BRUSSELS - The European Competition Commission appears convinced that carmakers should give up their right to run exclusive dealer and distribution networks.
Europe's chief competition regulator Mario Monti has given the strongest indication yet that the car industry faces major changes to its distribution rules - called block exemption - when the current system expires in 2002.
Speaking at a conference on car distribution in Brussels, Monti said because of the block exemption Europe's franchised dealers are not providing the best possible service to consumers.
The EU's competition department will formally report on block exemption in the autumn - and is widely expected to abolish it.
'Based on our work so far, it seems that the assumptions on which the (block exemption) system is based are at least questionable,' said Monti.
Under the exemption, which was implemented in 1985 and renewed in 1995, cars can only be sold through dealers authorized by manufacturers. The auto industry is the only business sector in the EU exempt from normal antitrust rules for distribution.
That means automakers can control who owns franchises, can limit the number of dealers representing their brands and their sales territories, and can restrict dealers' freedom to own other franchises.
Monti said block exemption has 'not had the desired effect for dealers or for competition' because franchise holders are not allowed to:
Set prices and sales conditions for the vehicles they sell
Use alternatively-branded spare parts of quality equal to those made or sold by carmakers
Have a significant say in establishing annual sales targets, dealer stock levels and the number of demonstration vehicles.
'Since dealership contracts can be terminated with two years' notice, manufacturers can largely control dealers and end the contracts of dealers whose commercial behavior they dislike,' said Monti.
'It seems that the main driver of the distribution process is still the manufacturer and that dealers do not have that much freedom.'
Monti's criticism took auto industry lobbyists and executives by surprise. Paolo Cantarella, chief executive of Fiat SpA and head of ACEA, the European auto industry's association, defended the current system.
He said the franchise dealer system 'provides choice and convenience to consumers.'
Cantarella added: 'As a consumer in any EU country, you can choose about 50 brands, 250 models and 4,000 versions. You also get comprehensive, close-to-home service by specialist dealers who are fully trained, informed and equipped to perform any type of service or repair operation for the very complex product that is today's car.'
Cantarella said carmakers are not opposed to changes in the block exemption, provided they are not radical.
'We will approach the discussions regarding the future ... with an open mind, oriented toward customer satisfaction and efficient competition,' he said.
Cantarella said that provided the current dealer system evolves to meet consumers' needs, 'we don't think there is a better system.'
During the conference, Karel Cardeon, chief executive of Autos Cardeon, an independent multi-franchise dealer in Belgium, called for a free distribution system.
'The auto industry is the only major business that still sells products the way it did 50 years ago,' he said.
'No one in the automotive industry can speak out. Many are in favor of free distribution, yet all are tied by contracts and cannot speak out for free distribution.'
Carmakers claim that the 1995 amendments to the block exemption permit dealers to sell more than one brand - provided they maintain separate showrooms and service areas. But Monti said multifranchising has been rare because carmakers are permitted to set 'conditions' for any dealer wishing to add new brands.
The conditions often make multi-franchise operations economically unattractive, he said.
Although European consumers are permitted to shop in other countries for lower-priced cars, Monti said there has been little evidence of cross-border shopping. This is because of dealer reluctance to sell to foreigners, he said.
'If a consumer wants to order a car from a foreign dealer, that dealer is quite often unable or unwilling to quote reasonable delivery times,' said Monti. 'His sales targets and product allocation are in most cases based on his normal business within his sales territory.'
Carmakers also appear to be stifling the freedom of the parts aftermarket, said Monti.
'They are limiting the ability of spare-parts producers to supply parts directly to dealers belonging to a manufacturer's network,' he said.
Under current regulations, independent service shops can better compete in the aftermarket because of improved access to spare parts not branded with an automaker's name.
But Monti said that carmakers have tried to hinder the independent shops by failing to provide technical information 'at reasonable prices.'