Radical but is it radical enough?

Written by Chris Huhne MEP and published in the Evening Standard on Tue 7th May 2002

Commissioner Mario Monti's proposals to open up the EU car market have elicited howls of outrage from the car industry and even a warning shot from German Chancellor Gerhard Schroeder, whose home region is a big shareholder in VW. But are they radical enough? In practice, they may not yet provide potential car dealers with enough guarantees of fair treatment to encourage investment, increased supply and lower prices.

Dutch car prices are still 23 per cent lower than British ones. Perhaps half the difference is down to the volatility of the pound, but half is because carmakers have been exempted from the EU's normal anti-trust rules. Under this exemption, which expires at the end of September, they can maintain exclusive relationships with area dealers. This helps car makers and dealers charge whatever the local market will bear.

Mr Monti has proposed a new exemption to run until May 2010 with tougher limits on the restrictions that car makers may impose. The car makers will still be able to insist that dealers do not sell actively outside their own territory. But dealers will have to supply independent resellers and end users elsewhere. Dealers will be able to sell more than one brand in their showroom, increasing inter-brand competition. They will no longer have to provide service as well, and repairers will have new rights to access training, technical information and parts.

The alternative distribution model would allow carmakers to set

qualitative criteria for their dealers (governing promotion, forecourt cleanliness or whatever). Any dealer meeting those criteria would be able to sign up. Those dealers could then sell actively to end consumers anywhere in the EU, even setting up centres and delivery points anywhere in the Common market.

The snags are a certain unworldliness. To protect dealers from undue pressure from manufacturers, the regulation would insist that any maker had to give written reasons for terminating a dealer agreement so that a judge or arbitrator can check its validity. But if businesses are involved in even the threat of litigation with their supplier, the basic trust needed to make the relationship work would be absent.And what is to stop car makers dropping menacing hints?

Supermarket and internet suppliers still cannot be supplied directly like other dealers. The Commission thinks that consumers would take advantage of the free test drives in an authorised dealer, and then promptly buy their car on the internet from a supplier who could sell at a price that did not need to cover such sales and marketing activity. But if the same argument applied to book shops, Amazon.com would never have started.

My guess, having listened to the Commission's similar claims about the present 1995 regime, is that these changes do not yet go far enough. With clear price comparisons in the twelve euro-area countries, car makers may be shamed into cutting euro prices. But I fear British car buyers are likely to go on paying more until we too share a common currency.

Good news on liberalisation

Good news on economic reform. As predicted a fortnight ago, the European Parliament overwhelmingly voted this week to fast track the investor protection law needed to deliver a single market in financial services. That should make commissions and fees tumble for Europe's savers and investors. The EU now has the means to liberalise on deadline: 2003 for securities market rules and 2005 for the rest.

The second piece of good news was last week's preliminary ruling from the European Court of Justice on 'open skies'. The essential problem is that the US has picked off the European countries one by one, signing one-to-one deals advantageous for American airlines.

The Commission argued that these deals let unfair competition into the european market from carriers that were protected at home. No European airline can pick up and put down passengers in Washington before flying on to Houston. But US airlines can pick up or put down in Frankfurt before flying to Vienna. If the full European Court follows this ruling, the commission should be able to help member states negotiate a better deal for their airlines and travellers.

Chris Huhne is Liberal Democrat MEP for South East England and a member of the European Parliament's economic and monetary affairs committee.