THE lack of new car price harmonisation within the European Union is threatening the selective and exclusive car distribution Block Exemption.

The Block Exemption stipulated that the divergence in new car pre-tax prices should differ by no more than 12% across the European Union.

But figures analysed by Professor Peter Cooke, head of Nottingham Business School's Centre for Automotive Industries Management, show that only 23% of cars within the EU satisfy this criterion.

A further 32% have price differentials of between 12–25%, while one fifth of cars have price differentials between the cheapest and most expensive of 25–40%. In addition, the price of 40% of cars differs by at least 40%. Yet unless manufacturers harmonise their prices at the highest pre-tax price they stand to lose billions of Euros. Three of the four largest new car markets in Europe have pre-tax prices at or above the European average.

Harmonising European prices at Greek levels, for example, would cost the motor industry €37 billion in lost revenue (€200bn–€163bn). Equally, increasing pre-tax prices to UK levels would damage new car sales in key markets like Spain and Italy.

'New car pre-tax prices will harmonise over the next two to three years to within a 10–15% band,' predicted Cooke.

'But it could mean manufacturers stop selling some cars in some markets.'

He added that price harmonisation will not be uniform, but instead be implemented on a segment-by-segment basis, so that pre-tax prices of some cars will increase, while others will fall.

The only long term solution, however, is a standard tax system for new cars throughout Europe, a scenario that Cooke cannot envisage happening for at least 15 years.

He predicted, however, that eventually this common taxation level was likely to add about 23–25% to the pre-tax price of a car, which would represent a significant increase for Europe's largest car markets of France, Germany, Italy and the UK. (August 2000)