Under the proposed rule changes to the car distribution block exemption, car manufacturers will be able to choose between exclusive distribution, where each dealer approved by the manufacturer is allocated an exclusive sales territory, and selective distribution, where manufacturers are obliged to supply any dealer that meets their set criteria.
Car makers will not, however, be able to combine both selectivity and exclusivity, unlike the existing regime.
The new draft regulation, applicable to cars, vans, trucks and buses, makes cross-border sales operations easier, giving dealers in a selective distribution system the right to set up a second sales outlet outside their own European country.
Potentially this would allow a dealer in a cheap pre-tax market, such as Denmark, to set up a sales operation in the UK (the most expensive pre-tax market in the European Union). As a result, the dealer could source right-hand drive cars at pre-tax Danish prices and sell them in the UK, adding only 17.5% VAT, and the £25 vehicle registration fee.
A Ford Focus 1.6 three-door, for example, costs €9,317 (£5,590) pre-tax in Denmark, compared to €13,357 (£8,014) in the UK, according to the European Commission's last price comparison. In theory, this means that the Danish dealer could sell the Focus in the UK for €9,317 (plus VAT), a retail price of £6,568, compared to the £9,417 the UK dealer would charge.
In reality, car manufacturers could not afford for such a situation to persist, and would rapidly have to harmonise pre-tax prices, with experts forecasting a general price increase up towards UK levels, rather than down to Danish prices.
But the EC document is genuine in its desire to facilitate cross-border trade and sustain the political goal of a free market, saying: 'One might imagine that a Ford dealer in Belgium who commonly sells many vehicles to UK consumers might find that it made business sense to open a sales or delivery outlet in London'.
The new system will also allow dealers to sell different makes of car under the same roof, albeit in 'brand-specific' areas of the showroom, unlike the current system that allows manufacturers to oblige dealers to sell different brands in completely separate operations, with different sales forces.
European Commission President Romano Prodi said: 'People want a real choice. They want to buy cars and obtain services wherever it is most advantageous, to have a choice of brands and models and to have high quality after-sales servicing at a reasonable price. That is why the Commission has designed a very different and much improved model which will be put on the road later this year.'
If unchallenged, the new block exemption proposals will be in place by October 1 this year, with a one-year grace period to allow manufacturers and dealers time to adapt. But it is by no means certain the proposals will reach the statute book unchanged, as German chancellor Gerhard Schröder said proposals to reform the so-called block exemption regime are a threat to the competitiveness of the car industry in Germany.
Fleets set to benefit from lower SMR costs
UK fleets face the prospect of lower service and maintenance costs due to proposed changes to the block exemption.
Under the current system, manufacturers oblige their dealers to invest in facilities to carry out repairs and maintenance on vehicles they sell.
But the new draft regulations propose that dealers should be able to choose whether they wish to carry out mechanical repairs themselves, or sub-contract them to another authorised member of the manufacturer's network, either another dealer or a repairer that meets manufacturer standards.
The new rules will not restrict the number of authorised franchised repairers within a market area, paving the way for greater competition for fleet maintenance business.
In addition, fleets with their own workshops will potentially be able to bid for external retail service and maintenance work so long as they meet manufacturer standards.
Last year, Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff University predicted at the Fleet News UK Congress that fleets could become car sales and servicing organisations under the new regime.
The draft document published last week also gives consumers the choice as to which spare parts are used on their vehicle. The current rules make it difficult for franchised dealers to use independent replacement parts, even if the parts suppliers also produce the original equipment fitted by the vehicle manufacturer. Manufacturers will still, however, be able to insist on garages fitting original parts for warranty work or recalls.
Industry reaction
Society of Motor Manufacturers and Traders chief executive Christopher Macgowan said: 'Any changes to the current rules could have a dramatic impact on the level of service to consumers. Manufacturers are keen to ensure there will be no loss of local dealers and that there is a reliable network of factory-trained technicians to support sales and servicing.'
Retail Motor Industry Federation chief executive David Evans said: 'The RMI takes satisfaction from the fact there will be a renewed Regulation for the motor industry. The special case made out by the industry for a continuation of the long-standing system for the distribution and after-sales of motor vehicles has been accepted.'
New block exemption proposals.
Timetable for change
The EC has put together a Q&A on the most commonly asked questions regarding block exemption. To view the Q&A click here.
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