Motor Vehicle Distributors

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Miss McIntosh: The Minister made some positive remarks about cross-border trade. As he will be aware, under the competition laws, it is open to an individual who feels aggrieved to make a formal complaint to the Commission. In view of what he said, would he be minded to support an individual complaint, in an official Government capacity? That would lend some weight to the proceedings and perhaps produce consequential developments to open up the cross-border trade even more.

Dr. Howells: I should be delighted to talk to the Director General of Fair Trading about the matter, and about how we might approach the Commission with respect to individual cases.

Mr. Chope: Would the Minister consider withdrawing now, unilaterally, from the block exemption, to put pressure on the Commission to achieve the changes that he considers necessary? He says that the present regime has hardly any redeeming features, and purports to speak on behalf of consumers, who are being ripped off under the existing system. Why do not the Government withdraw unilaterally now?

Dr. Howells: I have tried to explain why. It is important to complete the current consultation period. However, if it appears that the European Commission, or the European Parliament, will not be prepared to make any changes, the Government will have the will to declare the arrangement iniquitous. We would seriously consider getting rid of the block exemption in the United Kingdom—unilaterally, if necessary.

Mr. Darvill: Clearly, the evidence that has been presented this morning and that is contained in the reports shows that there is not really a single market in dealership. Anyone who was reflecting on the benefits of EU membership might develop a sceptical view of the operation of the single European market from that evidence. Does my hon. Friend agree that radical change is important, so that a genuine single market in car dealership can be established?

Dr. Howells: Several sectors in the single market trouble me greatly, and detract from the general vision of a single market. Energy is one. It is difficult to trade energy with certain countries. The block exemption on cars is certainly another factor. It detracts from the appeal of a single market and, in the end, militates against car manufacturers. In an increasingly globalised economy, if they are not pressed to innovate constantly, and if they hide behind protectionist walls, it is not only consumers who suffer. The industry suffers from the fact that it is not advancing as speedily as it should in the face of open competition.

Miss McIntosh: A very useful table appears on page 112 of the bundle referred to as exhibit D, which is a car price differentials economic analysis, prepared in November 2000 for the European Commission, but whose conclusions are not necessarily supported by it. Table 23 gives the average gross dealer margins across the European Union over a three-year period that includes the introduction of the present regulation in 1995. Interestingly, in Denmark, where I understand the net prices remain among the lowest in the European Union, the dealer margins are also among the lowest. In the United Kingdom the figure is slightly below average, but still more than 10 per cent.

The Minister will see that the UK margins decreased from 17.5 per cent. in 1993 to 12.5 per cent. in 1999. Does he attribute that in any way to the workings of the present block exemption? Will he hazard a forecast about how non-renewal of the block exemption would affect dealer margins, particularly in this country?

Dr. Howells: When I look at those figures I wonder—as, I am sure, do other members of the Committee—why the dealers seem to speak with a single voice across Europe. There are serious variations. Dealers' ability to make money—which we want them to do: we want them to run successful businesses—becomes less transparent year on year rather than more transparent. The variables that go into the profit equation become more difficult to understand, not easier. That is bad. Margins have been reduced, and bonuses have been introduced. We have also seen the pre-registration scam in operation, which often militates against dealers. Ultimately, it tends to cloud the whole picture, not only on whether dealers can make a good honest living and can make forward projections, so that they know where their businesses are likely to be over the next year or two, but on whether consumers are able to discover what the real price of a car should be. The hon. Lady is quite right. It is largely a mystery, but the magician is fundamentally and powerfully the manufacturer.

Mr. Chope: May I ask whether the Minister or his Department were represented at the meeting organised by the Commission in February, and whether he has received reports about the fact that, following the statement that he made at the behest of the Select Committee on Trade and Industry, the UK parliamentary representative, Mr. Stanton, received the equivalent of a standing ovation for the lucid and pertinent points that he made?

Dr. Howells: I think that Mr. Chris Stanton made some good points, and he faithfully reflected the feeling of the Select Committee. He made a good contribution to that meeting. We try hard to be properly represented at all such meetings and, whenever possible, Ministers try to attend. I hope that the hon. Gentleman is reassured; we are very concerned about the subject, and we are determined to play our part in deciding what the successor regime should be.

The Chairman: Order. Before I call the Minister to move the motion, I should inform the Committee that I have selected the amendment in the name of the hon. Member for Ochil (Mr. O'Neill) and others. I assume that everyone has a copy of it.

Motion made, and Question proposed,

    That the Committee takes note of European Union Document No. 13889/00, a Commission report on the evaluation of Regulation (EC) No. 1475/95 on the application of Article 85(3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements; and welcomes it as a useful contribution to discussions on the future shape or car distribution arrangements in the European Union.—[Dr. Howells.]

11.22 am

Mr. Richard Page (South-West Hertfordshire): I should declare all sorts of interests—left, right and centre. My whole working life has been connected with vehicle manufacturing or vehicle retailing, sales, parts and servicing. I have derived and continue to derive income from it, and I sincerely hope to acquire even more. To do that, we must have in place a fair and reasonable operating system.

The block exemption has been portrayed as the guilty party. It has been a little like the curate's egg—bad in parts but sometimes good. The manufacturers have had a grip over dealers in particular areas, and in return for that, the manufacturers have put in place various obligations, which are generally for the consumers' benefit. For instance, they are obliged to run a demonstrator force; to train technicians to be properly skilled in the techniques and problems of the vehicle; to have warranty systems so that when something goes wrong with a car it can be dealt with properly; and to have a recall system to cope with crises in the construction and design of vehicles.

The manufacturers, of course, sometimes behave in a somewhat draconian fashion. For example, they force dealers to deal only with the manufacturer's finance company if people want to use hire purchase or lease a vehicle. They also force dealers to have particular stocking levels. Indeed, until relatively recently, one manufacturer forbad a dealer to operate with any other franchise within a 30-mile radius, which one could regard as a remarkably stern penalty.

Some of the problems that we suffer today lie in the Government's hands, not only the present Government but Governments over the years, because they have used the motor trade and the motor car as an economic tool. Just as the Government use the Monetary Policy Committee to operate interest rates, they used the car industry—by purchase taxes and similar taxes—to regulate the economy.

With high personal taxes—this is the genesis of our problems today—people began to get their vehicles through their companies. We all know that, if people do not pay for something themselves, they will have to be remarkably saintly to express great concern about the price—they are more interested in the product coming their way.

A vastly different pattern of purchase developed between the United Kingdom and the continent. That raised prices higher than they needed to be, bolstered by the fact that we had some of the most remarkably inefficient, low-production plants in the world. That created a price umbrella. In order for our plants to be productive, the price had to rise. When cars came into full production, all the other countries of the world came in under that umbrella, rather as steel companies did with British Steel in the 1970s and early 1980s. That was the culture that was built into our country then.

Then production went up all round. It was interesting that, when manufacturers got together with their dealers and predicted their market share, if one added it all up, the market was going to grow by 20 per cent. a year every year. Of course, that never happened. Vehicles became surplus and there were bonuses and extra incentives to sell them at a reduced price. That was fine, until one manufacturer in this country broke the block exemption rules and started to deal directly with large fleet users, circumventing the system. Somewhat unfairly, it sold to the retail customer through its dealer at one price and to the fleet user at another. That gave rise to all the complications with used cars coming back on to the market, with which I shall not bore the Committee. Of course, once one volume manufacturer did that, the others followed. They got themselves on a terrible hook and did not know how to get off it, although they are now trying to do so.

The Minister was right. I will not say that he damned the block exemption with faint praise, but he made one point about safety, which is an issue that we must bear in mind. A vehicle can be an unguided missile. Manufacturers and Government have a responsibility to ensure that, whatever we put in place of the block exemption—we all accept that it must undergo major modification—safety recalls and warranty can be properly monitored.

Cars today are ever more complex and technical. While I heard the call to have the market opened for everyone, those who are entitled to service more sophisticated motor cars must have some form of certificate or approval. They need not be licensed by the manufacturer—they can be licensed by another method—but they must meet quality standards, much as we have the CORGI system for gas manufacturing installation, because cars today are exceedingly complex. For example, in one model to be introduced, it will be possible to dial up the manufacturer on the continent, who will download the new engine management system into the car. Those who carry out such servicing work do not have to be the manufacturer's dealer, but they must meet standards.

The Minister shrugged his shoulders in almost Gallic fashion when asked about price differentials between the UK and the continent. The Government and the European Union have been remarkably lax in pursuing the unacceptable differences. My hon. Friend the Member for Vale of York (Miss McIntosh) made some valid and pertinent points. There should be pressure for some fairness and equality over pricing.

Last year, the Government produced a pile of paper X ft high on the pricing of motor cars. They laboured mightily and brought forth a mouse. The small reductions were welcome, but I know a manufacturer who gave his dealers a 10 per cent. discount to buy the car. It was promptly announced that the discount had gone to 3 per cent. and that there was a price reduction of 7 per cent. plus tax. On the face of it, that seemed marvellous. However, as the dealers make 3 per cent. on the sale of a new car, price reductions count little to individuals.

I say to my hon. Friend the Member for Vale of York that I do not know where such marvellous figures come from, but I assure the Committee that seldom, especially with volume manufacturers, is anything more than 3 or 4 per cent. made on the retail price of a motor car, certainly not the 10 or 15 per cent. that was mentioned. Perhaps a return on capital of 10 to 12 per cent. might be the more accurate figure.

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