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EC signals end for Block Exemption

Reading between the lines of a 140-page EC report on the working of Regulation 1475/95 reveals a blunt message: motor industry Block Exemption does not work.

The present legal framework covering sale and distribution concludes that the industry has failed to meet the requirements laid out by the commission in 1995.

The underlying theme concerns the Commission's dissatisfaction with the way in which the market works. It points out that there is no real alternative source of supply for new car buyers than other than via the dealer network and criticises franchised dealers' aftersales services for being more expensive than independents.

Under regulation 1475/95, “dealers had to be ready to meet demand from final consumers in other areas of the common market”.

Manufacturers had to impose corresponding obligations like aftersales services on dealers. But the report claims that Block Exemption is permitting “the combination of selective and exclusive distribution” and manufacturers have not felt obliged to supply new dealers even if they meet the standards demanded of authorised retailers.

The report is highly critical of “stock-push” practices which, it says, serve the interests of manufacturers and dealers, rather than consumers, who are encouraged to buy cars that the industry has left over, rather than their first choice.

The idea behind regulation 1475/95 was to “highlight and make workable the consumer's basic right to buy a motor vehicle and to have it maintained or repaired wherever prices or conditions are most advantageous”.

According to the report, that right has been violated by direct or indirect unilateral measures on the part of manufacturers or distributors such as longer delivery times, refusal to carry out warranty work and lack of co-operation in the event of difficulties with registration.

The report indicates that a 12% difference between lowest and highest prices for the same model across EU member states would normally cause concern in Brussels. If the gap was larger, the report suggests, demand for parallel and grey imports would take-off.

In fact the price gap has risen in recent years – it now regularly exceeds 20% and can be as high as 65%. Market forces have been frustrated by the actions of manufacturers and distributors.

The report takes a dim view of supermarkets as an outlet for new cars. “Cars are high price items about which consumers expect to be well informed with the possibility of aftersales services,” it says.

But the Brussels experts are much more impressed by the internet. The possible growth in internet car deals, especially for cross-border trade and especially as “lean distribution” practices become more widespread, is “potentially important and could develop the parallel market on a much larger scale”.

Interested parties have until January 16 to offer arguments that will be aired at a hearing the following month.

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