advertisements claiming that cars bought in France after 1 July 1994 could be described as 1995 cars, but that the same cars bought in another member state and reimported into France must be described as 1994 cars.

Van Miert insists that all complaints against car-makers are being investigated, pointing out that individual manufacturers can still lose their exemption if they do not abide by the strict conditions laid down for running their dealer networks.

But his reassurances have done nothing to appease consumer groups, who say they will continue the fight to end special treatment. Already fresh complaints are in the pipeline about artificially-high prices and the effective monopoly on after-sales service that the 'one-showroom one-make' philosophy imposers on car buyers.

Certainly sanctions exist in the new block exemption deal, which states that, where it can be proved that a manufacturer has issued dealers with instructions not to sell cars to nationals from other EU member states, the guilty car-maker will lose the exemption.

But in November, Van Miert pointed out that the value of the Italian lira had aggravated the problem. “Such currency fluctuations produce a shift in competitive positions over which the motor vehicle manufacturers have no control in the short term,” he said.

That may be true, but it is also true of any consumer good in a competitive multi-currency market - and yet shoppers are free to shop wherever they choose for other products.

Van Miert summarised the situation by insisting that assessing the problem solely from the competition point of view “would not do justice to the complexity of the situation”.

The car market is more complex than most, involving the sale of machinery which has differing specifications in different national EU markets, which must conform with standards applied in the country where it will be used, and which requires expensive and highly-skilled maintenance, repair and after-sales service.

But BEUC claims that Europe does not need an exclusive distribution system to ensure high standards, insisting there is no evidence that franchised dealers provide a higher quality of service or a more rapid supply of spare parts than non-franchised dealers.

“Why shouldn't new car buyers have the chance to compare different brands at a single outlet?” demands Murray. And if they can't, why can't they shop around like anyone else?

Because, argue the manufacturers, cars are not like a pot of marmalade or a box of tea-bags, to be snapped up at the best price wherever you come across it.

Which is why that showroom on the outskirts of Antwerp remains a rarity. But even that is not the car supermarket consumers dream of: it is an illusion, a car market-place where multi-model bargains are indeed to be had - but where you can't order what you want, from any manufacturer you choose, off the shelf.

Murray acknowledges that day is still some way off, but is encouraged that the current exemption only runs for seven years.

In the meantime, the campaign for a single market in cars continues - with some consumer experts predicting that manufacturers themselves are quietly preparing for the day of motoring mix 'n' match.