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MPs slam repair sector

The Trade and Industry Select Committee has paved the way for ‘Rip-off Britain II’ after publishing a damning report into the automotive industry.

Top of the list of complaints is the cost of servicing and repairs, coupled with the fact that new car prices remain too high, in the Committee’s view, for individual buyers because retail groups are largely unable to attain fleet-type discounts from carmakers. It argues that large groups should be able to source bulk purchases at fleet discounts and is recommending that the Office of Fair Trading examines this issue.

The Committee adds that evidence from the industry suggests block exemption has had a limited impact on breaking the sales and aftersales bond at franchised dealers, as tight new car margins force them to recoup money via servicing. It quotes the Competition Commission as stating gross margins on new cars averages 4.6%, compared to 21% on spare parts and 60% on worklshop hours.

Additionally, the report claims that authorised repairer status has failed to provide independent competition to franchised networks, resulting in higher prices than in mainland Europe.

The report has set the industry’s two main associations, the Retail Motor Industry Federation and the Society of Motor Manufacturers and Traders at logger-heads. The RMI has attacked carmakers for placing retailers under excessive pressure and continuing to restrict the market. But the SMMT claims the industry has taken great steps to enable more competitiveness in car retail and aftermarket.

The publication of the Trade and Industry Select Committee’s 42-page report on The UK Automotive Industry in 2004 follows the Government’s New Car Pricing Inquiry in 2000 which the sparked ‘Rip-off Britain’ campaign and led to the Supply of New Cars Order (SNCO). Although this latest report is complimentary about engineering, components and manufacturing, it suggests the SNCO has failed to achieve its objective of transparent and comparble pricing between fleet deals and retailer purchases.

“Despite changes to block exemption, we are not convinced that consumers in the UK are getting a good deal in purchasing new cars or in servicing,” says the report. “Retailers selling vehicles to individual consumers do not enjoy the same generous wholesale discounts as fleet purchasers, so their margins are tight with little scope to offer deals.”

Matthew Carrington, RMI chief executive, says: “Independents and franchised dealers are still being put under unreasonable cost pressures. These changes were supposed to offer more freedom for businesses to offer consumers a better deal, but in reality little has changed.”

The Committee argues that consolidation within the car retail sector will have little benefit to consumers unless dealers are offered bulk-purchase discounts.

Manufacturers are criticised for “anti-competitive” demands on independent garages seeking authorised repairer status. In addition to the large financial investment required, manufacturers’ criteria such as dedicated service areas for specific brands effectively restricts the number of brands an authorised repairer can service. They are also accused of making it difficult for repairers to access their technical information. “Consumers are paying too much for car repair and servicing,” says the report.

The SMMT, however, claims the industry has moved “decisively” to open up the market. It argues that it is reasonable for manufacturers to require investment in order to meet customer requirements.

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