Retailers should not meekly accept carmakers' demands

The relationship between manufacturers and dealers often resembles that between a master and his servant in times long gone. It is out of tune with modern practice, notions of fairness and equality of bargaining position.

Business is bad for dealers – it's not just small local family-owned franchised dealers that are suffering. Large quoted company groups have become highly vulnerable as their share prices indicate.

Many dealers, after running profitable and reputable businesses for 20 to 30 years, are suddenly and without reason given a two-year notice of termination. Often, this is after heavy investment at the insistence or request of manufacturers.

The law, though unable to dictate economic and market trends or stop technology-driven change, can provide a framework to which companies must comply. The Competition Act 1998, which came into force this week, purports to provide a framework to curb and control anti-competitive behaviour.

The new Act gives the Director General of Fair Trading potentially draconian powers to penalise anyone who breaks competition laws. Those who suffer damage by reason of anti-competitive behaviour have the opportunity to claim compensation.

The exclusive distribution agreements between manufacturers and dealers are anti-competitive and fall foul of Article 81 of the EC Treaty. This provision prohibits agreements, conduct or behaviour which prevent or restrict competition. Article 81 is essentially replicated in what is known as the Chapter 1 Prohibition in the new Act. It is because of the Article 81 prohibition that automotive Block Exemption has evolved.

Block Exemption exempts from the prohibition exclusive distribution agreements which embody all the terms, conditions and criteria laid down by the regulation permitting the exemption.

If an agreement contains everything it should, and contains nothing that it should not, it is deemed not to be anti-competitive and unlawful.

Regrettably, some of the practices adopted by many of the manufacturers do not comply. It is remarkable how the culture of paying lip service to the written agreement but behaving with a flagrant disregard of the rules seems to be almost endemic.

Dealers, large and small, meekly submit out of fear of reprisals. They are told finance for customers must go through manufacturers' subsidiaries and many are charged with extortionate and unfair amounts for the provision of signage, advertising or computer systems. And few dealers have not lost orders because customers can buy at better prices, directly or indirectly, in mainland Europe.

EU Article 82, which is in the new Act's Chapter 2 prohibition, is the outlawing of behaviour which amounts to an abuse of a dominant position in the market – bully-boy tactics. This prohibition must be considered in relation to the practices of some manufacturers, particularly as “abuse” cannot be exempted.

There are laws to protect dealers and consumers against anti-competitive behaviour and the bullies of the commercial world. So dealers have a choice – rule of law or ruled by fear.