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Large dealer groups hold advantage in new legislation

Car dealers are being advised they will notice little of the impact of the introduction of the latest block exemption legislation.

Aimed at reforming the sale and servicing of cars the new legislation regards the abolition of the location clause from October 1.

The location clause prevents dealers from expanding outside their territories. From October any dealer selling passenger cars and commercial vehicles and who meet the manufacturers standards will be able to set up secondary sales and delivery outlets anywhere within the EU.

PricewaterhouseCoopers says those with the most to gain will be large dealers and multinational fleet providers and there are already ‘pronounced national variations’.

British dealers sold an average of 444 new cars last year reflecting the fact the market has already consolidated.

In Europe’s biggest markets the figures were much lower: 330 in Italy, 236 in Spain, 173 in Germany and 158 in France. It was lower still in most of the other countries to which the regulation applies suggesting that British dealers are in a better position than continental counterparts to exploit the scrapping of the clause.

However it is dealers in the 10 new member states that acceded to the EU in May 2004 that will be most vulnerable. They have only been given a year to adjust their strategies so most are unprepared to fight off external competition, says PwC. In addition, their markets are more dependent on strong manufacturer-importer networks and most of the dealers are economically weaker than their Western European peers.

The latest in a series of reports by PricewaterhouseCoopers, ‘Block exemption, bar room brawl spills onto the streets’, looks at the likely effects of the abolition of the location clause.

Stephen Eames, PricewaterhouseCoopers’ director, said: "Only large companies already operating on an international basis have the resources to expand across borders. The fact they have already gone abroad suggests the abolition of the location clause will make very little difference."

It has been argued that the ending of the abolition clause could see numerous dealers go out of business leaving a few large groups to dominate each national market.

"However, the effect natural market conditions have on limiting this is evidenced in authorised repairs. The vast majority of dealers are also authorised repairers and have been free to set up secondary repair outlets since the start of the new regime in October 2003, " says Eames.

"Yet with no sign that numerous dealers have set up new repair outlets it is questionable whether they would behave differently once free to establish new retail operations wherever they want.

"Despite the initial controversy when the new Block Exemption Regulation was first proposed it is actually issues like market conditions which have had a much greater impact on the sector. Changing the rules will not change economic reality and few dealers will expand unless the business fundamentals are right."

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