Motor Vehicle Distributors

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Mr. Keith Darvill (Upminster): I have been listening to what the hon. Gentleman has been saying carefully. How does he explain the major price differential between other European countries and the UK?

Mr. Page: I obviously failed completely when I said that the genesis was in the past. We produced some of the worst cars and had the lowest productivity, so we had a pricing structure for UK cars that enabled the continent and overseas manufacturers to do rather nicely underneath the umbrella price, which was greater than that on the continent. We still have a hangover from that. It must be properly tackled, as it is unfair to the consumer and to most people trying to retail the product. Other people and manufacturers may disagree with that view, but we are where we are.

I shall not go any further into the issue of the various profitabilities of dealers and so on, except to say that it is a fashion to believe that motor dealers make plenty of money. About 25 per cent. of the main dealers of one of this country's major vehicle manufacturers are losing money, and the number of bankruptcies has been staggering. The specialists—Mercedes, Porsche and so on—make more than 1 per cent. on turnover: they make 3, 4 or 5 per cent. The manufacturers are not standing still. As we huff and puff and talk, they understandably want to secure a future in which they can supply their cars, have their cars serviced and ensure that their products are treated and handled with the reliability that they would like.

At the moment, manufacturers are buying dealerships. They have an interesting negotiating technique. They say that they want to buy the business and if the dealer does not want to sell, they say that they will take away his franchise. The technique is wrapped up more subtly than that, but that is the end message. A garage dealership has a limited sales appeal outside of being a garage. Nine times out of 10, the dealer in question will offer the business for sale and go away. Manufacturers are directly buying percentages.

Another technique employed by manufacturers uses owner-drivers. Under the owner-driver arrangement, a nice, bright young lad or lass—usually a lad—is found. He or she is probably about 30 or 35 and is asked, ``How would you like to run your own dealership?'' An approach is then made to a dealer, who is told, ``We want to buy your business,'' and it is taken over. The people concerned then install their own owner-driver.

Garages are quite expensive to buy and even more expensive to run. Even the most humble, pitiful garage will cost £1 million plus. Not many 30-year-olds are walking around with £1 million in their back pocket, so a soft loan is provided to enable them to operate. It will be appreciated, therefore, that a grip will have been placed on the young lad or lass, with respect to the way the business will be run—not for ever, but for the immediate future.

A problem can be perceived in that if we delay, the game will be taken out of our hands. I see the moves. Mercedes has already taken the path in question. I have no connections with Mercedes, but I think that it behaved with a delicacy and tact in this matter that could be open to misinterpretation. Even bigger groups are being created. If we are not careful, I can see that a trend will occur by which even the large medium dealership, as distinct from the medium or small dealership, will be under severe threat and will vanish for ever. Perhaps that would be a good thing. We might want all car retailing to be conducted in the way that Currys and Dixons operate in electrical sales. That is fine if we want it, but let us plan what we want, rather than just standing back and watching what happens.

The manufacturers are, in the main, multinationals, and the Government's controls are therefore quite limited. I have already mentioned one manufacturer cutting the retail price to 3 per cent. You would not want to set up and run a garage or car dealership, Mr. O'Brien, but if you did, you would go there and be given your standard 3 per cent. Perhaps the manufacturer would cut it to less than that figure, which might mean more money for the manufacturing side of the business, while the dealers that it owned would be struggling to break even. They might even lose money, but competition against them would be in serious trouble.

My response to the enthusiasm for getting rid of the block exemption is to say that I can see huge advantages in doing it—aspects of the business have been subject to abuse—but to warn of possible consequences that could leave consumers worse off when we want them to be better off.

11.38 am

Mr. Keith Darvill (Upminster): I want to begin by making a few general points. The papers that we received for today's sitting were much easier to use than in the past. The index on the main report and the way in which the conclusions were set out, were helpful. In the past, a lack of a reliable way of analysing the documents made going through them time-consuming, but it was much better today.

My second point relates to regulation generally. We are often criticised by the Opposition for the extent to which we use regulation. Regulation is necessary in this case. Often, certain business sectors tell us that such regulation is necessary. There is also a consumer angle to the issue, and even the Consumers Association states that there should be some regulation. It is important to underline that regulation can play a role. It needs to be examined and scrutinised properly, and we are participating in that scrutiny today.

I also agree with the remarks of the hon. Member for South-West Hertfordshire (Mr. Page) about timing. That is crucial, because the problems for British consumers have been building up since 1985. The industry also needs certainty when planning investment. That is true of both manufacturers and dealers. It would be damaging to the industry and to consumers alike to carry on for too long without the correct set of regulations. It is imperative for the UK, and probably for the other EU member states, that the new regulations, whatever they are, are put in place.

I welcome the debate, because it is an opportunity for us to share our views. Although I am examining the issue for the first time, and have not spoken on it in the House before, it is clear to me that a balance must be struck—that there must be some regulation. The Consumers Association's briefing was helpful in that respect. It states that without some regulation, it would be difficult to protect the competitive nature of the industry. If there were a free-for-all, the armlock that the manufacturers have on the industry would continue. Some regulation is necessary, but it is a matter of getting the balance right.

I was particularly interested in the enforcement provisions in the documentation. It appears that, although there have been headline cases in which manufacturers have been fined huge sums, that has not had the impact that it should have had. Those with vested interests have been prepared to flout the law and the regulations, taking huge risks. As a consequence, we still do not have adequate protection for consumers. Page 59 of the main report sets out some examples of enforcement.

The report gives evidence of British consumers purchasing new cars in the Netherlands, Belgium, Germany, France, Denmark and Portugal since 1997. A clear market trend of British consumers purchasing vehicles throughout Europe is emerging. Notwithstanding that trend, those consumers have still not received the benefit of the competitive prices that exist in other countries. They are penalised because of the high costs associated with the right-hand drive vehicles that they need. They are penalised by the delivery times when they purchase such vehicles. It is wrong that consumers are being penalised in that way. The Commission's regulations should be enforced to ensure that consumers get their goods when they purchase them, and at the right price.

There should be a new set of regulations. It is useful to consider what the Consumers Association's briefing says about what should feature in any future block exemption to ensure inter-brand and intra-brand competition. We have already seen in the example of Mercedes Benz how intra-brand competition can be thwarted. We should learn from current examples. Price competition discounts, product differentiation and access to markets for new entrants are all important, for the reasons that the hon. Member for South-West Hertfordshire mentioned. Clearly, people who get soft loans without protection are in an armlock from which it is difficult to extricate themselves. That does not lead to a good single market.

We need transparency, so that consumers and those involved in the business can see that fairness applies. The underlying thrust of the argument for maintaining some sort of block exemption relates to public safety—again, the hon. Gentleman properly referred to that. Public safety must not be put at risk by inadequate training or investment, so there must be a balance. The question of training and warranties must be addressed in future block exemptions, so that consumers are protected.

I welcome the opportunity to air those views, which reflect what my constituents tell me. They want to be able to look around the market and to get the best deal, but they want some consumer protection. They do not want to be ripped off, but in a business that requires massive investment, there must be certainty of a return for investors—whether in manufacturers or dealers.

11.46 am

Mr. Christopher Chope (Christchurch): I beg to move, as an amendment to the motion, leave out from ``agreements;'' to end and insert

    ``notes its conclusion that the ``natural link'' between sales and after-sales service seems no longer to exist; notes further its conclusions that the objective of increasing the commercial independence of dealers has been achieved ``to only a limited extent'', that independent repairers are being denied access to technical information, and that they offer services at least as good and generally cheaper than dealers; notes further that car buyers still face difficulties when they try to purchase new vehicles in another member state; and, in view of the Commission's clear finding that the justifications advanced in 1995 for the block exemption are no longer valid, calls on the European Commission, in line with the views of the UK Competition Commission, to allow the block exemption to expire in September 2002.''.

The amendment gives hon. Members the opportunity to give the Executive a lead. The Minister's motion is vague and woolly: it talks about welcoming the Commission report

    ``as a useful contribution to discussions on the future shape of car distribution arrangements in the European Union.''

However, the Select Committee and the Competition Commission, at the behest of the Government, have reached the unequivocal conclusion that the block exemption should be abolished, not renewed, when it expires at the end of September next year. The amendment explains why that conclusion is reasonable. It includes expressions from the European Commission's report and links them to the UK Competition Commission report. It gives hon. Members an opportunity to give the Government a lead. From the Minister's comments, it appears that, despite their rhetoric, the Government are acting hesitantly.

I think that the Minister would be the first to admit that when he was asked by the hon. Member for South Ribble (Mr. Borrow) what he saw as the redeeming features of the existing scheme, his language was not as crisp as usual. He referred to ``brand matters''—the image of technologically advanced consumer products being important—and said that he did not want his local dealer to be ramshackle. Those are worthy sentiments but, I submit, hardly consistent with the Government's avowed intent of giving not just this country but the European Union a lead when the block exemption expires at the end of September next year. If the Government were to accept the amendment, they would be making progress. They would thus have accepted that the existing scheme had no redeeming features and would not have precluded the development of an alternative scheme, perhaps incorporating some of the ideas proposed by the Consumers Association. They would be giving a clear lead that something dramatic and radical needs to be done.

Although I was not present at the hearing last month in Europe, I understand that many conservative representations were made, saying that we should not get all fussed about it but leave things as they are. The Minister should be alarmed at that air of complacency, and at the evidence that the Select Committee received in Brussels earlier this year to the effect that the Commission does not know what to do. The Minister knows my views on matters European, but this is a good opportunity for the Government to give a lead, and to use the threat of unilateral withdrawal from the block exemption, to which the Minister referred, unless something is done soon.

I heard with interest what my hon. Friend the Member for South-West Hertfordshire said from the Front Bench. I have to be careful because Page Motors in Ferndown in my constituency has carried out the servicing on my and my wife's Volvo estate cars very effectively. One has done more than 200,000 miles as a result of the quality of servicing, and the other has done more than 150,000 miles. That is due in no small measure to my hon. Friend's company, and I pay tribute to him and his employees. However, I wonder whether he is not a little too close to the business to be as objective as he is usually. He said that manufacturers are buying dealerships and that we are now seeing vertical integration, which is monopolistic and to the detriment of consumers. The logic that follows from that is that something radical must be done about the present regime before all the independent dealers are put out of business.

I am not convinced about safety recalls. For instance, one could have product recalls on safety grounds on a whole range of electrical goods; but no one has ever suggested that the only way to ensure that the system works is for dealerships to be owned by manufacturers that are subject to a block exemption from the normal rules of competition. Indeed, I note that that argument did not find favour with the Competition Commission or the European Commission.

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Prepared 7 March 2001