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OFT calls on manufacturers to lift warranty restrictions

The Office of Fair Trading has called on car manufacturers and franchised dealers to lift restrictions on where new cars may be serviced while under warranty, and to improve the provision of information to customers on the terms and conditions of their warranties. If servicing restrictions remain, the OFT will consider launching a formal investigation under European competition law.

In its anxiously-awaited report on new car warranty conditoins, the OFT notes that recent changes to European regulation for the car sector mean that manufacturers and their franchised dealers are obliged to open themselves up to greater potential competition for after-sales services from garages outside their network. The OFT believes that for this to work effectively, customers must have undistorted choice about where they have this work undertaken.

Under the terms of many of dealer-based extended warranties, and some manufacturers' warranties, a new car must be serviced at a garage belonging to the manufacturer's franchised dealer network. About half of all new cars sold have warranties with such servicing restrictions.

The OFT calculates that the costs of after-sales service and repairs on average equate to about 40 per cent of the lifetime cost of a car. The total spend on car servicing and repair in the UK is around £10 billion a year, of which about £1.4 billion is spent on servicing cars up to three years' old. Franchised dealers carry out around 90 per cent of servicing of cars up to three years' old.

Servicing at franchised dealers is generally more expensive than servicing at independent garages, according to the OFT, averaging £199 and £116 respectively without any apparent difference in the quality of the service offered. On this basis, the OFT estimates that servicing at franchised dealers may be costing consumers up to £500 million extra per year.

The OFT study found that customers are often unaware of the options available to them when choosing a garage, and that over two thirds of customers assume that their warranty will be invalidated if they use an independent garage, even where this is not the case.

The OFT recommends:

- That manufacturers and dealers should improve their advice to consumers on their options for servicing new and nearly-new cars and their statutory rights

- That manufacturers and dealers remove servicing restrictions from their new car warranties, to improve consumer choice and aid the development of more effective competition in the car after-sales market.

To promote further the development of competition in the market, the OFT will:

- Launch a consumer awareness campaign in spring 2004 to provide clear information to buyers and owners of new and nearly-new cars about the choices available to them for servicing their cars

- Issue business guidance to motor dealers and others in the car trade on the advice they should be providing to customers about servicing requirements

- Work with motor trade associations on developing effective consumer codes of practice which include the requirement to provide clear and transparent information to consumers about servicing requirements and prices.

John Vickers, OFT Chairman, said: “Competition and consumer value in the after-sales market are inhibited by restrictions.on the car servicing choices of car owners.

“The car industry now has the opportunity to address the concerns in our report, and we welcome the recent moves by some manufacturers to remove servicing restrictions.”

The OFT warranty report is available to download from the homepage of www.oft.gov.uk.

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