Shake-up of EU car market promises to drive prices down

The car makers' stranglehold over consumers was loosened yesterday when the European Commission announced that dealers would be allowed to compete across borders and open supermarket-style showrooms.

In what promises to be a shake-up of the way cars are sold and serviced, the rules also increase the prospect of more cars being sold over the internet or through big retail chains.

But the present plans fall well short of full deregulation. Consumers will have to wait until October 2005 for cross-border retailing, which, for example, would allow a Dutch of Belgian car firm to open up in the UK or Germany.

There are huge differences in prices for cars across the EU, and the European Commission has already levied multi-million pound fines against Volkswagen, Opel and DaimlerChrysler for not respecting laws on fair competition.

The measures announced yesterday, drawn up by Mario Monti, the competition commissioner, promise to cut prices not just for the sale of a car but for services through its lifetime.

They have been the object of fierce lobbying from manufacturers and governments. The German Chancellor, Gerhard Schröder, led the onslaught on the Monti proposals when they first went out for consultation in February this year.

While the European Commission compromised by giving more time to phase in the plans, it stuck fast to the principles behind them. Crucially, it rejected calls for a final re-think before allowing more cross-border sales – which might have kicked the idea into touch.

The new regulations, which will come into force in October, replace a 17-year-old partial exemption for car makers from standard EU competition rules. Mr Monti said the proposals inject "substantial but well-considered doses of competition". There will be a year for the changes to come into effect, except for those on cross-border dealerships.

Car makers will still be able to opt for "exclusive distribution", whereby an approved dealer is allocated a sales territory. But the same dealer will also be able to sell on to a secondary operator such as an internet seller.

Dealers will also be able to stock different makes of cars, advertise anywhere in the EU and – from 2005 – set up a secondary outlet or "delivery point" in another EU country.

Under the present rules, anyone who sells new cars must repair them. The new rules allow dealers to opt out of servicing, or sub-contract the work. Providing certain standards, are met, independent garages can become authorised repairers for several makes of car.

The umbrella group representing Europe's consumers, BEUC, congratulated the Commission for "standing firm" on allowing dealers to stock more than one brand and for improving access to spare parts and technical information for independent repairers.

However, the organisation's deputy director, Willemien Bax, said: "We regret though that consumers will have to wait until 2005 to reap the full benefits of the reform".