New EU Car Regulations Raise Industry Fears

In a bid to assure concerned politicians that their country's car industries will not suffer from the planned changes, EU Competition Commissioner Mario Monti has promised European leaders that consumers benefiting from the increased competition in the market will bolster manufacturers' sales.

A move to multibrand showrooms

In the first set of reforms, with which car makers have until October 1, 2003 to comply, dealers will be allowed to sell cars of more than one brand in the same showroom. So a single shopping trip to one dealership could replace three separate visits to showrooms only displaying single brand vehicles.

The rules will also make it compulsory for manufacturers to supply spare parts and tools to independent repair shops. When trouble strikes, consumers will be able to go to a wider range of authorised repair outfits rather than being forced to return to the branded showroom. It will also provide small car dealers with new revenue opportunities.

The changes divert considerable control from car manufacturers to dealers. More outlets selling a wider variety of cars means more competition. It will also make it far easier to set up car supermarkets, again increasing competition.

And the European Commission thinks that this should bring car prices down and make buying vehicles more attractive.

German concerns offset by promise of benefits

Politicians in countries with burgeoning car industries have expressed worries about the impact of the changes.

German Chancellor Gerhard Schröder has been particularly vocal, keen to defend the country's manufacturing sector ahead of September's general election.

The chancellor has argued that reform would damage German industry, contribute to the loss of German jobs and lead to concentration in the car-retail market.

In an attempt to pacify Mr. Schröder, the European Commission has said that consumers in Germany, who currently pay for up to 42% more before tax on the same model of car than their counterparts in other member-states, would derive particular benefit.

Despite Berlin's opposition to car-market liberalisation, German government insiders stressed this week that there were no plans to introduce any national law in an effort to get around the new reforms. The insiders dismissed rumours that the government planned legislation that would delay the introduction of competition in the supply of replacement parts.

Controversial 'blanket selling' measure on hold

But following pressure from German, French and Spanish commissioners, one key liberalisation has been delayed at the last minute.

The introduction of controversial measures giving dealers the right to open showrooms anywhere in the 15-nation European Union, from Aberdeen to Athens, has been put back a year to October 2005.

From that date, car dealers will gain the right to open showrooms anywhere in Europe, and the car makers will lose the right to define their dealers' sales territories.

Until now, a block exemption regulation has exempted the car industry as a group from antitrust rules that ban price fixing and the imposition of geographic limits on sales franchises.

The delay means the disparity between car prices in different countries may not equal out just yet.

The responses from some car makers suggest that the new regulations will so much benefit consumers in high-cost countries as work to the detriment of those in low-cost countries.

Car prices unlikely to fall drastically

"In the big markets, prices will remain more or less stable," said Klaus Fricke, marketing chief at the headquarters of Fiat SpA in Turin.

He said prices in southern Europe; Scandinavia and the Benelux countries would rise. Given manufacturers' and retailers' low returns, it was unthinkable that car prices could fall to any decisive extent, he added.