Select Committee on European Scrutiny Thirty-Seventh Report



16. COMPETITION IN MOTOR VEHICLE DISTRIBUTION AND SERVICING

 

(23631)

Draft Commission Regulation on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practice in the motor vehicle industry.

Legal base:

Council Regulation No 19/65/EEC

   

Department:

Trade and Industry

Basis of consideration:

EM and Minister's letter of 10 July 2002

Previous Committee Report:

None; but see (21898) 13889/00: HC 28-iii (2000-01, paragraph 4 (17 January 2001)

To be discussed in Council:

Not applicable

Committee's assessment:

Politically important

Committee's decision:

Cleared, but further information requested

Background

    1. Agreements on motor vehicle distribution and servicing within the common market are currently governed by Commission Regulation (EEC) No. 1475/95,which will expire on 30 September 2002. The Commission has to decide therefore on the rules applicable to motor vehicle distribution as from 1 October 2002.
    2. In 2000 the Commission published an evaluation report on the current rules[38]. Subsequent debate led to the conclusion that these rules, which exempt from the general prohibition on restrictive practices the combination of selective and exclusive distribution and which prescribe a single model for the distribution of motor vehicles, no longer meet the original objectives when put in place in 1995. In particular, the market for new cars is still dominated by the manufacturers, rather than retailers, and the present system has not been successful in promoting either cross-border trade or multi-brand dealerships. The report also questioned the case for continuing the compulsory link between sales and servicing.
    3. Therefore the Commission has proposed a new sector-wide block exemption Regulation[39] which will come into operation from 1 October 2002. The draft as published would:

    • allow car dealers to market their services and reach customers in different areas or countries, rather than being confined to specific areas or countries;

    • allow multi-franchising, that is permit dealers to sell more than one brand of car at the same site;

    • allow dealers to set up secondary sales outlets in other areas of the EU, including in other countries;

    • open up the after-sales market: dealers would still have to ensure that customers' cars are serviced and repaired to manufacturer-approved standards, but would no longer have to do it themselves; and

    • give independent garages and roadside assistance organisations much greater access to technical information, including diagnostic equipment and software.

          

    1. After public consultation the Commission circulated a revised text for discussion in the Member States Advisory Committee on 6 June 2002. The principal revisions were:

    • reinforcement of dealer security by, for example, requiring a supplier wishing to end an agreement with a dealer to issue a notice in writing giving objective and transparent reasons for the termination. There will also be a right for a distributor or authorised repairer to transfer their franchise to another member of the same network;

    • clarification in cases where a supplier uses selective distribution of new cars in some Member States and exclusive distribution in others. This is aimed at ensuring that a manufacturer cannot thus protect the market in a high-price country;

    • clarification that in the after-sales market a vehicle supplier may contract with its distributors to make them also legally responsible for honouring warranties and for making sure that free servicing and recall work is carried out;

    • clarification that a supplier may withhold access to technical information which would allow a repairer to re-calibrate or manipulate devices which limit the speed of vehicles; and

    • clarification of the definition of spare parts to cover cases where a vehicle model is no longer manufactured (and the component production line has been shut down) or where spare parts are manufactured from the outset on a production line other than that used for components.

    1. The Parliamentary Under-Secretary of State for Competition, Consumers and Markets, Department of Trade and Industry (Miss Melanie Johnson) tells us:
    2. "The Government agrees with the Commission that the current cars block exemption Regulation (Regulation (EC) No 1475/95) is not working. In particular, it believes that the system of distribution permitted under the current block exemption effectively allows the car manufacturers to control the market in new cars. Manufacturers are able to dominate dealers, eliminate intra-brand competition, dampen inter-brand competition and exercise control over the aftermarket (i.e. servicing and repair). The Single Market for new cars is also segmented on national lines. All of these have adverse effects on prices.

      "The Government's view is informed by the findings of the UK Competition Commission, following its review of the UK new car market in 2000. The Competition Commission concluded that the selective and exclusive distribution system currently permitted operates against the public interest in the UK, and makes the market for new cars less competitive. The Commission found that prices to private buyers were some 10% higher than they would be in a fully competitive market. Surveys by the European Commission also show that international price differences remain very large.

      "The Government's view of the Commission's draft proposal is generally favourable. As the draft stands, it would increase competition in retailing and in after-sales service and repairs, with the potential for offering car dealers much more control over their own businesses than is currently the case.

      "In particular, the Government is inclined to the view that the provision which will permit authorised dealers to open other outlets anywhere within the EU could be a key liberalising measure leading to increased intra-brand competition. There should also be more choice for consumers on servicing.

      "The Government welcomed the changes made in the revised text circulated to Member States by the Commission prior to the Advisory Committee meeting on 6 June."

      The Minister adds that she expects the Commission to adopt the new Regulation before the summer recess.

      Conclusion

    3. We enquired about this matter last January and had been led to expect that we would receive the Minister's Explanatory Memorandum on the Commission draft in mid-March. We had thought it probable that we would wish to recommend a debate on this important matter, whilst there was still some time before adoption of the draft by the Commission. We are concerned that we did not receive the Explanatory Memorandum until 10 July, and then only after prompting, making a debate now largely academic. Therefore we are asking the Minister to tell us why there has been this delay.
    4. Since the proposal is likely to be adopted by the Commission shortly, we reluctantly clear the document on the basis that no further purpose is served by holding it under scrutiny.

 


38  Evaluation Report on Regulation (EEC) No. 1475/95 (COM (2000) 743). Back

39  OJ No. C 67, 16.3.02, p. 2. Back

 
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