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MOTOR VEHICLES: COMMISSION TO AMEND CONTROVERSIAL RETAIL SALES SYSTEM.

The existing regime, which expires in September after 15 years, provides a block exemption that frees the entire auto industry from broad antitrust rules which ban price-fixing and the carving up of sales. Tying dealers to manufacturers would ordinarily be considered a restrictive practice, and banned under EU antitrust rules, but EU authorities granted the exemption on the basis that automobiles required specialised service that only franchised dealers could offer. Now renewal of the existing motor vehicle Block Exemption Regulation (BER) is no longer an "option", says the 16-page (and 15-page explanatory note) preliminary draft BER which was recently leaked to the press. "The evaluation report adopted by the Commission on November 15, 2000, came to the conclusion that this Regulation did not achieve certain of its principal aims," it says.The draft report namely refers to four Commission fines it imposed in the past, despite its "very generous" rules towards the automobile industry. The Commission fined Volkswagen on January 28, 1998 for impeding parallel trade in Italy, and in 2000 for price fixing in Germany. It fined Opel Nederland in 2000 for restriction of parallel trade in the Netherlands, as well as DaimlerChrysler on October 10, 2001 for impeding parallel trade in Germany, restricting sales to leasing companies and engaging in price fixing in Belgium (see European Report 2626, same section).The Commission is faced with three options. It can keep the current system as it is, it can substantially overhaul the rules to open up car dealerships to market forces, or it can review the current system by introducing the necessary amendments to make it less favourable for car dealers. The Commission is expected to opt for the latter.The new rules are expected to allow retailers to specialise in either sales or after-sales services. The "link" between sales and after-sales should not be cut but "reorganised" says the draft regulation. Manufacturers can request that their distributors either offer after sales services (i.e. repair services) themselves or subcontract them to a repairer within the network of the vehicle manufacturer (dubbed the "authorised repairer").Under existing rules, dealers are also restricted from selling outside a particular city or region. "Right now manufacturers have a stranglehold on the dealers," said one EU source. "The dealers cannot actively approach customers beyond their territory." The current rules are also blamed for contributing to prices that are 20% to 30% higher than in the United States and vary as much as 50% for the same car even within the 15-nation-bloc. Consumers are expected to benefit as dealers sell cars at cheaper prices than the current domestic level as soon as the regulation comes into application. The Commission specifically aims to break the dominance of big carmakers in the domestic markets of Germany (Volkswagen), Italy (Fiat) and France (Renault and Peugeot).Given the new rules, sales through the internet will also be far more possible, the same source suggested, even though the new rules wouldn't specifically require carmakers to sell to web-based resellers. "Once you abolish the prohibition of active sales beyond your territory then the internet can finally be exploited by the more dynamic dealers." Manufacturers will continue to be able to choose dealers, but even if they refuse to choose internet dealers there should be enough availability of cars to permit new forms of sales.On the other hand, the industry remains sceptical that the EU would go as far as allowing new cars to be sold through retail outlets such as supermarkets. "If supermarkets could force certain manufacturers to be appointed as distributors, this may in the short term lead to price decreases," says the Commission draft. "In the long run it may however be counter productive: it would reduce the range of vehicles offered and hamper innovation and lead to a strong concentration in the distribution sector with decreasing prices in the short term but less consumer satisfaction and higher prices in the long term." The Commission adds that since the draft BER does not mandate an opening up of networks to new entrants who have so far not been selling new motor vehicles, "the main focus is to strengthen competition within the network at the national and EU level" by measures which allow the members of a vehicle manufacturer's distribution systems to become "more independent and to better compete" with each other and with the distributors of other manufacturers. That view has not been echoed by the European consumers lobby BEUC. "We want real competition, i.e. full liberalisation of the automobile industry. That also means vehicles should be allowed to be sold in local supermarkets," said Caroline Hayat, spokeswoman for BEUC, on January 11. "Auto manufacturers simply need to impose the respect of a series of qualitative criteria onto supermarkets or sales representatives, if local malls wish to commercialise vehicles"Josiane Gorgibus of the Federation of Automobile Clubs claims it is essential to keep a certain standard of qualitative criteria and that liberalisation is not always advantageous for the consumer. She also fears that the multi-franchising system will favour big automobile manufacturers even more. Peugeot, Citronn and Renault refused to comment the draft proposal.Finally, the new regulation is also expected to prevent carmakers from requiring that dealers sell only one brand. The new regulation would require manufacturers to let dealers sell new cars from different manufacturers under the same roof. The only condition the manufacturer could impose is that his cars be sold in a different section of the same showroom, says the draft regulation. Dealers will be allowed to establish showrooms in other countries where any one manufacturer has more than 15% of the market.
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Publication:European Report
Article Type:Brief Article
Geographic Code:4EU
Date:Jan 12, 2002
Words:940
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