The European Commission signaled last week that the end of the auto industry's block exemption could be near.
Manufacturers and dealers now face the prospect of fighting to preserve whatever they can of their exclusive dealer system. But they must also prepare themselves for the possibility that they could lose it altogether.
Block exemption allows manufacturers to operate an exclusive distribution system - even though that system runs counter to European competition rules. A Commission report said the exemption has not fulfilled the promise it held when it was last renewed in 1995.
'Consumers in particular do not seem to derive from this distribution system the fair share of the benefits of the creation of a European single market in 1993,' said a statement from the Commission.
The auto industry must now prepare for a February hearing in Brussels. The Commission plans to publish proposed changes to block exemption by the end of next year or early in 2002. The rule, which was last renewed in 1995, expires on September 30, 2001.
European dealer and manufacturer associations anticipated the report from Competition Comm-issioner Mario Monti and issued their own statement in defense of block exemption in October.
Thierry Proteau, spokesman for ACEA, the European automakers' association, said the controversy over high prices in the UK had confused the debate on block exemption.
'We object to the Commission taking the UK as a specific case that highlights how block exemption is distorting competition,' he said.
The industry has said the UK is not a good example because right-hand-drive cars are more expensive to produce, and because sterling is not in the euro zone.
Proteau also said that, in spite of the fact the European single market arrived in 1993, taxes on new cars still vary wildly, from 218 percent in Denmark to 15 percent in Luxemburg. When there is no harmonization of taxes it is difficult for customers to derive the benefits of the single market, he said.
Peter Schmidt, analyst for AID Ltd., a Warwick, England, research and consultancy firm, said: 'In my view it's a foregone conclusion block exemption will end.' Manufacturers and dealers not making preparations accordingly are headed for trouble, he said. Schmidt predicted the Internet will play a big role in the way new cars are sold in the future.
He added: 'The biggest risk of the likely ending of block exemption in 2002 is that some dealers might lose a huge chunk of their traditional new-car business.
'But the manufacturers don't stand to lose anything. The manufacturers may end up laughing all the way to the bank because they will be able to cut the dealer out and deal directly with the car-buying public.'
Simon Empson, director of Broadspeed Engineering, a firm that has been importing cars into the UK from Europe and selling them via Internet and other methods, said he believes major manufacturers have begun changing their attitudes just within the last two weeks.
During the early days of importing cars from the Continent and selling them in the UK at fat discounts, Broadspeed encountered lots of resistance. But recently, manufacturers such as Volkswagen have been offering him right-hand-drive cars from Holland for sale in the UK.