THE EUROPEAN rule that grants automakers exclusive sales and service networks may not be renewed after 2002. The European Commission is losing patience with automakers for allegedly preventing dealers from selling to consumers who travel across national borders to find cars at lower prices.
Last year, Volkswagen was fined $109 million for attempting to block sales by Italian dealers to Austrian buyers. Now DaimlerChrysler stands accused of similar violations in other parts of Europe. Renault offices were recently raided by EC investigators who suspect that they have stopped dealers from selling cars to foreign buyers.
The EC renewed the block exemption in 1995 only on condition that carmakers should not interfere with cross-border shopping. Judged by its actions, the Commission clearly doesn't think the companies have lived up to the agreement.
So if block exemption is not renewed what should carmakers do?
Ford's strategy is to buy dealers and control the means of distribution. Renault is also moving toward more factory ownership. But not all carmakers are convinced that is the right course.
From the industry's earliest days manufacturers have been tempted to own their dealers. But it proved more trouble than it was worth and as the auto business matured it moved away from the practice.
The irony is that at a time when carmakers are outsourcing more engineering, parts production and even vehicle assembly, they are considering pulling distribution in-house. It may be part of a natural evolution of the car business into a service industry.
But carmakers aren't just being greedy. It is crucial that they enforce discipline in the distribution process. The costs and risks of developing cars are too high to consign brand management, pricing, sales, service and all the variables of marketing to middle men.
But control can be achieved with management expertise, not simply through ownership - just as supply chain management has succeeded at the other end of the business. When European and American carmakers recognized that they had quality and cost problems in the 1980s they didn't rush out and buy their suppliers. They simply got better at managing those relationships.
The EC should note that forcing carmakers to own dealers will create even bigger and more powerful multi-national corporate fiefdoms that are almost impossible to regulate. The money spent to buy retail networks might be better invested in new products and to help defray the massive legislative demands already imposed on auto manufacturers.
Europe's auto industry deserves special treatment. But it risks losing what it has. Forcing consumers to board a plane, take a ferry or drive hundreds of miles with passport in hand to find a lower price is inherently wrong.
Instead, the auto industry ought to standardize pricing in Europe and then demand some form of continuing exemption from the distribution laws that govern vastly different industries.
