Block exemption – what”s in it for consumers?

29 October 2001 #SMMT News

As the debate about the future of car distribution gathers

pace, SMMT today publishes a guide setting out the benefits of the current system

for consumers. Called Block Exemption – The Consumer Benefits, it explains

why the European rules, which were set up 16 years ago to protect new car buyers,

must be renewed in October 2002.

The industry is concerned that many of the benefits have become

clouded by arguments around new car prices in the UK. By explaining why price

disparities occur, as well as by describing some of the possible consequences

of scrapping the rules, SMMT hopes to encourage a more balanced debate among


The truth about new car prices

The distribution rules have not changed significantly in 16

years and not at all since 1995. Exchange rates, on the other hand, continue

to fluctuate wildly while tax harmony in EU member states is non-existent. The

UK was one of the cheapest new car markets in 1995 but since then the pound

has strengthened.

The truth is that price harmonisation will never be a reality

until Europe stabilises the variables that distort the single market – currency

and tax.

Village shop closed, local dealer next?

A report, published by Accenture in September, warns that local

dealers may disappear if dealer territories are scrapped. The impact on rural

areas will be most severe, as local support is lost and mega-dealers emerge.

If the link between sales and aftersales support is cut, large repair centres

could also exploit a dominant position, reducing competition.

Driver, passenger and pedestrian safety

The rules apply to the supply and aftersales care of commercial

and passenger vehicles as well as cars. By the end of 2000 there were more than

3.2 million commercial vehicles on UK roads and 95,455 buses and coaches and

their care and maintenance must be entrusted to well-trained experts. Removing

the role franchised dealers have in aftersales care for these vehicles could

have serious safety implications for all road users, not just car owners.

Safety recalls

With clearly defined roles for manufacturers and their dealers,

response rates for recalls are very high, at around 85-90 per cent. Vehicle

owners have expert, local support for advice, safety checks and, if necessary,

repairs. But if franchised dealers are lost, the process may become muddied,

with poorer communication and more affected vehicles slipping through the recall


Longer waits, less convenience

In the last five years, order to delivery times have been slashed

in Europe, despite a huge increase in model choice. Further progress in lean

distribution is likely in a clear manufacturer-dealer supply chain. But if the

links are scrapped, mega-retailers may sideline build-to-order systems in favour

of stock accumulation, affecting speed of delivery and availability.

SMMT chief executive Christopher Macgowan said, ‘This issue

is about the need for a system that benefits all stakeholders; it is not about

the industry protecting its interests. Governments across the first world recognise

that new car buyers must be protected which is why the same rules that apply

in the UK and the rest of Europe are mirrored by similar systems in Japan and

the United States. It would be easy to break the threads that link manufacturers

to their dealer networks. It will be less easy to pick up the pieces if vulnerable

consumers start to suffer.’

Notes to editors:

  1. Under the current block exemption rules, new cars and commercial

    vehicles are supplied exclusively to franchised dealers. Each dealer operates

    within a geographical territory, with networks giving nation-wide coverage.

    The so-called sales/servicing link ensures full aftersales support is also

    available. The rules, which apply throughout the EU, were first put in place

    in 1985. They were renewed in 1995 and are being reviewed by the Commission

    before expiry next October.

  2. Safety recall response rates tend to be much lower outside

    the automotive sector. In a recall of an Early Learning Centre child’s microphone

    toy, 35 per cent of all potentially affected items were returned to the store

    following a high-profile campaign. Highlighting this recall, The DTI’s Consumer

    Product Recall Good Practice Guide described the level of return as ‘acceptable’.

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