EU opens way for car supermarkets and lower prices

Far-reaching plans to allow car dealers to compete across borders, open supermarket-style showrooms and sell more vehicles on to internet retailers were unveiled yesterday, after a fierce political battle in Brussels.

A long-awaited document from the European Commission raised the prospect of a big shake-up in the way cars are bought, sold and serviced, but falls short of full deregulation.

Romano Prodi, the European Commission president, promised that the plans would deliver "tangible benefits to consumers", and Mario Monti, the Competition Commissioner, predicted a big boost to sales across EU borders.

"A Volkswagen retailer in Amsterdam could open up a showroom in the UK and sell the VW Golf at the Dutch retail price, which is 23 per cent lower than the UK one," Mr Monti said.

Yesterday's document, which was fought over almost until the moment of its publication, could go a long way towards breaking the almost total reliance of the car dealers on the manufacturers in one of Europe's most tightly controlled markets.

Big manufacturers will be able to keep "exclusive" networks of dealers and will not be obliged to sell to supermarket chains or internet retailers. But they will have less power to restrict how the cars are sold on, a fact which could lead to a boom in the "grey market", allowing the new type of retailers to take a big share of the market.

A new category of car showrooms, stocking a range of different makes, should now emerge.

Meanwhile, the proposals allow for a change in the way cars are serviced, eroding the link with dealerships. Dealers will be able to choose between carrying out repairs themselves or sub-contracting them to an authorised network. Independent repairers will be guaranteed access to technical information, tools, equipment and training bringing a new era of competition.

Car dealers welcomed the liberalisation of the market but remained cautious about the extent to which prices would come down. Alan Pulham, the director of the Retail Motor Industry Federation, said: "In reality, Mercedes will continue to operate exclusive franchises because its dealers will not want to rock the boat or devalue the brand by selling Daihatsus alongside."

Mr Pulham was also sceptical about the extent to which car "supermarkets" will begin to appear. "Not all dealers have the physical space to stock lots of different marques and, in any case, there aren't the franchises available," he said.

So controversial were yesterday's plans that the European Commission was unable to agree on them unanimously and, in a rare vote, four of the 20 Commissioners opposed them. Even before the announcement had been made the German Chancellor, Gerhard Schröder, was on the attack, arguing that "the destruction of the block exemption would bring huge competitive disadvantages to the German car industry."

Aware of the sensitivities, the European Commission sought to present its blueprint as a compromise. "It would be wrong to see this either as maintaining the status quo or as a wholesale deregulation," said Jonathan Faull, the Commission's chief spokesman.

Under the present arrangements, motor manufacturers are protected from normal EU competition rules under a block exemption which has been in place since 1995 and which is due to expire on 30 September this year.

The European Commission will use yesterday's document as the basis for the new block exemption, consulting before it issues the regulation laying down the regime in the summer.

In recent years Brussels has been increasingly hostile to the way that big car makers have exploited their position and has fined Opel Nederland, DaimlerChrylser and VW for breaking competition law. Yesterday it had the chance to change the terms of trade.

Under the new plans manufacturers will still be able to appoint exclusive distribution arrangements with a dealer being allocated a sales territory. But under this type of arrangement, the manufacturer will not have the same ability to prevent the sale of cars on to intermediaries, including supermarket chains or internet operators. That lead the Commission to argue that "the regulation will open the way to greater use of new distribution techniques such as internet sales".

The alternative is to opt for a more flexible "selective" distribution system. These dealers will be allowed to sell more than one make of car, providing that different ranges are displayed separately so as not to confuse the consumer.

Under the "selective" system dealers who want to sell to other parts of the EU will have new powers to do so (restrictions – based on market share – were removed from the final text). The Commission says that dealers in a selective distribution system may "engage in active sales – in other words they may place advertisements in other areas and address mail shots and personalised e-mails to consumers located anywhere in the EU", without fear of being given a quota or penalised financially.

It adds: "A Ford dealer in Belgium who commonly sells many vehicles to UK consumers might find that it made business sense to open a sales outlet or delivery point in London."

But, in practice, there are doubts about how many dealers will want to take advantage of this, despite the fact that pre-tax prices on the Contintent are lower than in the UK. "The margins are not that fat and if a dealer in, say, the Netherlands has to go through a dealer in the UK to supply an end customer here, the chances of making a decent profit are further reduced," Mr Pulham said.

He also pointed out that dealerships made most of their profits from servicing cars, not supplying them, but customers in the UK would obviously not go back to a dealer on the Continent to have their vehicle repaired.

As Philip Whitehead, Labour's consumer protection spokesman in the European Parliament, put it: "This is a real step forward but we are not sure yet how the manufacturers will respond and whether they will try to build up client dealer networks in the member states again. I hope that we can drive a stake through the heart of old system utilising these proposals."