The European Commission has today published its new competition rules for the automobile sales and service sectors in Europe, claiming that they constitute a ‘bold but balanced reform’. However, following intense lobbying by the vehicle manufacturers, the reform giving dealers the right to set up anywhere in the EU has been put back – under transition arrangements – by one year, to 2005.

The new Commission rules reform the current ‘Block Exemption’ for the automotive retailing sector from EU competition laws. Currently, carmakers control the bulk of European distribution through a network of captive dealers in defined territories, as well as effectively controlling service and repair networks. The Commission published draft reforms earlier this year, which were the subject of a rearguard lobbying action by vehicle manufacturers and the German government. Consumer groups have championed liberalisation.

From October 2005, car dealers will be free to set up sales points anywhere in the EU and will not be bound by location contracts tying them to a specific territory.

The Commission says that under the new regulation, dealers in an exclusive distribution system may actively sell to independent resellers within their exclusive territory and may also, if approached, sell to final consumers or resellers based outside their territory. The Commission believes that these active sales inside the territory, and unsolicited sales outside the territory, will create the conditions for better price competition across the EU than under the current regime where all active sales outside the territory, as well as sales to independent operators, are forbidden.

In addition, dealers in a selective distribution system may set up a secondary sales outlet or a delivery point in another part of their own country or in another Member State of the European Union. Manufacturers would therefore not be allowed to restrict the freedom of existing dealers to expand by developing secondary outlets (this is the so-called ban on location clauses).

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The other key change is that from October 2002, repair shops will be able to sell spare parts independently, depriving carmakers of a monopoly. Carmakers argue that car safety and reliability could be compromised.

Under the current regime, anyone who sells new cars is obliged to carry out repair. Under the new regulation, dealers may choose whether they wish to carry out repairs themselves, or sub-contract them to another authorised member of the manufacturer’s network, be it another “integrated dealer/repairer” or a repair-only outlet. The new regulation also provides that, providing they meet the quality standards set by a manufacturer, both independent repairers and today’s car dealers may become authorised repairers within that manufacturer’s network, without being obliged to sell new cars.

The Commission says that the reforms aim to put right the competition problems identified in the Commission’s 2000 evaluation report on the current competition regime. It adds that the regulation will open the way to greater use of new distribution techniques, such as Internet sales and will also lead to more competition between dealers, make cross-border purchases of new vehicles significantly easier, and lead to greater price competition.

Competition Commissioner Mario Monti said in a statement: “The ground rules for competition are the same for all sectors: specific distribution and servicing systems can be allowed but only if their advantages outweigh the competition restrictions on the market and provided consumers get a fair share of the resulting benefit. This is what the new Regulation attempts to put right. What the Commission adopted today is a bold and balanced reform aimed at injecting competition at all levels of car distribution and repair. The cost of repair and maintenance of a car is as high as the purchase price. It is therefore appropriate to provide equally effective measures for both sales and servicing. As from October 2002, dealers -directly or indirectly- will be able to reach consumers wherever in the EU without constraints, and consumers will benefit from greater diversity and choice. They will also benefit from improved after-sales servicing.”

Mr Monti also stressed the importance of the input and opinions received during the public consultation on the new regulation, and especially of the views expressed by the European Parliament. “We have taken on board, either fully or partly, 18 out of the Parliament’s 29 requests for modifications. On an issue which has commanded particular interest, the ban of the so-called location clause in contracts between car manufacturers and their dealers, a longer transition period than initially foreseen has now been granted. In my view this is a balanced and practical solution on a matter where opinions were divided. It also avoids the situation of legal uncertainty that would have been created by postponing a decision on this key part of the reform.”

The new regulation is to come into force on 1 October 2002. There will be a one-year general transition period during which pre-existing distribution agreements will have to be brought in line with the new rules. There will also be a specific longer transition period until 30 September 2005 before location clauses are phased out, or in other words, before dealers can set up additional outlets where it suits them.

The block exemption provided for in the regulation will expire on 31 May 2010.