The European Commission's proposed new rules on car distribution will increase competition among manufacturers and dealers but stop short of allowing supermarkets and internet companies from selling cars freely, according to newspaper reports published today.

The Financial Times said that the proposed new EC rules will expose manufacturers with a large share of their domestic market, such as Renault, Peugeot, Fiat and Volkswagen, to increased competition from rival dealers.

The current system where manufacturers tie dealerships to the sales and servicing of their vehicles in specific territories will be outlawed. Instead, the FT said, links to manufacturers will be maintained under the new system but dealers will be allowed to open showrooms in other countries where any one manufacturer has more than 15 percent of the market.

The newspaper added that, in other markets, dealers will be able to advertise and market their services but not operate showrooms.

The Financial Times said that the rule was aimed at reducing the dominance of so-called 'national champions' such as Renault and Peugeot in France, Fiat in Italy and Volkswagen in Germany on their home markets.

Commission officials admitted to the FT that the change would benefit US and Japanese manufacturers that have smaller market shares in Europe but stressed that smaller European carmakers were also expected to increase sales.

The newspaper added that the new rules, which are expected to be introduced next year, will allow dealers to exploit the wide pre-tax price differentials across the European Union by buying so-called 'parallel imports' -- cars from countries where the national distributor sells at a low pre-tax price to offset high local import duties and sales taxes -- and reselling them in countries where prices are high.

UK car buyers already benefit from such practices as independent importers and internet retailers use this method to source right-hand drive cars in Europe, offering them to customers at prices several thousand pounds below the list prices of 'officialy imported' vehicles. But consumer organisations suggest that buyers should check deals carefully because parallel-imported cars may not be to exact UK specification or have the same warranty provisions as 'official' vehicles.

The FT said that consumers should benefit from dealers selling cars at cheaper prices than currently charged by the current manufacturer-appointed distributor/dealer system.

"We want to encourage sales and competition especially in countries where carmakers have a strong market position," an official told the newspaper.

The FT added that Commission studies show that car prices can vary by up to 50 per cent across the European Union, with Germany, Austria and the UK the most expensive markets and Finland, Denmark and Greece the cheapest.

There has however been considerable confusion over such Europe-wide price comparisons in the last two years, and this has led to media slanging matches between consumer organisations, car manufacturers and motor industry trade associations such as the UK's Society of Motor Manufacturers and Traders (SMMT).

As the Daily Telegraph reported today, the Commission's survey of pre-tax car prices last year found that the Renault Laguna 1.6 16v was selling for £12,252 before tax in Britain, compared with £6,092 before tax in Denmark while the Mazda 323 1.5 was selling for £11,705 and £5,593 respectively.

However, manufacturers deliberately set low pre-tax prices for cars low in high-tax countries such as Denmark to keep the retail price affordable for consumers. But this allows a canny buyer from another EU country to exploit an odd loophole in EU tax laws - he can buy a car at low pre-tax price in a country such as Denmark and import it into his own country, paying only the taxes (such as UK VAT) applicable where he lives.

When buyers from countries such as Holland, Austria and Germany took advantage of this tax loophole to import cheaper Volkswagens from Italy, where the pre-tax price was lower, VW countered by increasing the pre-tax prices charged to foreign buyers and was subsequently fined the equivalent of $US77 million by EC compeition commissioner Mario Monti.

Monti's spokesman yesterday told the Daily Telegraph that the car industry had failed to reform itself and had operated in an "abusive" fashion.

"The regime we want must be more favourable to consumers," he added.

The newspaper said that Monti has proved to be the scourge of big car producers, fining DaimlerChrysler $65.5m (£45.6m) for violating competition rules as well as Volkswagen.

The new EC proposals, the biggest shake-up of the European car distribution system in two decades, will however continue to restrict supermarkets and internet companies from obtaining cars through dealer networks, the Daily Telegraph said.

The newspaper added that the EC's draft text noted that allowing supermarkets to act as primary distributors "may in the short term lead to price decreases. In the long run it may, however, be counter-productive: it could reduce the range of vehicles offered and hamper innovation."

The Daily Telegraph said that consumer groups were critical of that suggestion though it had the support of Malcolm Harbour, a Conservative member of the European Parliament and car industry expert, who said that dealers have lower profit margins than supermarkets.

"The concern is that supermarkets could drive all the small dealers out of business, and then impose higher prices through an effective monopoly," Harbour told the Daily Telegraph.

Meanwhile, Tesco, Britain's biggest supermarket group which has been considering selling cars for some time, welcomed the news from Brussels, according to the FT.

"We never say never about selling cars - and it is no secret that it is an area we have been looking at," Tesco director Lucy Neville-Rolf told the newspaper.

Carrefour, one of Europe's largest supermarket groups, told the FT that it could consider taking advantage of the Brussels authorities' plans to allow retailers to sell cars once it had studied all the details of the proposals.