Car prices across Europe may rise, not fall as many predicted, following the changes to block exemption rules, PricewaterhouseCoopers (PWC) partner Tim Ogier warned at the Economist Conferences’ Ninth European Automotive Conference in Brussels on Thurday.
Ogier, who leads PWC’s Block Exemption think-tank, believes that if the new legislation were to lead to greater price harmonisation, as the European Commission intends, the harmonised price would be likely to be above the current European average price.
He said: “The legislation intends to make it easier for consumers in countries where pre-tax car prices are relatively high, such as the UK, to buy cars from dealers in lower price countries – for example through intermediaries. In three years’ time the market will be liberalised further, with dealers free to set up showrooms wherever they like in the European Union. This could force manufacturers to set a single harmonised price for all cars across Europe. Whilst this might be good news for UK consumers, overall the likelihood is that the loss of sales in countries where prices rise will more than offset increased sales in countries where prices fall, so that the net effect will be to reduce sales, increasing average costs and hence the average price.”
This effect may be exacerbated by the liberalisation of the more profitable after-sales market, with dealers forced to increase margins on new car sales to compensate for sales lost to independent repair-only businesses, Ogier suggested.
Ogier also believes that the scene may be set for high levels of merger and acquisition activity in the European vehicle dealership market.
“If dealers are to take advantage of the increased opportunities available to them, such as selling many brands in the same showroom, they are likely to need to invest heavily,” he said. “This implies that we are likely to see consolidation in the industry.”
The new regulations, which come into full effect in October 2003 mean dealers can sell a wide range of brands in the same show room, while putting the repair and servicing contracts out to any approved repairer.
“There are certainly high levels of scepticism in the industry that the changes in Block Exemption rules will achieve the radical shake-up intended by the Commission,” Ogier added. “There are transitional arrangements allowing existing agreements to benefit from the old rules until 1 October 2003. The new rule allowing dealers to open up new showrooms anywhere in Europe has been postponed until 2005. And in any case, manufacturers have retained the right to set the standards which dealers and repairers must meet when selling or repairing their cars. The investment needed to meet these standards could deter the entry of new players seeking to take advantage of the opportunities implicit in the new legislation.”