Review could accelerateend of car dealerships

Date: 21/09/00

By Peter Chapman

EUROPE'S motor industry is bracing itself for another mauling at the hands of the European Commission when competition chief Mario Monti delivers a new report on the way cars are supplied to EU customers.

His conclusions will be crucial in determining whether the special 'block exemption' which shields the sector's traditional distribution system from anti-trust rules is renewed when it expires in 2002.

In a nutshell, the block exemption - last amended in 1995 - allows manufacturers to run exclusive car dealerships. This means they can pick and choose who gets a franchise to sell their vehicles in a particular region.

Critics claim the system - intended to ensure firms offer a wide range of cars to consumers and provide a reliable after-sales service - stops franchised dealers from competing with each other. They argue that it effectively closes the door to independent suppliers and allows the manufacturers to crank up their prices.

The Commission is still examining the options. But the omens are not good for the industry. In May, Monti made a hard-hitting speech at a Brussels conference in which he attacked car firms for abusing their privileges. "Based on the work undertaken so far by my department, it would seem that the assumptions on which this 'highway code' is based are at least questionable," he said.

"It seems that the main driver of the distribution process is still the manufacturer and that dealers do not have much freedom. Moreover, the code has not contributed to integrate the national markets and has not been properly implemented by many manufacturers, as the procedures against manufacturers for infringements of the regulation show."

Not surprisingly, the EU's motor industry categorically denies that the block exemption has allowed firms to run roughshod over motorists' toes.

FIAT chief Paolo Cantarella, president of the Union car lobby ACEA, claims the franchise system still offers real benefits to consumers. "In any EU country, you can choose between about 50 brands, 250 models and up to 4,000 versions. You also get comprehensive, close-to-home service by specialist dealers who are fully trained, fully informed and fully equipped to perform any type of service or repair operation for the very complex product that is today's car. If your car is still under warranty, they will repair it for free," he says.

"A second important reason is that the regular service provided by our dealers ensures that cars comply with the numerous environmental and safety standards that exist within the EU. Today, we have more than 50 EU directives that regulate the way cars are built."

Moreover, claims Cantarella, the block exemption is not to blame for the headline-grabbing price differentials which have prompted motorists from the most expensive countries to shop abroad for their cars. The key factors are, he says, huge variations in tax between member states and, in the case of countries such as the UK which are outside the euro zone, currency fluctuations.

Experts say the final draft of the Monti report, which could be unveiled as early as November, will not set out the Commission's future plans. Instead, it will outline what is wrong with the present system. The institution is then expected to gather comments on the report before unveiling concrete proposals in spring 2001 at the earliest.

Opinions are divided over the likely outcome of its deliberations. Industry supporters of the block exemption claim there is still scope for an amended system, re-tailored to the needs of the sector in the 21st century.

Others predict that the industry will be subsumed into a new general block exemption which tolerates certain limits on distribution systems for firms with market shares at or below 30%.

Article forms part of a survey on transport. Europe's motor industry is bracing itself for a radical overhaul by the European Commission when the European Commissioner for Competition, Mario Monti, delivers a new report on the way cars are supplied to EU customers. Experts say the final draft of the Monti report, which could be unveiled in November 2000, will not set out the Commission's future plans. Instead, it will outline what is wrong with the present system. The institution is then expected to gather comments on the report before unveiling concrete proposals in spring 2001at the earliest.