Motor Vehicle Distributors

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Mr. Christopher Chope (Christchurch): Everything that the Minister has said leads one to suppose that he does not believe that it is at all in the public interest to retain the block exemption in any form. Will he tell the Committee whether he thinks that there are grounds on which it might be in the public interest to retain the block exemption, with regard to the voluminous reports from the European Commission and from the Competition Commission?

Dr. Howells: As the hon. Gentleman knows, I am dreadfully conservative in my views on most things. It might be in the public interest to retain the block exemption, if only because it has worked. We have good safety standards, for example. I would be careful to ensure that any new regime that we established in the EU guaranteed that the best features of the current system were incorporated. That does not mean that I support the status quo 100 per cent.—I certainly do not, as I have tried to make clear. However, it is important that we do not react in a knee-jerk way and dismiss the status quo as completely wrong.

I note, from the discussions in Brussels, that few organisations were in favour of completely discarding the block exemption. Even the Consumers Association was sceptical about throwing everything away. However, those organisations stated that the system needs a radical overhaul and review, if only because, as I told the hon. Member for Vale of York (Miss McIntosh), there are new pressures on the market. New demands are being made on the way in which cars are sold, the ways in which they are viewed, and the ways in which after-care is dealt with. I agree with the hon. Gentleman that we must be careful about discarding the whole thing. We must review the matter seriously.

Mr. David Borrow (South Ribble): Will the Minister tell us about the views of our EU partners? He has explained that, in the UK, concern about the block agreement has arisen because of currency fluctuations in recent years, which have not been reflected in price changes for new vehicles in the UK. Are those concerns reflected in other EU countries, or are those countries relatively happy with the agreement? Are the currency fluctuations in the UK the main cause of the dissatisfaction, and is the issue therefore more to do with the effect of the those fluctuations on the UK car market than the block exemption structure?

Dr. Howells: That is a good question, because there are differences in the way in which other EU states view the question. Their positions are surprising. I had assumed that the big producers—Germany, France and Italy—would be of one voice. They certainly are not. Much concern has been expressed about some practices. For example, some time ago Volkswagen was fined almost £60 million for telephoning dealers in Italy and telling them not to sell cars to Germans or Austrians because the market was different in Italy and their cars were cheaper there. Opel Netherlands was recently fined £27 million for involving itself in broadly similar practices. In this country, Volvo escaped by the skin of its teeth when it revealed some very dodgy practices. Among other things, it was warning retailers and dealers not to give discounts under certain circumstances or they would not get new Volvo cars. However, the company admitted that before the Competition Act 1998 came into force and saved itself a good deal of grief.

It is a problem throughout Europe; but it is interesting to note that many different taxation regimes apply across Europe. For example, Denmark has a taxation add-on of 200 per cent., and the price of a Ford Focus in Denmark is mysteriously half the price of one purchased in the UK. That car is priced differently in Germany and Sweden, yet the distribution arrangements are the same. Cars are global products. They are traded all round the world. They are made in various parts of the world, but the components come from all over the place. It is strange that prices can vary dramatically from one market to another when they might be only a couple of kilometres apart across a border.

It is a big worry right across Europe, but the UK probably has had the most acute and certainly the most highly publicised difficulties. Sterling has certainly added to those difficulties, but I do not think that it is the major driver of the EU review and hence of our debate today. The worry is more generally about how the block exemption operates.

Mr. Tim Loughton (East Worthing and Shoreham): Can we up the ante slightly from the Ford Focus to Mercedes-Benz? Will the Minister comment on the implications for the block exemption agreement of DaimlerChrysler's recent decision to rescind all the UK dealerships with only 12 months notice, using emergency powers under the block exemption rules, and concentrate its distribution of those cars in a small number of hands? Will he comment on the implications that that may have in stifling competition for that brand and range of vehicles, whether that move is likely to be followed by other manufacturers, and how much that may have coloured his judgment in his comments on the block exemption review?

Dr. Howells: The hon. Gentleman has raised an important matter. He is a free marketeer like myself—[Interruption.] I admit that I am the idiot who wrote the article saying that it was time to bury socialism.

Ultimately, it is for Mercedes-Benz to decide how to rationalise its dealership network. I understand that it wants to concentrate its dealerships into a stronger, more centralised organisation, and that it wants them to stand on their own two feet. It is interesting. I know that the hon. Gentleman will have read the Autopolis report ``The Natural Link Between Sales and Service''. Exhibit 3.5.1 on page 12 shows the number of dealer networks in Europe. The United Kingdom has 6,500 main dealers, second only to Germany, which has 17,000, but we have more than France, which has only 5,000. However, we have very few sub-dealers—only 800—whereas the French have 18,000. The retail volume per main dealer is interesting. Germany's main dealers sell 120 cars; the United Kingdom's sell 124; and Italy's sell 393. Those differentials are interesting. I have no doubt that someone with a global take on matters might argue that we should rationalise our approach in the United Kingdom. The people concerned are a pretty hard-headed bunch. The Government's dealings with BMW taught us a lot about dealing with the Germans. They do not take prisoners. [Laughter.] Perhaps I should withdraw that statement. They are pretty hard nosed in business. I sympathise with those who lose their job, but that will be a commercial decision for Mercedes-Benz.

At the heart of what the hon. Gentleman asked is whether others will follow suit. Will competition be reduced? I think not. I think that the genie is out of the box.

Mr. Loughton: Bottle.

Dr. Howells: I mean that the genie is out of the bottle.

Mr. Richard Page (South-West Hertfordshire): You rub the lamp.

Dr. Howells: Yes, then the bottle opens.

People will force their will on the retailing of cars in this country. They are already searching across frontiers via the internet for better bargains. They do not receive much co-operation from the likes of Mercedes-Benz or virtually any other car company, but they will demand different ways of buying cars and will create new markets.

Mr. Bob Laxton (Derby, North): To continue from the previous question, what are my hon. Friend's views on the decision that I understand Mercedes-Benz has taken to place a premium of, I think, 15 per cent. on right-hand drive cars purchased from the United Kingdom—from within the European Union? Is not Mercedes-Benz simply trying to terminate agreements with its franchise dealers and effectively to take control of its market, to force prices up or to stabilise them at a higher level than would have been the case if the existing franchise arrangement continued?

Dr. Howells: Yes, those are questionable practices, designed to stop people buying cars across frontiers. I know that the Director General of Fair Trading is examining them carefully and keeping his eye on them. He now has the powers, as has Mario Monti, to do something about them, if he decides to. I hope that he will do something, because there is no question in my mind that the supplements prevent people from buying across frontiers, as they should be able to in a single market.

My hon. Friend has raised an important matter, and I hope that he will be heard by the Director General of Fair Trading. I shall ensure that a transcript of our exchange goes to him.

Mr. Darvill: Commissioner Monti is investigating restrictive practices used by the trade. What representations has my hon. Friend made about that investigation?

Dr. Howells: We have made a full representation. We like to think that investigations by the Office of Fair Trading and the Competition Commission, and our insistence that the European Commission should be kept fully informed of developments, spurred Mr. Monti and the European Commission to undertake their review. They review such matters anyway, but I think that we have added urgency to the proceedings and provided a good focus. The Competition Commission investigation was thorough and excellent. It has been a great quarry for the European Commission, with respect to its method of reviewing what is happening all over the European Union.

Mr. Chope: The Competition Commission report was damning. The Minister seems to be suggesting now that there could be some residual public interest in retaining all or part of the block exemption. Will he elucidate? Does he understand that it would be possible for the Government to withdraw unilaterally from the block exemption? Would the Government's policy be to withdraw from it, or from renewal of it, if it did not comply with the recommendations of the Competition Commission?

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