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Block Exemption: Changes could be a long time coming

It’s a pound to a penny that the overdue changes in Europe’s Block Exemption regulations will not be announced in accordance with the timetable.

And it is a reasonably safe bet that the politicians will defer it just before the summer break, go away on a long holiday and fail to get anything through before the end of the year.

For all UK car dealers, the measures the European Commission finally comes up with will determine how the sector makes money in the next decade. More important still for the owner drivers, the changes could have a bearing on how valuable their business is, and how easy it is to sell.


Consultation period

But as usual, delivery of that information is infernally slow.
Last May, an EC publication assessed how the regulations had been working up to that point. It was largely self-congratulatory; the view was that there was not that much need for change.

A consultation period was due to run to the end of the autumn but that never happened. 

Instead, DG-Competition of the European Commission published the submissions on the internet, click here to view the document

ICDP, the Solihull-based car distribution consultancy, was quick to publish the response that there was little support for the self-satisfaction of the regulators, or for the regulations that seemed likely to arise in the next phase. 

ICDP director Andrew Tongue said: “With the exception of carmakers and importer associations and some of the member state governments, there is very little support from the rest of the industry, from national level regulators or from legal opinion for the conclusions drawn in the May 2008 evaluation report.”

Sceptics’ forecast

Then came the announcement that the new regulations would get an airing in March; then it was May. According to the latest gossip, it will be mid-to-late July. Hence the informed forecast from the professional sceptics, that our elected representatives will shuffle the job under the pending tray and make a grab for the beach towel. 

The period of time set aside for drafting the framework for the new regulations then gets shot to pieces, and the existing Block Exemption expires in just under a year’s time on May 31, 2010.

Most likely outcomes

The most important change needed for dealers to protect the value in their business is the
right to sell that business in an open market and there is a great deal of opposition to franchise holders being able to sell only to other holders of the same franchise. 

The UK government said: “Prohibitions on agreements which either restrict the location of business premises or the right to transfer the business to another member of the network chosen by the distributor, should be made explicitly applicable to all qualitative selective
distribution networks.”

The National Franchised Dealers’ Association said the real value of the Block Exemption regulation is as a measure to encourage competition. 

“Choice through multi-branding is only effective if a dealer has some means to challenge the threat of termination or non-renewal, whether in terms of the obligation on VMs to provide transparent and objective reasons, or the right of referral to an expert,” it said.

Andrew Tongue believes manufacturers will win back the right to veto the new owner. “This is politics getting into control and out of regulation,” he said.

Industry view

Dr Andrew Tongue did his PhD in car distribution at Bath University before joing the ICDP (International Car Distribution Programme) in Solihull. He is now a director.

“There were lots of forecasts about bigger distribution groups and big European providers of lease cars. Some companies using big numbers of back office staff did develop and Inchcape has become a multi-national dealer and distributor, but that was almost by accident,” he said. 

“We have done a fair bit of work on scale and the profit benefits are fairly modest. 

Disadvantages set in quite quickly and take large groups past the point where they are
difficult to manage.

“Success seems to arise with the dealer groups with a tight regional focus and a natural geographic area.”

Tongue said there must be some change to Block Exemption. The European Commission cannot go on without confirming that franchised networks are either a good or a bad thing. 

He believes regulation reduction is a good thing in the eyes of the European Parliament and if it can regulate the car business under the normal competition policy regulations it should. If it needs to persist with regulations specific to cars, it needs to explain why.

Pendragon consults with EC.

Pendragon, Britain’s biggest dealer group, was one of the companies to write a letter to the EC. Chief executive Trevor Finn said in the letter that carrying on with fixed-term agreements on franchises would allow “the continued stifling of competition by vehicle makers”.

Finn reckons that manufacturers imposing a fixed-term agreement can do so, on condition that notice of non-renewal must be given only with detailed, objective and transparent reasons. The notice of non-renewal must be a minimum of two years. That lobby is also pursued by the UK’s National Franchised Dealers Association.

Tongue said: “This is the biggest remaining area of debate on the car sales side. The regulators are fixated by the idea of dealers lining up all the brands side by side and therefore put in a lot of regulation to make that possible.

“In the car trade, the VM can own the shop and it is still possible for the operator to multi-brand.”
Here lies one repercussion if the EC was to withdraw the special measure for the motor industry. VMs would be able to insist on solus representation. Some of the prestige manufacturers are very keen that this should happen.

Regulators seem to like businesses such as car supermarkets, says Tongue, which sell all brands under one roof. 

The European watchdogs approve of a nearly-new trade that allows side-by-side comparisons of brands because that has been one of the main drivers of price reductions in the market.

Regulators are sensitive, however, to the pressure that franchised retailers are now under.

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