New EU Retail Auto Rules Could Benefit Consumers

FRANKFURT, July 15 - Madeline Chambers writing for Reuters reportred that the European Commission looks likely to favour consumers and resist pressure from the powerful auto industry this week by voting to open the car retailing business to greater competition. European Competition Commissioner Mario Monti has made some concessions to opponents of the proposed changes, which would allow dealers to open branches anywhere in the European Union and to sell more than one brand of car.

But EU sources suggest that Monti is keen to stick to the thrust of the proposals he presented in February, holding out against intense pressure from carmakers, several governments and even the European Parliament.

It is still unclear how each Commissioner will vote at the key session on Wednesday, partly because representatives are supposed to act in the interests of European citizens rather than toe national lines.

Carmakers, who fear their profits may be hit, oppose the plans and argue the lack of a harmonised taxation policy in the EU is the main reason for retail price differences.

Consumer groups say they would welcome the new rules because they could lead to lower car prices, which now vary by as much as 40 percent within the EU even before taxes.

"We support the thrust of Monti's proposals and very much hope the Commissioners will vote for them," said a spokeswoman for the BEUC consumer group in Brussels. The most controversial proposal is the removal of the so-called "location clause", which would allow dealers to open outlets anywhere in Europe.

Under the clause, manufacturers now are allowed to hold a tight grip on auto retailers, even assigning them territories.

Monti has compromised by extending the clause by one year to October 2004, while other changes would come into effect earlier.

GERMAN OPPOSITION

Germany, where the auto industry accounts for one in five jobs, has vehemently opposed the changes, arguing they would result in a competitive disadvantage to its sector.

Chancellor Gerhard Schroeder has been a particularly vocal opponent and has threatened to block Monti's plans. He trails the conservative opposition in opinion polls ahead of a September election, in which unemployment is a key issue.

A German newspaper quoted him lambasting Brussels over the weekend.

"There are strong forces in Brussels who think it is sufficient to have a high proportion of services in Europe and to organise financial markets properly, but that it's all right to neglect industry," he was quoted as saying.

"But industrial production remains the basis of Europe's economic welfare at a very high level," he added.

Analysts say volume carmakers, such as Germany's Volkswagen <VOWG.DE>, France's PSA Peugeot-Citroen <PEUP.PA> and the European operations of U.S. companies Ford Motor Co and General Motors Corp could suffer most.

The powerful German engineering union IG Metall says thousands of jobs could be jeopardised if Monti's plans are introduced. The European dealer and repair businesses employ some two million people, according to the union.

The loss of after-sales business, which accounts for some 20-30 percent of profits for some manufacturers, is set to be the biggest problem for carmakers as Monti's proposals envisage a division of the sales and service activities.

But the biggest winners and greatest losers will be the dealers, say experts, as greater competition will probably result in some dealers growing in size and swallowing up weaker players.

"The so-called location clause is the most worrying to dealers," said David Evans of the London-based Retail Motor Industry Federation. "There will be casualties and consolidation as a result of its removal."

Some experts argue the emergence of a few large dealerships in coming years will lessen the likelihood of price declines.