Red tape and bureaucracy are unnecessarily inhibiting business development in the United Kingdom while costing it a fortune, according to the managing director of BMW (GB), Jim O'Donnell.

"The UK is drowning under the weight of legislation," O'Donnell told the German factory-owned importer's annual press dinner in London on Tuesday night.

"[Opposition Conservative party leader] Michael Howard recently claimed that it was costing British business £30 million [about $US55 million] a year just to comply with all the red tape."

According to the BMW chief, the Insurance Mediation Directive, imposed on the entire European Union, including the UK, by the Brussels-based pan-European government, is the most damaging piece of legislation currently affecting the motor industry. The law, taking effect from January 2005, regulates how the motor industry, mostly through its retail dealerships, sells finance and insurance products, such as vehicle leases and extended warranties.

O'Donnell claimed that UK government officials had had considerable 'input' when the new legislation was being drafted. "All the ambiguities were removed and the result is a number of grey areas instead."

He added that responsibility for implementing the new laws had been handed to Britain's Financial Services Authority, which has a less than stellar reputation, especially over its handling of a recent 'mis-selling' scandal concerning a major life insurance company.

Noting that BMW (GB) is also responsible for distributing the brand in Ireland, another member state of the European Union, O'Donnell said that he had heard from his contacts there that no-one in officialdom can make sense of the new legislation so it is being quietly ignored. The situation was similar in France and Germany.

"The French attitude is to make the legislation as grey as possible and then ignore it completely," O'Donnell said. The UK government alone is implementing the directive strictly according to the legislation, he added.

Noting that the legislation was originally intended to help protect consumers buying finance and insurance from vehicle dealers, O'Donnell claimed it was in fact "a case of unintended consequence" costing the UK motor industry millions of pounds in set-up and compliance expenses.

These costs will have to be passed on to the consumer, he said. "The price of warranties is expected to rise about 25% as a result of taxes on insurance and so on. Will the consumer be happy about that?"

O'Donnell said some BMW dealers in the UK had decided simply to get out of the finance and insurance (F&I) business as the cost of complying with the EU directive was too high. But that, too, will have unintended consequences.

"We have a successful and profitable dealer in our network who sells less than 100 new motorcycles a year," he said. "If he doesn't enrol as an FSA-authorised provider of F&I products he will, under the rules, not be able to service a motorcycle covered by an extended warranty.

"What a farce, what a cock-up. Does this mean that the FSA now determines who can, and who can't, service a motor bike?"

O'Donnell said the directive "needs re-appraisal or the rules will become too tight to allow compliance while the costs will be unsustainable".

Calling on the government to loosen the rules, he said: "A nanny state for business? No thanks."

O'Donnell also took a swipe at the EU-imposed block exemption rules, originally intended to bring down new car prices.

Here again, he said, the UK government had been a prime mover of the legislation and enforced it on the motor industry but it had had the opposite effect to that intended.

"Manufacturers want higher investments in dealerships so a number of dealerships have fallen by the wayside as a result while larger dealer groups have aggregated.

"The result is less choice and less competition [for the consumer] while dealer profitability has fallen. And average car prices across Europe have actually risen due to price harmonisation.

"This should be no surprise when we allow bureaucrats to interfere with a market."

O'Donnell did, however, single out the UK government for its handling of the economy and its initiatives to improve training and skills in the motor industry.

"We recognise that we've had a buoyant economy for the last four years. However, the outlook is not so strong and rising interest rates are starting to affect the industry as we enter the 'pre-election' phase," he said.

O'Donnell said the government had "finally" recognised the value of apprenticeships to the motor industry - and not just for young people - and praised the variety of recent government-supported initiatives to recruit and train appropriately skilled workers for the industry, in particular dealer technicians.

"The government should be congratulated for raising skill levels within the industry," he said. "The recruitment and retention of skilled people is critical for the motor sector."

BMW sold 13,450 cars in the UK in 1990 and expects to shift a record 100,000 by the end of the year.

O'Donnell said that, to meet its growth targets, the BMW (GB) dealer network needs to increase staff numbers from 9,000 to 11,000 and the annual number of training man-hours would rise from 45,000 now to 60,000 by 2010.

To cope, BMW is investing £17 million in a purpose-built residential training centre which will be open by 2006.

"Such an investment in BMW (GB) and its dealer network reflects Germany's faith in its British unit," he said.

Graeme Roberts

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