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Carmakers likely to keep their room for manoeuvre

The expiry of the present competition law, Block Exemption, in September 2002 will change the balance of strength between manufacturers and dealers. But, as the industry restructures, it will affect different relationships to different degrees. It is also important for dealers, when positioning themselves for the future, to remember that Block Exemption need not necessarily even apply.

Despite its obvious importance, Block Exemption is not a regulatory regime controlling every aspect of the relationship between dealer and manufacturer. It is only an exemption from the competition rules where they would otherwise destroy core elements of the industry structure, in particular, the ability for the manufacturer to set minimum dealer quality standards and to give a dealer an exclusive territory.

Current Block Exemption has also come, in practice, to set the other industry standard terms for exclusive dealership arrangements but this need not always be so.

The European Commission is due to publish its proposals for new arrangements in the autumn. My forecast is that a new Block Exemption will focus only on the core issues and is less likely to set up an industry standard contract. I also expect a manufacturer's ability to give effective exclusive territories to be significantly weakened but I believe they will continue to be able to set, at least some, minimum brand standards for the sale of their cars.

In my view the changes will have a number of impacts.

First, some dealerships will want to become significantly closer to their chosen manufacturers and fall outside competition rules. For such people the new Block Exemption will become irrelevant.

There are a number of different ways of achieving this. A dealer could sell all of their business to a manufacturer. Alternatively, a joint venture with a manufacturer could be used as long as it gives the manufacturer sufficient control. This last option enables a dealer to keep a shareholding, typically 20% but possibly more. In either case, a transaction with a manufacturer-controlled dealer credit house would also achieve the same result. Clearly, any of these changes involve a loss of business control for an independent dealer to the manufacturer who will probably choose to limit the future business to the sale of its brands.

Conversely, independent dealers will have more opportunity to negotiate hard for advantageous terms. Weaker links with manufacturers will give other advantages and challenges. On the plus side, those dealers able to marshal the capital and expertise, should more easily market multiple (perhaps competing) brands on the same site, sell over the internet, flex different sources of supply for good prices and innovate in their customer relationships to sell new value-added aftersale services.

On the downside, weakening the link with a manufacturer could soil the relationship. A new battlefield might open up with manufacturers finding clever ways to limit the supply of cars so as to help their own dealerships.

Unless Block Exemption prohibits refusal to supply (as the price of allowing manufacturers to set minimum brand standards), they will retain significant room to manoeuvre.

All these factors point to significant restructuring of dealerships over the next few years. A dealer who is on the ball will focus now on maximising the value of their business.

One point is often missed. There is hidden value in dealer client data if (but only if) the data protection position is clear so that this asset can be easily traded if the time comes.

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