Late last year Keith Jones, the vastly experienced managing director of Unipart Logistics admitted in public to being “jaundiced” when it came to automotive sector legislation. ” I have not seen it make much difference at all,” he remarked. However, he admitted that what has happened to “Block Exemption” could be different. “It has got the elements in it for change to happen.” Quite what those changes will be, he was refreshing enough to admit, he did not know. Ian Wagstaff reports
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Philip Wylie, from PwC (PricewaterhouseCoopers) Global has, though, pointed out that the biggest impact will be in parts and service. The pair were talking about the future following the replacement in October 2002 of the EU’s 20-year old Block Exemption Regulations (BER) by a new regime of sales and servicing designed to encourage free and fair competition.
Prior to 2002 the motor industry franchised dealer structure was exempt from European legislation that made it generally illegal to sell any products using methods and channels so controlled by the product manufacturer as to limit free competition. It had been argued that such a structure was necessary to support a viable network and so the automotive sector had been freed from the penalties imposed on other businesses.
On the surface the changes to this “Block Exemption” appear to have the potential to change the structure and content of aftermarket distribution channels and installer networks quite substantially. One leading observer, Brian Taylor, the editor of Castrol Business Services Trend Tracker questioned at the time whether such restructuring would be the result of the legislation change or whether the legislation would merely rubber stamp alternations in procedures necessary for business profitability.
Introducing the aftermarket conference at which both Jones and Wylie were speakers, Professor Jonathan Brown added, “People are faced with some fascinating choices. You can be absolutely sure things are going to get different.”
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By GlobalDataMuch has been said in the year and a half since the changes and many agree with Wylie that it is in the aftermarket that the biggest changes will occur, not so much in the sale of cars. However, to date there has been an air of plus ca change, plus c’est la meme chose. Neil Barnett, freshly appointed new business development manager for Vauxhall Aftersales states “I don’t think Block Exemption is really understood out there.” He also believes that there are not that many independent operators who will want to make the investment necessary to benefit from the changes.
“It’s coming out all too slowly,” said Matthew Carrington, chief executive of the Retail Motor Industry Federation (RMI) at last month’s dinner marking the CV and Automotive Trade Shows. Barnett agrees: “It will be a long time before Block Exemption has any real effect.” There are still, as Professor Brown points out, “lots and lots of uncertainties” and lobbying continues to take place in Brussels. At the same time there are plenty of “experts” who will tell you what is going to happen by, as Carrington rather cynically points out, “talking to them is a bit like talking to economists.”
He does, though, reckon that “Block Exemption should work out in all of our favours.” CLEDIPA, the European Committee of Automotive Aftermarket Distributors stated at the time of the new legislation that “from now on free competition in the automotive parts, service and repair market in the EU will be strengthened considerably.” This contrasts to the probably lone, and surely biased, view of Jean-Martin Folz, president of PSA Peugeot-Citroen who, shortly after the changes were announced, predicted that independent operators were likely to lose out. While admitting at the time that it was “too early to be completely sure, the changes will have both positive and negative effects.” He also reckoned that they would be to the detriment of the motorist. Such as view should not come as a surprise, for the vehicle manufacturers, particularly those based in Germany where they had considerable leverage, fought hard to prevent the changes to Block Exemption from being made.
By contrast with Folz, Hartmut Rohl, the CLEDIPA president talks of “greater transparency” for the consumer. He points out that the term “original spare parts” can no longer be used exclusively by the vehicle manufacturers. A “genuine” part is now one that meets original equipment specifications rather than carries the vehicle manufacturer’s brand. This is a matter of common sense as most manufacturers of OES (parts sold by franchise dealers using the VMs’ own brands) will sell exactly the same part in their own livery through independent channels. The only thing that is different is the packaging.
Approved repair shops no longer need to be attached to vehicle sales operations. Dealerships with no workshops can sub-contact work to service and repair operations. “This,” said Folz, “is contrary to the expectation of European car buyers.” He also reckoned that those wishing to operate service workshops are likely to concentrate on urban areas, leaving the less densely populated regions underserved. Speaking very much as a vehicle manufacturer, he felt that the increasing complexity of the car will mean that independent operators will not be able to fill these predicted “black holes”.
Thankfully for the independent sector, the EU adopted a proposal put forward by CLEDIPA for the improvement of its definition of access to technical information. This is said to have been of utmost importance for the independent aftermarket. A substantial amount of the information needed for diagnosis and repair can only be gained and implemented if there is access to and communication with the various electronic systems installed on-board for the purpose of diagnosis and control.
Not surprisingly, there have been those in the independent sector who have violently disagreed with Folz’s predictions. “It is a shame,” wrote Martin Broadribb, the manager of an independent Citroen and Peugeot operation, “that the car makers cannot take the opportunity of Block Exemption to capitalise on the huge customer base of the independents and the potential of sales of genuine parts, equipment and information.”
A franchised dealer attitude survey published by the RMI this month has indicated that the majority of networks believe that despite the new Block Exemption regulation, vehicle manufacturers continue to exert a considerable degree of control over their businesses. Around 40 per cent believe that this will increase over the next year and many are unhappy with current parts distribution practices.
Twelve months on from Broadribb’s retort, Vauxhall reckons that there is one effect that the Block Exemption changes have made. According to Neil Barnett, component suppliers are giving increasing support to the vehicle manufacturers “as they see them as a stable channel.” Vauxhall believes that it is logical to run with the hare and hunt with the hounds, assisting its franchise dealers to win servicing business through its MasterFit service and repair concept and encouraging independent garages to use its “genuine” parts through the now well established Vauxhall Trade Club, which has recently passed the £30 million annual turnover mark for the first time. In some respects this reflects what was happening in the aftermarket even prior to October 2002.
Brian Spratt, chief executive of the Automotive Distribution Federation, has pointed out that trading between the independent and franchise sectors had already been growing without the assistance of legislation. In addition the use of “authorised repairers” was already happening in some countries beforehand. Audi, Volkswagen and Ford were using such outlets in Belgium, Germany and the Nordic countries. BMW, Mazda, Mercedes-Benz and Renault has also made announcements about seeing independent service points as part of their future strategies before such thinking was required by law.
Will the changes to Block Exemption cause consumers to change their car servicing and repair habits? Perhaps not surprisingly IBM Business Consulting Services found in a recent EU-wide survey that only 12 per cent of respondents had even heard of Block Exemption. As many as 83 per cent said that they thought it was a “good idea” once it had been explained to them. In the UK, 45 per cent said that they would consider switching to an alternative service and repair outlet. The fact that the car might not be under warranty did not have an impact. However, as IBM Business Consulting Services’ Mike Woodward states, “there’s a lot of inertia out there.”
Datamonitor has also pointed to a lack of awareness of Block Exemption in the UK. This, it says, is as low as 23 per cent among garages and 17 per cent among tyre dealers. These figures compare badly with those of Germany where 81 per cent of garages and 48 per cent of tyre dealers are aware of the subject and Europe, as a whole, where the figures are 60 per cent and 37 per cent.
Because of the number of fleets operating in the UK, it is believed by some that it will be the large leasing companies that will drive any major change in where cars are serviced. Therefore, it could be the decisions of as few as 10 people who could dictate the way the market heads. Quite how they react, if at all, to Block Exemption could mean whether the lull following the legislative changes is merely a “phoney war” or whether the huge number of words already written on the subject has all been “hot air”.
