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Mr. Bob Blizzard (Waveney): I shall say just a few words because the point has already been powerfully made by my hon. Friend the Member for Ochil (Mr. O'Neill). He covered all the necessary ground and I would find it hard to believe that anyone in the Chamber today would disagree with what he said.
One way to measure the degree of the rip-off in car pricing in this country is to look at the price of cars as a percentage of annual income. The price of a new car is more than the annual income of many people. If one wants to buy a new car--or even a nearly new car--one must devote a huge percentage of one's annual income to it. It is a much higher percentage than in Europe or north America.
In their efforts to persuade people to use their cars less, the Government have drawn analogies with Germany, where there is greater ownership but where people use their cars less. It is difficult to convince people in this country that they should not use their car to capacity when they have invested such a huge proportion of their annual income, or their income over many years, in buying it in the first place. The Government's transport policy would benefit from getting car pricing right.
My experience of one-make car dealers is that they are not wonderful salesmen. Most salespeople for different products target people and follow-through. When I have wandered around forecourts looking at cars--I have never bought a new car, but I go round to see what is on offer--I have found that there is very little follow-through. It strikes me that many dealers are happy to make their money each week or month by selling just a few cars rather than charging less to see whether they can sell more. A friend of mine sells in the secondhand car market and I have watched his progress over the years. By knocking down the prices, he can sell more cars and make a living as well as anybody else, and customers benefit. Most new car dealers sit in their showroom all week and make their money by selling just one vehicle.
My hon. Friend the Member for Chorley (Mr. Hoyle) mentioned the cost of spare parts, particularly parts of the bodywork and trim of a car. My hon. Friend the Member for Ochil said that the nightmare of buying a new car recurs every four or five years. Those of us who have never bought a new car do not go through that, but we experience a nightmare every time someone knocks into our car. I wonder how many other hon. Members have parked their car in a station car park, only to find on their return at the end of the week that the piece of plastic that covers the rear light has been smashed. One then goes to the dealer to see how much such a tiny item costs. Usually the price is colossal, outrageous and unfair.
Mr. Baker:
I absolutely agree with the hon. Gentleman. Another example of a rip-off is when the consumer has to buy a huge replacement part such as a sealed unit or computer-operated unit. Whereas previously one could have bought a bulb, one now has to buy a sealed headlight and the cost is far higher. It is also much more wasteful in environmental terms.
Mr. Blizzard:
I absolutely agree with the hon. Gentleman. Until a few years ago, I tried to carry out some repairs by myself, but the invention of all kinds of weird clips and specialist tools now prevents me from performing a simple repair. Various ways have been devised to continue to rip off the motorist.
Once when my car engine malfunctioned, I was told that it was caused by the leads--my car had leads, plugs and other conventional things. I took the car to my friend, whom I trust and who has a good garage--I shall not mention his name--who told me, "I have some leads for you, Bob, although the ones for your car would have cost £120. These are the same leads as those for the Vectra and they are half the price." The manufacturers obviously think that people with a slightly larger car will pay more. That kind of practice needs looking into. Will the Minister therefore say whether an investigation into the pricing of spare parts is part of the Competition Commission's remit? If it is not, could it be something else for the commission to consider? Plainly, not merely a new car but motoring itself has become far too expensive.
Mr. Nick Gibb (Bognor Regis and Littlehampton):
I add my congratulations to the hon. Member for Ochil (Mr. O'Neill) on securing this important debate and I welcome the Minister of State, Department of Trade and Industry to her new position. It is nice to be opposite her once again so soon after leaving the shadow Treasury team.
Real concern exists about the higher prices paid for cars in this country compared with the rest of Europe andthe Opposition share that concern. The European Commission's latest six-monthly price survey shows that the United Kingdom is the most expensive market for 61 of the 72 best-selling models in the European Union, followed closely by Ireland, which was referred to in the debate. Price differentials in excess of 20 per cent. have
been found for all manufacturers throughout the European Union and for 16 out of 72 models there are variances of about 40 per cent. in price.
The Opposition's approach is that the Government should deal firmly with any cartel or restrictive practice, if that is the conclusion of the Competition Commission. However, it is important for hon. Members to understand the reasons for the discrepancies before jumping in with remedies and regulations. Those reasons are many and varied.
The Select Committee on Trade and Industry, which the hon. Member for Ochil chairs, states in paragraph 38 of its report:
Mr. Burnett:
I hope that the hon. Gentleman will agree that disparities due to taxation are grossly exaggerated. For example, compare a car that is manufactured and sold in Germany with the same car in the United Kingdom--the value added tax disparity is 1.5 per cent.
Mr. Gibb:
My point is that the reasons for the price discrepancies are many and varied and I listed some. There are others and I will come to those.
The 1992 Monopolies and Mergers Commission report, which was also referred to in the debate, cited those factors as the principal causes of the price differentials. The Select Committee went on to conclude, differently from the 1992 MMC report, that the dealer network--the selective and exclusive distribution arrangement--wasthe "key factor" behind higher UK prices. That led the Committee to conclude that it
The answer to the dilemma of why the block exemption is causing price differentials in the UK but not in Europe might lie somewhere between the opposing views of the SMMT and the Select Committee. It revolves around arbitrage, which was highlighted in the letter from the Competition Commission. SED might have delivered higher prices in the UK but not in Europe simply because of the practical difficulties that a UK consumer faces in buying a car from a European supplier. It is difficult to shop around when that means crossing the channel rather than driving across a nearby border. The fact that the UK consumer needs a right-hand drive car, is not the overall reason, but it is a factor making it slightly more difficult for that consumer to go to a dealer in Belgium or France. Our company car fleets have an effect by raising expectations for higher specifications in cars.
As a result of the impact of all those factors on the ability of the UK consumer to shop across EU borders, there is a blockage in the arbitrage that should take place with such glaring price differentials. We are now seeing some arbitrage with the Consumers Association's moves to provide it.
It is worth noting that Britain has such a large company car fleet because company cars were used to avoid the strictures on pay rises during the 1970s--the era of prices and incomes policies. The company car was a way to deliver a pay rise without appearing to do so. It was a response to Government interference in the free market. In turn, it has had a lasting effect on the free market in new car sales, which ought to provide a salutary lesson to Ministers that when they respond to all the reports and investigations into this serious problem, they should not simply make matters worse for the consumer by adding further distortions to the market that will damage consumer interests in the long term. Competition and the free market are the consumers' friend. Ministers who reach for the statute book add to costs and generate unforeseen consequences, which invariably result in the consumer receiving a worse deal.
The Government need to look to themselves to find out whether and by how much they contribute to higher prices in the UK, not merely in the motor industry but in other areas, for example through higher taxes. The Minister is a great supporter of the climate change levy. What effect is it having and will it have on the manufacture of cars in this country? There are more and more regulations. The proposed new directive on end of vehicle life in its current retrospective form would add hugely to the costs of UK car manufacturers and thus to UK car prices.
"A number of factors account for the high prices paid by the UK consumer for new cars. Exchange rates and taxation levels influence the validity of comparisons and affect manufacturers' pricing strategies. The unique elements of the UK market--particularly the power of the fleet operators and the size of the second-hand car market--account for some of the differentials from EU prices".
It goes on to conclude something different, but I wanted to quote that section initially.
"can see no justification for retention of the block exemption and recommend that it be not renewed."
That same conclusion is reflected in the remedies letter that was issued by Competition Commission a couple of weeks ago, which states:
"The Commission has not reached final conclusions on any aspect of the inquiry. Its present view is that the selective and exclusive distribution system in its existing form has a number of disadvantages and that, as a result, prices of new cars in the UK are higher than they would be in a less restrictive environment."
Interestingly, that letter goes on to state:
"the SED system may be contributing to a lack of arbitrage which is enabling the continuation of significant price differences between the UK and other EU member states."
We need to ask ourselves why that arbitrage takes place in the European Union, but not between the continent of Europe and the UK, given that the block exemption applies throughout the EU and SEDs exist in Europe as well as the UK. The initial response of the Society of Motor Manufacturers and Traders to that remedies letter makes that very point. It states:
"It is disappointing to note that while the Competition Commission clearly fully understands that Block Exemption is an EU policy matter, it fails to grasp that Block Exemption cannot therefore itself be held responsible for price variations . . . across Europe and at work in the UK."
20 Oct 1999 : Column 395
That is a valid point. Surely, as the exemption applies to the whole of Europe, it cannot be the only factor that has led to the differential in prices.
On a cautionary note to the Government, when the Competition Commission reports in December, will they respond rapidly? There is much uncertainty in the industry and a rapid response would be helpful to put an end to it.
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