Are European Car Buyers Poised for a Better Deal? EU Regulations for the Motor Industry Have Been Revised ... Here, Four EBF Contributors Debate the Controversy

European Business Forum, Spring 2003 | Go to article overview

Are European Car Buyers Poised for a Better Deal? EU Regulations for the Motor Industry Have Been Revised ... Here, Four EBF Contributors Debate the Controversy


Free markets and free trade lie at the heart of Europe's economic thinking. In theory at least, therefore, any system of exclusive distribution represents a distortion of competition and in principle should be prohibited under European law.

The European Commission, however, allows important exceptions to this general rule where agreements which would normally be considered restrictive 'improve the production or distribution of goods or promote technical or economic progress, while allowing consumers a fair share of the resulting benefit' (Article 81 (3) of the Treaty of Rome). Such 'block exemptions' as they are known have long been granted in certain sectors, most notably (and some would say notoriously) in Europe's motor vehicle distribution business.

Last year the Commission introduced important changes in the regulatory regime for the motor vehicle distribution sector (see box) aimed at boosting competition and lowering prices for consumers--but the issues remain both complex and contentious.

Will consumers really be better off? What is the theoretical underpinning of this branch of competition law? How does industry view the new regulatory environment? On this and the following pages a Brussels regulator, an academic, a company spokesman and a consumer representative offer sharply contrasting viewpoints.

A REGULATOR'S POINT OF VIEW

The new motor vehicle 'block exemption' has provoked considerable comment, including criticism from industrialists and applause from consumer associations. But interestingly, the 20 Commissioners voted unanimously in its favour. The reason may be that the new regulation, besides improving the structure of the motor industry, fulfils two core objectives of European policymakers: the integration of national markets (by reducing artificial price differentiation and fostering convergence) and the promotion of economic welfare.

What is at stake here is the exclusive dealership system in Europe which has meant in the past that individuals can only buy a car through a specialist dealer regarded by the car manufacturer as fulfilling certain criteria, and therefore trustworthy and reliable as far as the consumer is concerned. The system relates not only to the new car itself but also to after-sales and the servicing of spare parts which can only be acquired from specific outlets.

Why did the Commission find it appropriate in the first place to give

the motor industry a block exemption covering vertical agreements with retailers and other practices? Experience shows that we do not buy cars like we buy shampoo; the unit price of a car is very high in comparison with other consumer goods, and the purchase requires a purchaser to make difficult judgements about price, quality and reliability, as well as the suitability of a particular car to individual needs and its resale value. Such elements result in transaction costs and other specific investments. The Commission therefore recognised that a restrictive distribution can improve economic efficiency within the chain of production and distribution by facilitating better co-ordination, by reducing transaction and distribution costs and by optimising sales and investment levels. The series of block exemption regulations for the motor vehicle sector was the result.

In October 2002, however, the Commission decided to change the terms to make the exemption from normal competition rules stricter; it had to do so because motor vehicle manufacturers had failed to improve the structure of their industry and customers were suffering the consequences. In November 2000, for instance, a report based on interviews with all interested parties (manufacturers, dealers, repairers, parts producers, independent operators and consumers) found that European consumers do not derive a fair share of benefits from the system, that competition between dealers is not strong enough and that dealers remain too dependent on car manufacturers. …

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