Following the publication by the European Commission earlier this year of its proposed far-reaching reforms to the current block exemption scheme for new car sales in the European Union, the continent's motor industry is in ferment. Nobody can be quite sure whether the reforms will go through as they have been planned - or when. But some key players are clearly moving quickly to seize new opportunities in the market. Investigations by reveal that the distribution sector has already begun investing heavily for the new regime, and those who ignore the expected oncoming changes may find it hard to catch up. Alan Osborn reports.

Under the new Commission plan car manufacturers will have to choose between exclusive distribution arrangements - where each dealer is allocated its own sales territory - and selective distribution where dealers are chosen on the basis of qualitative and quantitative criteria. Dealers will also be allowed to sell cars of more than one brand and there will be fewer restrictions on the intermediaries who act for consumers who want to buy abroad.

Commission officials said that dealers in selective systems should be able to engage in direct marketing and create secondary sales outlets in other EU Member States and that supermarkets and internet dealers should be allowed to sell cars when they meet manufacturers' criteria. Dealers would no longer be obliged to carry out repairs and may subcontract after-sales servicing, while independent car repairers would be allowed to have access to information, tools, equipment and training.

These are bold proposals but not as radical as they might have been given the pressures on Brussels to replace the current block exemption scheme, which has allowed manufacturers and dealers to maintain exclusive distribution networks, free from the EU competition law regulations that insist on liberalisation in most other economic sectors. Clearly no free-for-all arrangement, as some had feared, is on the cards. That said, some countries are nevertheless concerned, notably Germany. According to its Chancellor Gerhard Schroeder "

"the destruction of the block exemption would bring huge competitive disadvantages to the German car industry"
the destruction of the block exemption would bring huge competitive disadvantages to the German car industry." France and Italy say that they are also unhappy, for similar reasons.

The block exemption scheme expires in September this year and its replacement system is due to be formally launched on October 1st, although this includes a year's grace to allow changes to be made. The German spokesman for the economic committee of the European Parliament has called for an additional year's delay in implementation, (so it would come into force on October 2004), but this may be no more than bluster; the Commission can ultimately decide the matter alone, without reference to MEP's or the Council of Ministers.

Brussels has promised that it will consult with all those concerned however, and it will not make a final decision on the package until July. Our soundings of major stakeholders in the industry suggest that while a number of pure distributors as well as service and repair companies unreservedly welcome the proposals, the motor sector as a whole is just as opposed and will lobby hard for changes.

Britain's Society of Motor Manufacturers and Traders told that it was not convinced that the planned changes to block exemption would benefit consumers.  "We're concerned that the proposed legislation could result in competition being stifled. The way that the rules are being drafted at this stage leaves it open for big dealer groups to swallow up smaller local dealers and so we would end up with mega dealer groups across Europe," said Al Clarke, SMMT spokesman.

Once block exemption ended there would be a "firefight" where the big dealer groups would  "flex their muscles, price the others out of the market and then, when they've got the market cleaned, they'll just push the prices back up. It will then be the dealer groups which control prices," Mr Clarke said.

He made a further point about access to local services. "If the big dealers become all powerful then the local franchised dealer will become like the local sub post office, pub and garage - they'll die out." Under the present system, manufacturers can select where the dealers were placed around the country  - "once that's taken away we're going to end up with desert areas, where people have to drive dozens of miles to get access to a franchised service point," said Mr Clarke.

There is another aspect to multi-franchising, with cars being sold by supermarkets like washing machines or television sets, he added. If you sell several brands under the same roof, and each brand attracts a commission "what's to stop the salesman then selling to you the vehicle which gives him the most commission rather than the one which is best for you?" asked Mr Clarke.

Moreover an average car has between 15,000 and 20,000 parts and needs a proper network of trained technicians behind its maintenance. 

The logical way at present, it would seem, is through companies like Inchcape, Britain's biggest car dealership, which are preparing to offer back-up services to supermarkets and others who are planning to enter the new car market. No company is likely to declare his hand before the package is finally agreed, but Inchcape chief executive Peter Johnson said that if supermarkets were to show interest in selling and financing new cars, but were not interested in supplying after-sales services, Inchcape would be ready to provide them aftercare and other services "like handling the part exchange, delivering the cars, that kind of service."

"How can supermarkets and other multi-franchise operators provide the right technical back-up to consumers? "
How can supermarkets and other multi-franchise operators provide the right technical back-up to consumers?  How can they ensure that warranty and recall work will be properly carried out if the link between retailing and after-sales service has been broken?

According to Unipart, formerly the parts manufacturing arm of Rover and now one of the UK's biggest distribution businesses, the proposed changes "could establish a new era in service and repair for motorists, potentially leading to a larger network of official repairers than at present."

Expert Analysis

The Future of Block Exemption and Motor Vehicle Retailing in the UK and EU
This report is an independent analysis of the expected amendment of the Block Exemption Regulations and the future of car retailing in the UK and the European Union. It analyses all aspects of the car retailing environment and provides a comprehensive review of the current operation of the selective and exclusive distribution system for motor vehicles under Block Exemption.

Unipart says that dealer groups could organise these servicing and repair facilities into new branded chains which would sit alongside the present sales outlets or they could choose to spin off service and repair network into a separate business.

Garages will also have more opportunity to use original equipment equivalent parts as an alternative to manufacturers' branded components says the company which is developing a programme of support for manufacturers to outsource their parts activities.  Paul Forman, managing director of the European Aftermarket Division, said that Unipart is "the only UK company with a nation-wide factor network of wholly owned and franchised outlets that is in a position to provide this level of service."