WHEN ITS history comes to be written, the auto industry's block exemption will be exposed as the instrument that has done most to obstruct free competition.
Without it, the consumer would have had a competitive marketplace across the whole of the European Union many years ago.
Yet the objectives behind the introduction of block exemption in 1985 were laudable. It was aimed to protect the consumer and those companies that had made heavy investments in the industry.
But, whichever way you look at it, block exemption, as the name implies, suspends the normal imperative of free competition.
The European Commission believed that restricting competition would benefit the consumer, saying in 1984: 'From now on community law allows manufacturers to use contractual methods to set up rational distribution systems so as to intensify competition between the various manufacturers' distribution networks. The European consumer can purchase a car and have it repaired or serviced wherever in the Common Market the prices and quality are best.'
Essentially, block exemption was allowed because motor vehicles are expensive, technically complex and require expert maintenance and repair.
It was also allowed to ensure that vehicle pricing was comparable throughout the European Union. List prices of the same or corresponding vehicles should not differ by more than 12 percent or, over a period of less than one year, by more than 18 percent between member states.
This set the stage for a confrontation between consumer organizations and the manufacturers.
The major test of the success or otherwise of block exemption has to be how the consumer has fared under the system.
Is the consumer better off after 15 years of legislation? The answer must be a resounding no.
Vehicle pricing has failed to meet the requirements of the legislation, with similar or corresponding vehicles varying by as much as 60 percent across the EU.
Yet the European Commission has not acted on a single instance of price variation, even though the regulation allows early withdrawal should it be abused. This has created high- and low-priced countries, depending on what each individual market could bear.
The UK has suffered the highest prices in the EU for at least the past 10 years. This is being rectified - but because of consumer pressure, not through the workings of EU regulation.
The price differential would not have mattered quite so much if the consumer had been able to take advantage of the ability to 'purchase a vehicle and have it repaired or serviced wherever in the Common Market the prices and quality are best.'
The advent of whole vehicle type approval removed the technical barriers to trade and yet it is well documented that two major manufacturers have been fined for refusing to supply vehicles to Country A which would be used in Country B, and that this practice has been widespread.
These blatant disregards of the block exemption regulation show the interests of the consumer are not always at the forefront.
Has the intent of ensuring improvements and maintenance of the quality of servicing been achieved? This was, after all, one of the main issues behind the introduction of block exemption.
I would suggest this has failed dismally.
Constant 'mystery shopping' exercises reveal that vehicles brought in for repair are often returned without the faults being rectified and that customers flee the franchised network in droves once the normal warranty period has expired. Why? A combination of poor servicing and high prices, that's why.
A common market in the auto industry is appearing, but that's because of market pressures and better consumer knowledge rather than the application of block exemption.
l Max Pemberton is a partner in Pemberton Associates, a company he set up in 1987, and a founding partner of the Automotive Strategies Group. He is a fellow of the Institute of the Motor Industry, a member of the Society of Motor Manufacturers and Traders Automotive Consultants Group, and a member of the Guild of Motoring Writers. He has written many major reports on the global automotive industry, both for publication and as private commissions by major players in the industry.
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