Motor Vehicle Distributors

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Dr. Howells: That is a pertinent question. Instinct tells me that we should try to move away from it. However, I think that the best way to proceed, given that I have been expounding the virtues of a single market across Europe, is to bring the Commission along with us on this issue. The matter is out to consultation at the moment, as the hon. Gentleman knows. We must move carefully. Nothing tells me that the block exemption ought to survive. Earlier, I tried to point out to him the fact that it is important that any successor regime contains the best elements of the existing one but embraces some radical alternatives.

Miss McIntosh: May I press the Minister further about parallel imports? Let us imagine an individual such as myself returning from Belgium, having resided there for several years. If I wanted to take advantage of the price differential—the net prices in Brussels were considerably less, taking tax and other costs into account, than those in the United Kingdom, the country to which I was returning—parallel imports should have allowed me to purchase on the same day a vehicle of the same description and to return it to this country.

It is a feature of the block exemption and competition generally that all sorts of barriers and obstacles are put in the path of such consumers, and they are well known to the Commission in Brussels. Presumably that is also true of the Competition Commission here, given that the Government have effectively applied articles 85 and 86, which are on competition, in the Competition Act 1998. Why is the scandal allowed to persist whereby it is, for example, impossible to buy a right-hand drive vehicle on the same day because barriers such as the six-month delay are put in place to prevent such parallel imports?

Dr. Howells: The hon. Lady makes an important point and gives us a good example of the iniquities of the present system. As she has done the job in Brussels, I am sure that she understands better than me what an incredibly powerful lobby the motor industry has been and is across Europe. She will also understand the great reluctance of successive Governments here and across the EU, as well as of the Commission, even to contemplate taking on such lobbying groups.

The hon. Lady will probably not agree, but I think that we have made an important start. The Office of Fair Trading investigation under its previous director general, Mr. John Bridgman, was good and thorough. The Competition Commission has highlighted points such as those that she has made this morning. The Secretary of State for Trade and Industry has asked the European Commission vigorously to enforce existing rules on cross-border purchases and to take action if manufacturers or dealers breach their obligations.

The Commission has already fined companies for obstructing parallel imports, and further cases are under investigation. To fine a company in that way is one thing, but to obstruct on a day-to-day basis customers' ability to do what the hon. Lady wanted to do is another, and it is difficult. Consumers often do not report such matters. They do not feel that they have a collective voice in that sense. It is important that Governments take action, which is why we are complaining to the Commission and will continue to do so. In the end, I suspect that the practices will be eradicated only when we get rid of the block exemption.

Mr. Laxton: I would like to quote briefly from the Select Committee on Trade and Industry's first report on car pricing. The Committee concluded that the link between sales and after-sales service and servicing no longer seemed to exist. The Consumers Association, in evidence to the Select Committee, of which I am a member, said:

    ``We still believe that servicing among the franchised dealers is no better than servicing among independent garages'',

and concluded that

    ``local standards are lamentable''.

In fact, the Minister's Department noted in a report that

    ``Low customer satisfaction with franchised dealer after-sales service has been an historic weakness of the UK distribution sector''.

The Trade and Industry Committee came to the conclusion that there was general dissatisfaction with the services provided by garages and that it had seen no evidence that franchised dealers were making any contribution to providing better customer service. Would the Minister care to comment on that view, in terms of the block exemption arrangements?

Dr. Howells: I agree with every word of it. It makes a very important point. I know from experience—and I am sure that if we were to conduct a straw poll in this Room many would agree with me—that the standard of after-care, whether in repairs or servicing, that I have received on the rare occasion when I have bought a new car has been no higher from the franchised dealer's repair shop than from the little garage round the corner that I now use. I see the hon. Member for South-West Hertfordshire (Mr. Page) looking very glum as I say this. However, the prices have been radically different. What is more, my ability to go back to the little garage round the corner to say that something is not quite right, and my relationship with that business, is very different from the relationship that I might have with a big franchised dealer. I do not swallow the argument that companies advance about the proposal signalling the end of their ability to undertake complicated jobs. In any case, they should not have to undertake complicated jobs on brand new cars. It is a dubious argument.

The report from Autopolis, ``The Natural Link Between Sales and Service'', makes an excellent read. Page 16 states:

    ``The older the car gets, the more likely its owner is to purchase service and parts from independent providers.''

It shows dealer service retention profiles for Germany and Italy and states:

    ``Even in Germany, where franchise dealer service retention is probably higher than anywhere else in the world, there is a perceptible fall-off in loyalty after the first ownership cycle. In Italy, at the other extreme, the franchise networks never even capture half the market from the beginning of the vehicle's life. The UK lies somewhere in the middle, with high loyalty during the new car ownership cycle (largely dominated by corporate ownership) but a steep fall-off thereafter...because fleet vehicles entering the second-hand car market are mainly cut off from their supplying dealers.''

That is important. I should like to remind my hon. Friend the Member for Derby, North (Mr. Laxton) that, as technology advances and cars have self-diagnostic systems on board, we must find a way to disseminate such technical information and specifications so that we can have a truly competitive market in the after-care of motor vehicles.

Mr. Borrow: The Minister has said that he does not want to throw out the existing regime, but to create a new one that incorporates some of the best features of the current one. Can the Minister give examples of redeeming features in the existing regime that might be so incorporated?

Dr. Howells: Yes, I can. My great friend, who has the garage around the corner from where I live, has ideas about how a garage should look—very different from the salesroom of the franchised dealer down the road. That matters. Brand matters. That image of technologically advanced consumer products is important. I would like some attention to be paid to that. If we open that market, perhaps that will eventually happen anyway—perhaps dealers and repair garages will pay much more attention to the image of their businesses. Image is an important feature of a hugely important industry that employs roughly 760,000 people. I do not want the industry to become ramshackle. Car manufacturers and dealers have made innovative changes to the way in which they present their product.

Mr. Chope: I hope that the Minister will forgive me when I say that his response to the specific question of the hon. Member for South Ribble (Mr. Borrow) was rather woolly; the hon. Member asked what the redeeming features of the existing scheme were.

The Minister said earlier, in response to one of my questions, that the Government should be able to take the Commission along with it, suggesting a leadership role. What leadership role are the Government taking? The Minister said that the Government had no hard-and-fast blueprint. He gave the impression that the Government were shrugging their shoulders and leaving the matter to the Commission.

Dr. Howells: If I gave the Committee that impression, I apologise. We have officials, who may or may not be present, who play a big part in the deliberations of the Commission. We played an active role in determining the way in which the Commission examined the block exemption throughout Europe. We have made it clear, in our analysis of the reports of the Office of Fair Trading and the Competition Commission, that we think that the block exemption regime has serious shortcomings. If the hon. Gentleman had pressed me further on the question that was asked by my hon. Friend, I would have found it difficult to give him another example of a redeeming feature.

Mr. Darvill: The Minister may have seen the Retail Motor Industry Federation's briefing on today's sitting. Looking forward to the new block exemption, should it be established, the federation raises the issue of contract termination notice periods, which is relevant to the issue of the Mercedes-Benz UK dealers. The federation suggests that the period of notice given to dealers should be extended to five years, and that the period of notice given by the retailer to the manufacturer should be two years. Given the investment that is required at dealership level to compete with larger outlets, moves in that direction might be appropriate, to create a balance between the two sectors.

Dr. Howells: I am sceptical about the way in which the voice of dealers is being projected. The sector is filled with trepidation about sounding off against their suppliers. They are closely tied to those suppliers—the big car manufacturers—and their freedom of movement is constrained. I have noticed a big difference between dealers' private pronouncements and their public utterances. Frankly, I do not believe a lot of what I hear. I do not want to go any further than that.

Like retailers in many other areas, such as the high street, where the markets for groceries and clothes have changed, car dealers should look reality in the face and become more creative in determining their future. Otherwise, they will be tied to the manufacturers, as they have been for many years, in a way that is not entirely healthy. They may see that as their only lifeline, but I think that there is life beyond it.

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Prepared 7 March 2001