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Vice-President of the European Commission responsible for competition policy
New competition rules for the car sector
Figures and graphics available in PDF and WORD PROCESSED
Brussels, 27 May 2010
Today, the European Commission adopted a new Block Exemption Regulation and Guidelines applying competition rules to agreements between car manufacturers and their authorised dealers, repairers and spare parts distributors.
These will replace the current Motor Vehicle Block Exemption, which expires at the end of the month.
A car is the most expensive thing that a citizen owns apart from his home. It is therefore vital to get the competition rules right in this area.
Since the 2002 Regulation was adopted, experience has taught us that competition on the repair, maintenance and spare parts markets is not very strong.
These are markets where one player – the brand network – often has a market share of over 50%. In these circumstances, if the rules aren't strong enough, consumers may be harmed by anti-competitive practices that push up repair costs.
Independent garages constitute an important source of competition for brand networks. Unfortunately, they are also vulnerable to behaviour by car manufacturers that shuts them out of the market, such as failure to grant access to technical information or refusal to honour warranties if consumers use their services.
Behaviour of this type really harms consumers by pushing up the cost of repair. As you know, it costs a lot to keep a car on the road - repair bills account for 40% of the total cost of ownership. And unlike car prices, the cost of the average repair and maintenance job has actually risen over the past years.
Consumers particularly feel the effect of rising repair costs during the present crisis, as they are more price-sensitive and their cars are getting older, and require more frequent maintenance. There's therefore a danger that if prices are too high, drivers will go to the garage less often and their cars may become dangerous or pollute the environment.
One study has estimated that in the UK only, the number of cars being serviced professionally fell by 2.5 million last year1.
So what we have done with the new Regulation is to toughen up the rules for these markets, by removing the benefit of the block exemption for manufacturers whose market share on the repair and maintenance markets exceeds 30%.
This will make it easier for us to enforce the Treaty rules if technical information is withheld or if warranty conditions are misused. The change will also give us more freedom to act if novel practices arise in the future.
Of course, repairs often require the use of spare parts, and these can account for a major slice of the repair bill. The price of spare parts can vary widely and a repairer could save a lot of money for his customers by shopping around.
The new framework contains rules to ensure that parts suppliers' own brands – independent brands, if you wish - can reach the market, and can be purchased by both independent and authorised repairers. In those cases where there is no alternative to the carmaker's own brand, independent garages should be able to get hold of these parts.
The situation changes when we analyse the relationship between manufacturers and dealers.
Competitive conditions on the markets for new cars are very different to those on the repair markets.
Prices have been falling steadily, and the consumer is benefitting from an increasing choice of models. This increased competition is a result of longstanding production overcapacities and globalisation, and is quite the opposite of what was predicted back in 2002, when all experts argued that a big merger wave was on the cards.
Against this competitive background, the old sector-specific rules created an unnecessary straitjacket that limited the room for manoeuvre for car manufacturers to organise their distribution systems as best suited by the changing market conditions. They also discouraged car manufacturers from investing in their dealership networks.
The car sector today is faced with two major challenges. On the one hand, firms have to work out an strategy to deal with the consequences of the crisis. On the other, both consumer demand and regulatory pressure means that carmakers have to work hard to bring the greener cars of the future to market. This will require a close partnership between dealers and vehicle manufacturers, and a more flexible competition regime.
It is for all of these reasons that the Commission has aligned the rules for motor vehicle distribution with those that apply to distribution agreements in other sectors and were revised last month (Regulation 330/2010). There is a three-year transition period to allow dealers to adapt.
By allowing more flexibility for the distribution of vehicles, the proposed changes will restore manufacturers' incentives to invest in their dealer networks and to reduce the cost of selling cars. As it is, distribution costs make up on average 30% of the price of a new car. This increased flexibility should also allow European carmakers to respond to new competition coming from the emerging markets of East and South Asia.
To round up, I strongly believe that by tailoring the competition regime to take into account the different degrees of competition on these various markets, the new framework will bring tangible benefits to consumers in the form of lower prices, better service, and greater choice. However, DG COMP will continue to monitor this important sector very carefully, and there should be no doubt about my determination to enforce the competition rules and take necessary steps if any serious shortcomings are identified.
State Aid Scoreboard
Let me say a few words about the spring edition of the State aid scoreboard published today and which focuses on the financial sector.
The figures show that between October 2008 and March 2010, the Commission approved a staggering €4 131 billion in state support to the financial sector. I stress the word "approved"; this does not mean all this money was used by banks, let alone that it is lost for taxpayers.
Most of the support came through guarantees that represent ¾ of the total, i.e. €3 149 billion.
Of that total of guarantees the amount effectively used by banks is €993.6 billion (32%)
The figures show that government guarantees are being used less and less. They reached a monthly average of 30% of banks' total funding in the first quarter of 2009, but by the end of 2009 that level had fallen to 4%.
This is an encouraging indicator that the financial sector has begun to return to normal market conditions. It is crucial for the economic recovery that banks do not stay dependent on State support for longer than is strictly needed but rather finance themselves increasingly in the market. Most banks started doing this already. Others will have to be induced towards the exit, and for some this will include going through a necessary restructuring.
Source: Kwik-Fit study