Van Miert drives hard bargain on cars

Date: 06/05/1999

By Peter Chapman

ONCE more, EU customers are being denied the fruits of the Union's much-vaunted single market. This time, it is motorists who are suffering.

Price differentials across European markets make it very attractive for bargain-hunting customers from countries such as the UK to look elsewhere in the EU for their cars. But, as recent warnings from acting Competition Commissioner Karel van Miert have underlined, some car companies could be illegally thwarting motorists' attempts to pick up cheaper vehicles abroad.

The root of all evils, according to critics of the European Commission's approach, is the latest 'block exemption' bestowed on the industry by the institution in 1995.

This allows firms to run exclusive dealerships, which means that they can pick and chose who gets a franchise to sell their cars in a particular region. They can grant franchises and they can take them away. They can also decide what dealers pay for their vehicles, and what 'bonuses' and special offers they are awarded for sales. In short, the block exemption means that manufacturers wield enormous power over dealers.

Critics claim it is this which makes it possible for manufacturers to stop dealers from selling their vehicles to foreign customers. They can therefore fragment EU markets and keep prices and profits higher than they would otherwise be.

One of the biggest lobbying battles of recent years is set to erupt over whether this block exemption should be renewed in 2002.

Leading the opposition to the car industry carve-up is European consumer group BEUC, which argues that the block exemption should be outlawed unless it can be shown to work in the interests of car buyers.

" We believe that the exclusive and selective distribution system constitutes a major obstacle to the completion of the single market in cars," said BEUC's Valerie Thompson. "It allows manufacturers to continue to segment the market, it restricts competition in the market place and thereby disadvantages consumers, in particular in terms of high prices for cars."

Unsurprisingly, the European car lobby ACEA claims ending the measure would do EU consumers far more harm than good.

Marc Greven, ACEA's director of legal affairs, said abolishing the block exemption would lead to car supermarkets being set up to replace the trusty old dealer networks. These would not carry the same wide range of cars, big and small, which all major EU marques, from Rover to Renault, offer customers at their showrooms.

Greven questions the benefits of replacing dealerships with vehicle supermarkets, when grocery supermarkets are being accused in some member states of denying consumers choice and charging too much.

He claims that price differentials in the car market are among the lowest in EU industry, at least before vehicle registration taxes are taken into consideration. He also insists that dealers are not deliberately stopping private citizens from striking bargains abroad, although he argues that they are entitled to veto sales to those suspected of reselling vehicles to independent dealers competing with official ones.

Such dealers, warns Greven, have little interest in offering high-quality services to customers in areas such as after-sales back-up and warranty repairs.

Despite the storm of protests from BEUC and others, Van Miert's spokesman defends the Commission's decision to grant the block exemption in the first place.

It was, he argues, bestowed with the best of intentions, with the aim of allowing dealers to compete with each other to get good prices for cars from manufacturers, while allowing customers to drive a hard bargain by playing competing dealers off against each other.

" We thought that opening sales between agreed dealers and direct sales to anyone popping into a dealership was a big step ahead. We thought it more than counterbalanced the extension of a manufacturer's right to run a selective distribution system - ie a dealership network," he said.

Nor, the spokesman added, did the block exemption give firms carte blanche to manipulate the car market. "Manufacturers infringing the rules automatically lose the protection offered by the regulation. That means its existence does in no way impair the Commission's ability to act against a dealer and indeed a consumer's rights to sue for damages before a national court."

But even though the Commission robustly defends its decision to grant the block exemption in the first place, the industry could face an uphill struggle to get it renewed in 2002.

However, Greven maintains that even the Commission itself does not want to scrap the measure altogether. "No one wants that, least of all the Commission," he insisted. "If you do not get a block exemption, then everyone asks for an individual one. They say, 'can I have this?' or 'can I have that?'. That is the last thing the Commission wants. It does not have the manpower."

At the very least, he predicts, the institution might seek to add car firms to the list of industries covered by a general block exemption which it is currently designing for firms with market shares no greater than 30%.

This proposal, which will lay down the extent to which industries such as brewing and retailing can control their supply chains from manufacture to distribution, is set to enter into force next year.

The key concern, here, warns the car industry, is the uncertainty it would create. No one is sure, it argues, whether member states themselves would apply the 30% criteria or whether it would apply to 30% of the total EU market.

However, Van Miert's aides are warning firms not to take anything for granted. "I, for one, think that the question mark behind a possible renewal of the block exemption is increasing in size every time we find yet another manufacturer ignoring the rules," said one.

Car firms across the length and breadth of the Union employ thousands of workers and wield huge political influence within some member states.

But the Commission's recent actions should have been enough to convince errant companies that they had better clean up their act - and quickly - if the industry as a whole is to continue to enjoy its current privileged status.