Spoils shared in war of the showrooms

Date: 28/06/01

But online dealers say block exemption will still thwart price cuts

By Laurence Frost

CAR makers have given a cautious welcome to a draft European Parliament opinion calling for a "gradual" opening up of competition by allowing dealers to stock more than one brand of vehicle.

Both manufacturers and consumers' groups are claiming success after German Christian Democrat Christoph Konrad unveiled proposals on the future of the 'block exemption' which allows car makers to make exclusive distribution contracts with dealers.

But a new generation of Internet car sellers say the moves could thwart their attempts to cut prices. "Konrad was basically saying he wanted another seven years of block exemption," said Justin Skinner, commerce manager at UK online retailer jamjar.com. "We're saying we need regulatory reform from the word go."

The European Commission signalled at the end of last year that the current exemption will not be allowed to continue in its present form after it expires in September 2002.

The draft parliamentary opinion appeared to win cross-party support at a preliminary meeting of the Parliament's monetary affairs committee on Monday (June 25).

It calls for an end to the agreements restricting dealers to only one make of vehicle, and compels them to offer after-sales servicing. Consumers' groups and independent retailers say the rules are an obstacle to healthy price competition between car makers, and between each brand's dealers.

Internet retailers and supermarkets believe they can cut prices if they stock more than one brand, and if dealers are forced to drop the servicing requirement.

Although the Konrad proposals would allow dealers to advertise outside their geographical zones and on the Internet, they stop short of abolishing restrictions on the number and type of dealerships. Online retailers say these limits keep them out of the market, by denying them the chance to buy directly from manufacturers. "Consumers are not benefiting from the single market in cars," said Dominique Forest of European consumers' group BEUC. To illustrate his point, he said the cost of a VW Golf was 22% higher in Ireland than Germany.

Daimler Chrysler spokesman Hanns Glatz said his company was encouraged by aspects of the report. "[Konrad] isn't challenging the fundamental elements including selectivity," he said, adding that its "gradual transition to a more liberalised system" was welcome.

Glatz believes manufacturers would still be allowed to "agree" on universal after-sales support with their dealers. "Customers expect their dealers to offer comprehensive servicing," he said. "If a manufacturer can't provide that, his brand is going to suffer."

Daimler Chrysler terminated contracts with all 156 of its British dealers earlier this year and is now setting up its own outlets in the UK and elsewhere. But Glatz denied the move was in anticipation of an end to the block exemption. "It's a coincidence," he said.

Consultancy firm Andersen will next week deliver the interim report on a Commission-sponsored study of possible alternative regimes to the current block exemption. The European Parliament's opinions will be taken into account by competition chief Mario Monti when he chooses between the five scenarios to be outlined by the Andersen study in September.

Car makers have given a cautious welcome to a draft European Parliament opinion calling for a 'gradual' opening up of competition by allowing dealers to stock more than one brand of vehicle.