Report on the evaluation of Regulation (EC) No 1475/95 on the application of Article 85(3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements
Date: 2000-11-08
Institutions: European Commission
Subjects: after-sales service, motor car, sale, trade agreement

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 15.11.2000
COM(2000)743 final

REPORT

on the evaluation of Regulation (EC) No 1475/95 on the application of
Article 85(3) of the Treaty to certain categories of motor vehicle distribution and
servicing agreements

(presented by the Commission)

Report on the evaluation1 of

Regulation (EC) No 1475/95

on the application of

Article 85(3)

of the Treaty to

certain categories of

motor vehicle distribution

and servicing agreements

EUROPEAN COMMISSION

1

Article 11(3), OJ L 145, 29.6.1995, p. 25.

2

TABLE OF CONTENTS

1
2

3

CONCERNING

INTRODUCTION ................................................................................................. 7
THE BLOCK EXEMPTION RATIONALE AND RECENT
DEVELOPMENTS
NEW BLOCK
EXEMPTION REGULATION DEALING WITH VERTICAL
RESTRAINTS ....................................................................................................... 8
BACKGROUND FOR SPECIFIC RULES FOR MOTOR VEHICLE
DISTRIBUTION ................................................................................................. 10
3.1 Characteristics of motor vehicle distribution agreements............................. 10
3.2 Comparable products and existing distribution modes ................................. 12

THE

3.4

3.3

3.2.1

Tractors, agricultural machines, and construction and
earthmoving equipment................................................................... 13
3.2.2 Motorcycles.................................................................................... 14
3.2.3 Medical equipment ......................................................................... 14
3.2.4
Computers...................................................................................... 14
Regulatory framework for motor vehicle distribution and servicing ............. 15
The legal framework until 30 June 1985.......................................... 15
3.3.1
Regulation 123/85 .......................................................................... 15
3.3.2
Regulation 1475/95 ........................................................................ 20
3.3.3
3.3.3.1
The essential aims of the new Regulation......................... 20
3.3.3.2 Clarification of prohibited restrictive practices ................. 22
Notice on Regulation 123/85 .......................................................... 23
Notice on intermediaries ................................................................. 25

3.3.4
3.3.5
Further Commission action in the area of motor vehicle
distribution with a view to promoting parallel imports and the
achievement of an Internal Market............................................................... 27
Explanatory brochure ..................................................................... 27
3.4.1
Hotlines.......................................................................................... 27
3.4.2
3.4.3
The Commission's car price report .................................................. 27
Alleged benefits of the existing regulatory framework governing
car distribution and servicing agreements for manufacturers,
dealers and consumers and other parties ..................................................... 28
4 MOTOR VEHICLE DISTRIBUTION: THE FACTS...................................... 28
Structure of EU car and spare-parts distribution ......................................... 28
Car manufacturers: description of the market, market
4.1.1
shares and brands............................................................................ 28
4.1.2 Manufacturers' distribution networks .............................................. 31
4.1.3 Multi-brand dealerships................................................................... 38
Spare parts ..................................................................................... 40
4.1.4
After-sales servicing .................................................................................... 43
4.2.1
Structure ........................................................................................ 43
4.2.2 Manufacturers' warranty ................................................................. 47
4.3 Current and future developments ................................................................. 48
Introduction.................................................................................... 48
Development of “lean distribution” ................................................. 48
The traditional "stock-push" supply system...................... 49
4.3.2.1
4.3.2.2
The new system of lean distribution................................. 49
Internet - a new marketing method.................................................. 52

4.3.1
4.3.2

4.3.3

4.1

4.2

3.5

3

5

6

4.3.4

New formats for sales and service channels ..................................... 57

ENFORCEMENT OF REGULATION 1475/95
COMMISSION ................................................................................................... 59
Letters from consumers and intermediaries.................................................. 59
5.1
Formal procedures involving Regulations 123/85 and 1475/95.................... 61
5.2
5.2.1 Major proceedings against car manufacturers.................................. 61
Formal complaints .......................................................................... 63
5.2.2
Notifications of distribution agreements .......................................... 63
5.2.3

BY THE

6.1.2

in the motor vehicle

ASSESSMENT OF THE APPLICATION OF REGULATION
1475/95 ................................................................................................................. 64
Assumptions underlying Regulation 1475/95: are they still valid? ............... 64
6.1
6.1.1

Does effective competition exist
industry?......................................................................................... 64
Intra-brand competition in car distribution....................... 64
6.1.1.1
Intra-brand competition within a Member State ............... 64
6.1.1.2
Intra-brand competition across the EU ............................ 65
6.1.1.3
6.1.1.4
Inter-brand competition in car distribution....................... 70
6.1.1.5 Competition in after-sales servicing ................................. 73
Are motor vehicles technical consumer goods whose
maintenance and repair require brand specialists? ............................ 74
Is the tying of sales of new vehicles and after-sales services
still justified?................................................................................... 76
6.2 Has the commercial independence of dealers become greater? .................... 81
Introduction.................................................................................... 81
6.2.1.1 Use of spare parts of matching quality ............................. 82
Longer period for terminating dealer contract.................. 83
6.2.1.2
Sufficient margin
6.2.1.3
independence .................................................................. 85
Leeway in dealers’ pricing policy..................................... 86
6.2.1.4
6.2.1.5 Role of dealers as to sales targets .................................... 87
6.2.1.6 Right of dealers to sell more than one make

preserve

dealers’

6.2.1

6.1.3

to

6.2.2

6.2.3

(multi-make, multi-marketing or multi-brand) .................. 89
6.2.1.7 Arbitration ...................................................................... 90
Has the access of spare-part producers to dealer networks
improved?....................................................................................... 91
independent
Has
strengthened? ................................................................................. 92
6.2.3.1 Access to original spare parts .......................................... 93
6.2.3.2 Access to technical information ....................................... 93

repairers

position

been

the

of

6.3

Is there a benefit for consumers as to the purchase and servicing of
motor vehicles in the single market? ............................................................ 96
Are prices for new motor vehicles offered in the single
6.3.1
market satisfactory?........................................................................ 97
Can the availability of new vehicles be considered
satisfactory?.................................................................................. 111
6.3.2.1
Local availability ........................................................... 111
6.3.2.2 Availability

new motor

vehicles

6.3.2

for

of

cross-border sales.......................................................... 116
6.3.2.3 Availability of cars via resellers...................................... 122

4

6.3.3

Is there a benefit for consumers as regards the honouring
of the warranty and after-sales services?........................................ 123
Is the honouring of the manufacturer’s warranty
6.3.3.1
satisfactory? .................................................................. 123

6.3.3.2 Can

after-sales

service

be

considered

satisfactory? .................................................................. 125

7

ASSESSMENT OF
REGULATION 1475/95 - INTRODUCTION.................................................. 129
Internet sales ............................................................................................. 129
7.1
Sales via supermarkets............................................................................... 132
7.2

FUTURE DEVELOPMENTS UNDER

5

LIST OF DIAGRAMS

DIAGRAM 1: COMPARISON OF CARS WITH OTHER TECHNICAL PRODUCTS ................. 13
DIAGRAM 2: MARKET SHARES................................................................................ 30
DIAGRAM 3: DISTRIBUTION DEMANDS IN THE AUTOMOTIVE INDUSTRY .................... 31
DIAGRAM 4: PRINCIPLES OF CAR DISTRIBUTION IN THE EU, THE US AND

JAPAN .......................................................................................................... 34
DIAGRAM 5: PERCENTAGE OF EXCLUSIVE MAIN DEALERS........................................ 39
DIAGRAM 6: PRODUCTION OF SPARE PARTS ............................................................ 42
DIAGRAM 7: DISTRIBUTION OF SPARE PARTS........................................................... 43
DIAGRAM 8: SHARES OF THE DIFFERENT AFTER-SALES SERVICE PROVIDERS

FOR BRAKE PAD FITMENT, 1997..................................................................... 44

DIAGRAM 9: SPECIFICATIONS OF THE DIFFERENT PROVIDERS OF AFTER-

SALES SERVICES............................................................................................ 44
DIAGRAM 10: DIMINISHING SERVICE REQUIREMENTS.............................................. 45
DIAGRAM 11: TREND IN SERVICE NEEDS OF NEW CARS ........................................... 46
DIAGRAM 12: INTERNET USERS IN THE EU.............................................................. 53
DIAGRAM 13: CAR TAXATION IN THE EU MEMBER STATES..................................... 67
DIAGRAM 14: CAR MANUFACTURERS MARKET SHARES........................................... 71
DIAGRAM 15: CHARACTERISTIC FEATURES OF THE DIFFERENT PROVIDERS

OF AFTER-SALES SERVICES ............................................................................ 75

DIAGRAM 16: CAR PRICE DIFFERENTIALS NET OF TAXES AND INCLUDING

TAXES ........................................................................................................ 100

DIAGRAM 17: COMPARISON OF PRICE DIFFERENTIALS IN 7 LEFT-
HAND-DRIVE COUNTRIES HAVING LOW CAR TAXES WITH PRICE
DIFFERENTIALS IN 12 OR ALL 15 MEMBER STATES....................................... 101

DIAGRAM 18: DEVELOPMENT OF THE EXCHANGE RATE OF THE POUND
STERLING AGAINST THE EURO AND UK CAR PRICES IN STERLING AND
EURO.......................................................................................................... 103

DIAGRAM 19: DEVELOPMENT OF PRICE DIFFERENTIALS IN COUNTRIES WITH
LOW CAR TAXES WITHOUT THE UK AND SAME INCLUDING UK
PRICES........................................................................................................ 104

DIAGRAM 20: PRICE DIFFERENTIALS FOR RIGHT-HAND-DRIVE CARS IN 7
COUNTRIES WITH LOW CAR TAXES COMPARED TO AVERAGE
RIGHT-HAND-DRIVE PRICES IN THE UNITED KINGDOM AND IRELAND............ 108

DIAGRAM 21: SERVICE RETENTION OF DEALERS IN DIFFERENT MEMBER

STATES....................................................................................................... 128

6

1

INTRODUCTION

(1) This is the report which the Commission is required to draw up by
The report evaluates the application of Regulation
31 December 2000.2
1475/95, particularly as regards the impact of the exempted system of
distribution on price differentials of motor vehicles between the different EU
Member States,3 and on the quality of service to final consumers. The report
also takes account of the two Commission notices which are relevant to motor
vehicle distribution4 and which complement or clarify issues involved in the
Regulation.

(2) The Regulation is applicable to the distribution and the servicing of new motor
vehicles which are intended for use on public roads and have three or more road
wheels.5
It consequently covers cars, trucks and buses and the servicing of
such vehicles.

(3) A number of technical terms used in the report are explained in Annex I.

(4)

In order to know the views of interested parties, the Commission sent 8
different questionnaires6 to more than 110 undertakings and associations of
parties interested in motor vehicle distribution and servicing.7 The facts and

2

3

4

5

6

7

See Article 11 of Commission Regulation (EC) No 1475/95 of 28 June 1995 on the application of
Article 81(3) of the Treaty to certain categories of motor vehicle distribution and servicing
agreements, OJ L 145, 29.6.1995, p.25, hereinafter referred to as Regulation 1475/95 or the
Regulation.
to EEA Joint Committee decision 46/96 of 19 July 1996 amending Annex XIV
Pursuant
(OJ L 291, 14.11.1996, p. 39-40), Regulation 1475/95 is
(Competition) to the EEA Agreement
also applicable in the EEA Member States. This report therefore covers the EEA even if normally
reference is made only to EU Member States.
Commission notice concerning Regulation (EEC) No 123/85 of 12 December 1984 on the
application of Article 85(3) of the Treaty to certain categories of motor vehicle distribution and
servicing agreements, OJ C 17, 18.1.1985, p. 4 (hereinafter referred to as the notice on
Regulation 123/85), and Clarification of the activities of motor vehicle intermediaries, OJ C 329,
18.12.1991, p. 20 (hereinafter referred to as the notice on intermediaries).
See Article 1 of Regulation 1475/95. Used motor vehicles are thus not covered by the
Regulation. The same applies to tractors as their main use is not on public roads. The separate
distribution of spare parts or the provision of servicing without any connection to the distribution
of vehicles is not covered either.
These questionnaires have also been published together with a press release on the Commission's
web site under:
http://europa.eu.int/comm/dg04/antitrust/others/car_sector/eval_reg_1475_95/questionnaires/index_en.htm
This report covers in principle the distribution and servicing of all types of motor vehicle. It is,
however, more specifically focused on passenger cars in view of the replies received following the
sending of the questionnaires. Moreover, most of the issues identified by the Commission in the
application of the Regulation also concerned passenger cars.
If the findings concern something
specific related to commercial vehicles, such as trucks or buses, this will be specified.

7

findings of the report are based on the replies given by these parties,8 on the
Commission’s own experience and on studies.

(5) On 10 April 2000, the Secretary for Trade and Industry published the UK
Competition Commission’s report.9 The report evaluates the supply of new
motor cars within the United Kingdom. Although the UK Competition
Commission’s report mainly focuses on high prices for new cars sold in the
United Kingdom, it also evaluates many aspects of Regulation 1475/95. The
Competition Commission comes to the conclusion that Regulation 1475/95
permits restrictive practices which work against the public interest. In contrast
to the present evaluation report of the European Commission,
the UK
Competition Commission’s report also contains recommendations as to the
future of Regulation 1475/95:
it recommends inter alia that selective and
exclusive distribution of new motor cars should be prohibited and that
Regulation 1475/95 should be changed or at least allowed to expire.10

(6) The purpose of the present report is to evaluate Regulation 1475/95 and the
two notices. It does not contain any proposals as regards the situation after the
expiry of Regulation 1475/95 on 30 September 2002.

2

BLOCK

THE
RECENT
DEVELOPMENTS CONCERNING THE NEW BLOCK EXEMPTION
REGULATION DEALING WITH VERTICAL RESTRAINTS

EXEMPTION

RATIONALE

AND

(7) The internal market represents an opportunity for EU firms11 to enter new
markets that may have been previously closed to them because of regulatory
barriers. Such penetration of new markets takes time and investment and is
It is often facilitated by agreements between producers who want to
risky.
break into a new market and local distributors. Efficient distribution with
appropriate pre- and after-sales support is part of the competitive process that
brings benefit to consumers.

(8) However, arrangements between producers and distributors can also be used to
continue to partition the market and exclude new entrants - both at
the
production and distribution level - who would intensify competition and lead to
downward pressure on prices. Agreements between producers and distributors
(vertical restraints) can therefore be used pro-competitively to promote market
integration and efficient distribution, or anti-competitively to block integration
and competition. The price differences between Member States that still exist

8

9

See Annex VIII of the report for further details.
Competition Commission, New cars, A report on the supply of new motor cars within the UK,
presented to Parliament by the Secretary of State for Trade and Industry by Command of Her
Majesty, April 2000, 737 pages
(hereinafter referred to as the UK Competition Commission
report).

10 UK Competition Commission report, pt. 1.20.
11

Following the termination of the EU-Japan consensus at the end of 1999, Japanese suppliers are
now also free from quantitative restrictions on their supplies to the EU car market.

8

provide the incentive for companies to enter new markets as well as to erect
barriers against new competition.12

(9)

In this respect, Article 81(1) of the EC Treaty, which prohibits restrictive
agreements and concerted practices in the field of vertical restrictions – as in
other types of relationship between economic operators - may be declared
inapplicable if the agreement as a whole brings about overall economic
advantages which outweigh the disadvantages for competition. Such exemption
under Article 81(3) is possible if an agreement contains only indispensable
restrictions, does not eliminate competition and promotes production,
distribution or technical improvements, while granting a fair share of the gains
to consumers.

(10) Exemptions may be granted on a case-by-case basis or by a regulation for
certain categories of agreements. Such a block exemption regulation is the
consequence of the experience gained in dealing with many similar or identical
agreements; such experience allows a category of agreements to be defined
which can generally be regarded as satisfying the four conditions of Article
81(3).

(11)

In an exercise of rationalisation and modernisation of its policy concerning
vertical restraints, the Commission recently adopted a general block exemption
Regulation.13
replaces three block exemptions relating to exclusive
distribution agreements,14 exclusive purchasing agreements15 and franchise
agreements.16

It

(12) From the very outset of its reform of vertical restraints,

the Commission
specified that this new block exemption would not cover motor vehicles.17 The
Commission stated that, as regards its proposals for the future treatment of
motor vehicle distribution, it would re-examine this sector in accordance with
the provisions of the Regulation before deciding on the future regulatory
framework.

12 Commission Green Paper on vertical restraints in EC Competition policy, COM(96)721, p.1.
13 Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the application of Article
81(3) of the Treaty to categories of vertical agreements and concerted practices, OJ L 336,
29.12.1999 p. 21-25, hereinafter referred to as the new block exemption on vertical restraints.
14 Commission Regulation (EEC) No 1983/83 of 22 June 1983 on the application of Article 85(3) of
the Treaty to categories of exclusive distribution agreements, OJ L 173, 30.6.1983, p. 1;
Corrigendum OJ L 281, 13.10.1983, p. 24.

15 Commission Regulation (EEC) No 1984/83 of 22 June 1983 on the application of Article 85(3) of
the Treaty to categories of exclusive purchasing agreements, OJ L 173, 30.6.1983, p. 5;
Corrigendum OJ L 281, 13.10.1983, p. 24.

16 Commission Regulation (EEC) No 4087/88 of 30 November 1988 on the application of
Article 85(3) of the Treaty to categories of franchise agreements, OJ L 359, 28.12.1988, p. 46.
IP/99/286, 7.5.1999. See also the Green Paper on vertical restraints in EC competition policy,
COM/96/0721 FINAL - Executive summary p.ii, footnote 2.

17

9

3

BACKGROUND FOR SPECIFIC RULES FOR MOTOR VEHICLE
DISTRIBUTION

3.1 CHARACTERISTICS OF MOTOR VEHICLE DISTRIBUTION AGREEMENTS

(13) Most18 motor vehicles are distributed via dealer networks which combine

selective and exclusive features.

(14) Selectivity means that each manufacturer or importer sets criteria for the
selection of its distributors. They can be firstly qualitative criteria.19 Such
for example, an obligation to employ
performance-related criteria are,
specialists, to design the retail space according to the manufacturers' directives,
to provide after-sales services according to certain standards, to meet certain
stock requirements and standards for advertising. Distributors belonging to the
network are not allowed to sell goods on to resellers not belonging to the
distribution network. A selective distribution system thus creates a network
which excludes all undertakings which do not meet the specified criteria from
the distribution of the relevant goods.20 However, in a distribution system
solely based on qualitative criteria, the manufacturer/importer is obliged to
appoint as distributor every undertaking which meets these criteria. Indeed, the
manufacturer cannot be subjective in the application of these standards.
Moreover, in order to limit the number of official dealers, manufacturers and
importers carry out a further quantitative selection amongst those distributors
who meet the qualitative criteria. Such quantitative criteria are, for example, the
number of dealers acting in the same sales territory or the imposition of
quantitative sales targets. As a consequence, each manufacturer has a large
leeway in organising its distribution network, in particular as to the place where
the dealer has to run his business as well as to the number of dealers belonging
to its network which is sufficient to pursue its marketing strategy21 As has been
noted, manufacturers in this industry can consequently effectively dictate to
their retailers both the type and the location of their customers.22

(15) Under a selective distribution system there is, however, no provision for
exclusive sales territories. The manufacturer is not entitled to split up a market

18

19

20

21

22

In most countries, a limited number of new vehicles are also distributed to final consumers by the
manufacturers themselves (so-called direct sales), by sales outlets connected to the manufacturer
or via commercial agents.
Purely qualitative selective distribution is in general considered to fall outside Article 81 (1) for
lack of anti-competitive effects. For the conditions under which this is true see Commission
Guidelines on vertical restraints, pt. 185; adopted by the Commission on 24 May 2000, Official
Journal C 291 of 13.10.2000, page 1.
See e.g. Article 1(d) of Commission Regulation (EC) No 2790 of 22 December 1999 on the
application of Article 81(3) of the Treaty to categories of vertical agreements and concerted
practices, OJ L 336, 29.12.1999.
See, for example, the Fourth Report on Competition Policy, 1974, point 87.
International Car Distribution Programme (ICDP), Research Paper 6/99, “Beyond the block
exemption II, the build-up to 2002”, by Dr. A. Tongue, September 1999, (hereinafter ICDP,
“Beyond the block exemption II” 6/99, p. 8-11.

10

and assign defined territories of this market on an exclusive basis to its
distributors. This is the main feature of an exclusive distribution system.

(16) As to exclusivity, most manufacturers use the possibility granted by Regulation
1475/95 to appoint only one dealer for a geographically limited territory - the
contract
territory - on which the dealer has to concentrate his marketing
efforts23 and endeavour to sell contract products in accordance with the sales
targets he has agreed with the manufacturer. Therefore, dealers are not allowed
to open sales outlets or to appoint sub-dealers or sales agents outside their
contract territory. Nearly all car manufacturers also undertake to prohibit their
dealers from selling actively by means of personalized advertising within the
territory of any other dealer.

(17) However, most manufacturers do not give their dealers the exclusive right to
supply new vehicles to all consumers in the dealer's territory: they retain the
right
to sell new vehicles to certain categories of consumers (so called
“reserved consumers or customers”) in competition with their dealers.24

(18) Most car dealers in the European Union only sell cars from one manufacturer,
even if these cars are sold under different brands. Selling a make produced by a
different manufacturer is only permissible where the seller is a separate legal
entity run by separate management, and where the sale is made in separate
premises. In practice this amounts to excluding multi-branding to a large
extent.25

(19) The obligation on dealers to provide after-sales services, which manufacturers
have to impose on them pursuant to Regulation 1475/95, ties the sales of new
cars to the after-sales service activities, which are two different
types of
businesses.

(20) Such agreements may fall under the prohibition of Article 81 since they have as
their object or effect the prevention, restriction or distortion of competition
within the common market if they are liable to affect trade between Member
States.26 In addition, the Commission considered that the restrictions contained
in these agreements were made more severe by the fact that all manufacturers
use the same or similar agreements throughout the common market (so-called
cumulative effect).27 Neither of the two Regulations28 further specify what are

23 This is even a stronger restriction in comparison to quantitative selection of the number of

dealers in a given sales territory (see above pt. (14)).
See Article 2 of Regulations 123/85 and 1475/95.
See below 6.2.1.6 on page 89 of this report.
See also UK Competition Commission report, pt. 2.10 et seq., in particular pt. 2.14 and pt. 2.38.
See recital 3 of Commission Regulation (EEC) 123/85 of 12 December 1984 on the application of
Article 85 (3) of the Treaty to certain categories of motor vehicle distribution and servicing
agreements, OJ L 15, 18.1.1985, p. 16 (hereinafter referred to as Regulation 123/85) and recital 3
of Regulation 1475/95, which call the use of similar networks of vertical agreements containing
restrictions of competition “cluster”.
See in particular recital 3 of Regulation 123/85 and of Regulation 1475/95.

24

25

26

27

28

11

the results of this effect. Applying traditional EU competition case law,29 it
would appear that the cumulative effect resulting from the use of similar vertical
distribution agreements containing single branding clauses is that market access
for new manufacturers becomes considerably more difficult: they might not find
distributors for their products, because all of them are bound to their existing
supplier by an exclusivity clause.30 However, due to the EU-wide quantitative
selection and/or the territorial exclusivity of all dealers, new distributors might
not find a manufacturer who is willing to sell new cars to them.31

CONCLUSION:

The  block  exemption  of  motor  vehicle  distribution  and  servicing  agreements  permits  the
combination of selective (with qualitative and quantitative criteria) and exclusive distribution.

As  a  result  of  the  combination  of  these  two  types  of  vertical  restraints,  motor  vehicle
manufacturers are entitled to impose high quality criteria on their dealers, but are not obliged
to supply  any  new  potential  dealer who  meets these criteria.   They can also close their sales
network by restricting sales to independent resellers.  However, they may not restrict sales to
final  consumers  and  their  intermediaries,  or  other  dealers  of  the  network.    For  consumers,
there  is  no  real alternative source of  supply  for purchasing  motor vehicles other  than  via  the
dealer networks.

Motor  vehicle  manufacturers  are  also  allowed  to  divide  up  a  market  into  exclusive  sales
territories.

3.2 COMPARABLE PRODUCTS AND EXISTING DISTRIBUTION MODES

(21) Why are motor vehicles distributed in a certain way and quite similar products
in other ways? The purpose of this section is to put into perspective different

29

30

31

See Judgment of the Court of 28 February 1991, Delimitis Henninger Bräu, [1991] ECR I-935;
Judgment of the Court of 12 December 1967, Brasserie de Haecht, [1967] ECR 421; Judgment of
the CFI of 8 June 1995 [1995] ECR II-1533, paragraphs 99-104, 119; Judgment of the Court of 1
October 1998, Langnese, [1998] ECR I-5609, paragraphs 44-46. Bundeskartellamt v Volkswagen
AG and VAG Leasing, [1995] ECR I-3477, paragraph 23 regarding the access of car leasing
companies to Volkswagen dealers.
It is true that in Europe e.g. Korean car manufacturers were able to increase their market share
from 0.1% in 1990 to 2.7% in 1998 (see ACEA position paper regarding the European
Commission’s questionnaire on the application of the automobile block exemption, page 12,
published in the internet under: http://www.acea.be/acea/BEMVD.pdf). As regards the UK
market, since 1990, notably Chrysler and Daewoo have entered the market and took between
them about 2% of the market in 1999 (see UK Competition Commission report, pt. 2.89.).
However, see also ICDP, "Multi-franchising, Developments and Impact of Sales Channel
Management of Automobile Manufacturers", by M. Hoffmeister and R. Heinerberg, Research
Paper 1/98, (hereinafter: ICDP, "Multi-franchising" 1/98), p. 60: ICDP underlines that the speed
of penetration is much faster, when existing dealers are used to access a new market. Therefore
it was relatively easy for Korean and Malaysian makes to cover the entire United States of
America, where multi-marketing is more widespread than in Europe, without investing heavily
in brand exclusive new car dealerships.
See recital 13 and Article 6 of Commission Regulation 2970/1999 on the application of Article
81(3) of the Treaty to categories of vertical agreements and concerted practices, OJ L 336,
29.12.1999, p. 21.

12

ways of distributing products that have some common characteristics with
motor vehicles. Motor vehicles may be compared to some of these products in
relation to their technological content, their price, the need for advice on sale,
the need for after-sales services, brand image and safety issues.

(22)

It is worthwhile noting that products that have in common one or more of the
above-mentioned features are distributed through one or sometimes various
distribution systems having different characteristics.

(23) Four examples32 of such products are:

1. Tractors, agricultural machines, construction and earthmoving equipment
2. Motorcycles
3. Medical equipment
4. Computers

Diagram 1: Comparison of cars with other technical products

SIMILARIT
WITH
Y
CARS

Tractors, and
construction
equipment

Motorcycles

Medical

Computers

TECHNO
LOGY

PRICE

ADVICE
DURING

AFTER-
SALES

BRAND
IMAGE

SAFETY

SALE

SERVICES

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

3.2.1 Tractors, agricultural machines, and construction and earthmoving

equipment

(24) These products are commonly distributed and serviced through exclusive
dealerships. The dealer has an exclusive territory where he is the sole authorised
seller for one particular brand.33 These products are technologically complex
products, although not as much so as cars. The purchaser needs advice on the
product when the sale is being made, and after-sales services are very important
for safety and commercial reasons. The cost of after-sale services may
represent, during the lifetime of such a machine, an equivalent amount to the
purchase price. The price of such products is generally higher than the price of
a car. Brand image is very strong. The products are mostly not built to
circulate on public roads.

32 All these products are covered as from 1 June 2000 with regard to their distribution agreements

by the new block exemption on vertical restraints.
For specific reasons, dealers in Finland may sell different brands in their exclusive territory.

33

13

3.2.2 Motorcycles

(25) Motorcycles are normally distributed through selective distribution. A dealer
has no exclusive territory and may sell competing motorcycle brands. These
products are also technical products which require the same advice when the
sale is being made and the same level of after-sales services by brand specialists
as for cars. Motorcycles circulate on public roads and therefore raise safety
issues. The average price is generally lower than that of cars, although
purchase of a motorcycle still represents an important investment. Brand image
is as important as it is for cars.

3.2.3 Medical equipment

(26) Medical equipment is usually distributed through selective distribution. These
products are highly complex products. They integrate electronics and software.
Sales personnel must be well trained, advice on the product and training are
essential for the use of the equipment, and after-sales requirements are vital.
Malfunction may cause huge damage to human health, and prices are also
considerable.

3.2.4 Computers

(27) Computers are distributed through selective distribution networks and many of
them directly via Internet34 or via other
types of distributors such as
supermarkets. The technological complexity of computers and related
equipment is evident. Manufacturers place great emphasis on product advice
during sale. Computers need specialised after-sales assistance as the typical user
does not possess the necessary knowledge and expertise to repair the product
or to properly install additional devices. Brand image is important in this
sector.

CONCLUSION:

Cars  are  similar  in  certain  aspects  to  the  above-mentioned  products.    Nevertheless,  the
products  are  distributed  through  different  and  less  restrictive  distribution  channels  than  the
ones used for cars
.

34 Dell and Gateway computers, for example.

14

3.3 REGULATORY FRAMEWORK FOR MOTOR VEHICLE DISTRIBUTION AND

SERVICING

3.3.1 The legal framework until 30 June 1985

(28) Since the former block exemption Regulation 67/6735 did not cover these
agreements, the Commission adopted, in 1974, its first exemption decision36 in
the field of motor vehicle distribution and servicing agreements in the so called
“BMW” case. This decision was designed as a landmark decision37 and it was
hoped that manufacturers would adapt their distribution systems accordingly.
However, this was not the case. Many car manufacturers continued to notify
their agreements to the Commission in order to obtain individual exemption
decisions.
In order to solve this problem of handling a mass of individual
notifications and to give more guidance and legal security to the car industry,
the Commission decided to adopt a block exemption regulation, Regulation
123/85, along the lines set out in the BMW decision.

(29) Agreements which fulfil

in this Regulation are
the conditions set out
automatically exempt without notification. Firms in the sector are, however,
still free to enter into other types of agreements that they can notify on an
individual basis and request a negative clearance or exemption decision.

3.3.2 Regulation 123/85

(30) As from 1 July 1985 until 30 June 1995, distribution and servicing were
In this
covered by a sector-specific block exemption, Regulation 123/85.
Regulation, the Commission had to find a reasonable compromise between the
many interests involved:

• the manufacturer’s interest

in designing its distribution network in an

efficient way;

• the interest of the dealers regarding the supply of new vehicles and spare
parts and their interest in getting an exclusive contract area, in keeping their
economic independence and in being able to make a sufficient return on
their investment;

• the interest of independent resellers in the availability of spare parts;
• the interest of spare-part producers in having access to dealer's networks,
• and, most importantly, the interest of consumers in having the possibility of
the common

sourcing new vehicles and after-sales services throughout

35 Commission Regulation 67/67EEC of 22 March 1967 on the application of Article 85 (3) of the
Treaty to certain categories of exclusive dealing agreements, as amended by Regulation (EEC)
2591/72 of 8 December 1972 and by Regulation (EEC) 3577/82 of 23 December 1982, OJ 57,
25.3.1967, p. 849 (Special Edition 1967, p. 10).

36 Commission decision of 13 December 1974 – Bayerische Motoren Werke AG – OJ L 29,

3.2.1975, p. 1.
See Fourth Report on Competition Policy, 1974, point 86.

37

15

market and of acquiring quality products and after-sales services at a
competitive price.

(31) Regulation 123/85 covered selective and exclusive distribution and servicing
agreements. The block exemption of such restrictive agreements was based on
the following considerations:

(32) Due to the nature of the product concerned, it was considered that a number of
restrictions placed on distributors were indispensable in order to allow some
rationalisation and, as a result, better motor vehicle distribution and servicing.
The restrictions were the following:

Selective distribution:

(33) Regulation 123/85 explicitly mentions that

the manufacturer may impose
minimum standards as regards in particular his business premises, technical
facilities,
training of staff, advertising, collection, storage and delivery of
vehicles and services and as to the repair and maintenance services with a view
to the safe and reliable functioning of the vehicles.38

(34)

In order to protect
the selective character of a motor vehicle distribution
system, a prohibition placed on distributors not to supply contract goods to
independent resellers was accepted.39 Under Regulation 123/85 manufacturers
could consequently stipulate who their distributors may sell on to. They could
impose on their dealers a requirement that they sell only to end-customers and
to other dealers within a manufacturer’s distribution system.40 The sale of spare
parts to independent resellers who needed them for repairs or maintenance of
vehicles had to be permitted.41 More importantly, the supply of a vehicle to a
final consumer who used the services of an intermediary which had received a
written authorisation from the consumer did not put into question the selectivity
of a distribution system and could not be restricted by manufacturers.42

(35) The exclusion of wholesalers not belonging to the distribution system of a
manufacturer or importer from the distribution of spare parts originating from
the manufacturer was also exempted.
It was held that otherwise rapid
availability of original spare parts, including those with low turnover, would not
be possible and this would then not be in the interest of consumers.43

38 Article 4 (1)(1) of Regulation 123/85.
39 Recital 5 of Regulation 123/85.
40 Article 3(10)(a).
41 Article 3(10)(b).
42 Article 3(11) and the end of recital 5.
43 Recital 6 of Regulation 123/85.

16

(36) Moreover, manufacturers were allowed to oblige their dealers to offer after-
sales services44. They were thus able to tie two different types of commercial
activities: the sales of new motor vehicles and the provision of after-sales
services.

(37) As regards the limitation of the number of dealers and repairers due to
quantitative selection and exclusivity, the Commission considered this to be
indispensable in view of the characteristics of motor vehicles. They are
expensive and complex consumer durables which at both regular and irregular
intervals require expert maintenance and repair, not always at the same place.
To provide specialised servicing, manufacturers had to co-operate with dealers
and repairers in order to ensure that they were fully informed of technical
problems and maintenance instructions and that
trained.45
However, on grounds of capacity and efficiency, the Commission held that such
cooperation in the field of servicing could not be extended to an unlimited
number of dealers and repairers.46 On the basis of the circumstances prevailing
the Commission also regarded the linking of servicing and
at
distribution of new vehicles as more efficient
than a separation of both
activities, particularly as the distributor must give new vehicles a technical
inspection according to the manufacturer’s specifications before their delivery
to final consumers.47

they were well

time,

that

Territorial protection:

(38) The obligations upon distributors to concentrate on the contract territory i.e.
the obligation that dealers must not maintain branches or depots or even seek
customers outside their contract territory and that they may not entrust third
parties with the distribution of goods outside this area48 was also considered
indispensable for an improvement in motor vehicle distribution and therefore
exempted. It was held that such restrictions on the dealer’s activities outside the
allotted area led to more intensive distribution and servicing efforts, to a better
knowledge of the market based on closer contacts with consumers and to a
more "demand oriented" supply.49

(39) However, unlimited territorial protection was not recognised as indispensable
since it would exclude the European consumer’s freedom to buy anywhere in
the common market.50 Therefore, under the Regulation dealers had to be able
to meet demand from final consumers in other areas of the common market.

44

See article 4 (1)(1)(e) of Regulation 123/85; however, according to article 5 (1)(1)(a), 2nd indent
of Regulation 1475/85, manufacturers are obliged to request from their dealers to offer after sales
services in order to benefit from the block exemption.

45 Commission Decision of 13 December 1974 – Bayerische Motoren Werke AG – OJ L 29,

3.2.1975, p. 1, point 24.

46 Recital 4, 1st to 3rd sentences, of Regulation 123/85.
47 Recital 4, 4th sentence, of Regulation 123/85.
48 Article 3(8) and (9).
49 Recital 9 of Regulation 123/85.
50 Recital 12, last sentence, of Regulation 123/85.

17

Moreover, dealers were not to be prevented from advertising in media which
covered a wider area than their own contract territory.51 This amounted to a
prohibition of active sales outside the contract territory. In order to ensure that
consumers could exercise their right to source their vehicles anywhere in the
common market, dealers had inter alia the right to order from the manufacturer
"corresponding" motor vehicles52 (so-called “availability clause”).53 These are
vehicles which are similar to those distributed by the dealer but which are
technical specifications, such as right-hand drive.
produced with different
Manufacturers had also to impose on their network of dealers a number of
obligations relating to after-sales services: dealers had to provide free servicing
and repair in the context of warranty and recall operations wherever in the
common market cars have been purchased.54

Non-compete clauses:

(40) Non-compete clauses55 without any time limit which prohibited the sale of
vehicles from other manufacturers (so-called "multi-marketing") and of spare
parts which do not match the quality of spare parts of the contract range, or the
sale of vehicles of the same manufacturer but outside the dealer's product range
at stated premises, were also exempted by Regulation 123/85. It was held that
these clauses contribute to the concentration of the distributors on products
supplied by the manufacturer and thus ensure appropriate distribution and
servicing for vehicles.56

(41) However, the exemption of non-compete clauses was not completely unlimited.
If dealers were able to show that there were objectively valid reasons for the
sale of one or more other makes,57 the manufacturer had to lift the ban on
selling other makes. As regards spare parts, dealers were free to source spare
parts which matched the quality of contract goods58 ("spare parts of matching
quality") from other suppliers59 and to use them for the repair of vehicles,
unless for repair work within the warranty period or in the context of a recall
operation.

Rules ensuring dealers’ economic independence:

(42) Regulation 123/85 also tried to protect the dealer’s economic independence
from the supplier. Accordingly, obligations imposed on dealers to apply

51 Recital 9 of Regulation 123/85. This possibility is generally referred to as passive sales.
52 Article 13(11) of Regulation 123/85.
53 Article 5(1)(2)(d).
54 Article 5(1)(1)(a) and (b).
55 Article 3(2) to (5).
56 Recital 7 of Regulation 123/85.
57 Article 5(2)(1)(a).
58 This quality standard can be imposed in view of the importance of vehicle safety; see recital 8 of

Regulation 123/85.

59 Article 3(4) and recital 8 of Regulation 123/85.

18

minimum resale prices or maximum trade discounts ruled out an application of
the Regulation.60 Furthermore, the supplier could only appoint new dealers
within the contract territory or alter the territory if he showed that there were
valid reasons for doing so. In contrast, as regards the dealer’s wish to appoint a
sub-dealer inside his contract territory or to alter or end such a contract, the
supplier was not allowed to withhold approval arbitrarily.61 Moreover, dealer
contracts concluded for a definite period had to be for at least four years; the
standard period of notice for the termination of an agreement concluded for an
indefinite period was one year.62 The aim of these rules was to protect the
dealer’s investments. In order to protect the dealer’s right to purchase spare
parts of matching quality from other suppliers, and to allow these producers to
compete on equal terms with the manufacturer’s supplies of original spare
parts, the Regulation prohibited cumulation of discounts.63

(43) Dealers’ economic independence was, however, limited. Under the Regulation,
each manufacturer had the possibility of deciding unilaterally, on the basis of
estimates, on the dealer’s potential sales, on sales targets, stock quantities and
numbers of demonstration vehicles.64

Withdrawal of the block exemption:

(44) Article 10 of Regulation 123/85 gave the Commission the right to withdraw the
benefit of the Regulation if a distribution system did not fulfil the criteria of
Article 85(3) (now Article 81(3)). The Regulation mentioned in particular four
specific cases where such withdrawal would apply:
• the products covered by the distribution system were not subject

to
competition from competing products (withdrawal due to lack of
competition);

• a manufacturer or an undertaking within the distribution system continuously
or systematically made it difficult for final consumers or distributors to
purchase contract goods or corresponding goods, or to obtain servicing for
the common market by means not exempted by
such goods within
Regulation 123/85 (withdrawal due to obstacles to parallel trade);

• prices and conditions differed substantially between Member States for a
considerable period and these differences were chiefly due to obligations
exempted by the Regulation (withdrawal due to price differentials chiefly
due to Regulation);

60 Article 6(2) and recital 23 of Regulation 123/85.
61 Article 5(1)(2)(a) and recital 13 of Regulation 123/85.
62 These periods could be shorter if a dealer was a new entrant to the distribution system and the
period of the agreement or the period of notice for termination of the agreement was the first
agreed by the dealer.

63 Article 5(1)(2)(c) and recital 15 of Regulation 123/85.
64 Article 4(1)(3) to (5).

19

• when prices and conditions applied for the supply of passenger cars
corresponding to a car within the dealer's contract
the
supplement for a right-hand-drive car delivered to a dealer in mainland
Europe) were not objectively justifiable and had the object or effect of
partitioning the
to objectively
unjustified prices or conditions for corresponding passenger cars).

(withdrawal due

common market

range (e.g.

3.3.3 Regulation 1475/95

(45)

In 1995, the Commission adopted a new block exemption, Regulation 1475/95,
for motor vehicle distribution and servicing agreements. Although the basic
principles of Regulation 123/85 remained unchanged, i.e. the maintenance of an
exclusive and selective distribution system, the Commission amended the formal
Regulation on the basis of the experience it had gained with its application and
also in response to complaints it had investigated. The adjustments are aimed at
improving the functioning of an internal market
in cars and intensifying
competition at the stage of car distribution by re-balancing the various interests
involved, in particular by strengthening the dealers’, spare-part producers’,
independent repairers’ and consumers’ rights and freedoms.

3.3.3.1 The essential aims of the new Regulation

(46) The following section will briefly list the essential aims pursued by Regulation
1475/95, some of which were taken over from Regulation 123/85. These aims
will be discussed in greater detail in section 6 (page 64) of this report.

(47) The first aim of Regulation 1475/95 is to make sure that motor vehicle
distribution and servicing takes place in an efficient way to the benefit of
consumers and that effective competition exists between manufacturers’
distribution systems and, to a certain extent, within each system.65

(48) The second aim of Regulation 1475/95 is to further increase the consumer's
choice in accordance with the principles of the internal market.66 These
changes are aimed at creating an environment which improves the possibilities
for inter- and intra-brand competition and for parallel imports.

(49) To achieve this aim, it is made clear that dealers’ remuneration may not depend
on the final destination of a vehicle.67 Dealers may now also actively promote
the final sale of new vehicles outside their contract territory by advertising, the
only restriction being that personalised advertising remains prohibited.68
Furthermore, under the new Regulation, manufacturers have to impose on

65

66

See recitals 4 and 25 of Regulation 123/85 and recitals 4, 7 and 30 of Regulation 1475/95.
See recital 26 of Regulation 1475/95.

67 Article 6(1)(8).
68 Article 3(8)(b) of Regulation 1475/95.

20

dealers an obligation to carry out repair and maintenance work also on vehicles
which have been sold by another dealer within the distribution network.69

(50) The third aim pursued by the new Regulation is to strengthen the dealer’s
independence from manufacturers with the aim of increasing the dealer’s
competitiveness.70 To this end, the scope of the non-compete clauses exempted
by Regulation 123/85 was reduced and dealers are now, under certain
conditions, allowed to sell motor vehicles of other manufacturers (multi-
marketing).71 Dealers are now also allowed to use a common workshop for the
servicing of the makes they are selling.72

(51) Although the exclusion of sales to non-authorized resellers was maintained,
dealers are clearly permitted to engage in any type of transaction (sale, leasing,
and hire purchase).73 The major changes to strengthening the dealer's economic
independence concern a prohibition on the manufacturer unilaterally modifying
the status of the dealer or the allotted territory.74 Furthermore, an extension of
the minimum duration of distribution agreements with limited duration from 4
to 5 years and an extension of the period of notice for termination of
agreements concluded for an indefinite period from 1 to 2 years75 were
introduced in order to better protect dealers’ investments. Finally, sales targets
and requirements regarding stocks and demonstration vehicles have now to be
agreed, or in the event of disagreement, decided by an independent expert third
party.

(52) The fourth aim pursued by the Regulation concerns the protection of
competition in the after-sales service market. In this respect, the Regulation
wanted to first of all increase spare-part manufacturers’ access to dealers.
Although the right to use spare parts of matching quality for after-sales services
existed already under Regulation 123/85,76 the new Regulation strengthens this
right of dealers and it introduces a possibility for spare-part manufacturers to
supply spare parts to dealers.77 In order to render this right more effective,

69

70

71

72

73

Second indent of Article 5(1)(1)(a) of Regulation 1475/95. This obligation was not explicitly
mentioned in Regulation 123/85, although difficulties in obtaining after-sales services from
network dealers was mentioned as one reason for withdrawing the benefit of the former
Regulation; see Article 10(2) of Regulation 123/85.
See recital 17 of Regulations 123/85 and 1475/95.
Pursuant to Article 3(3) of Regulation 1475/95, multi-marketing is permissible although it is
subject to the condition imposed by the car manufacturers that it is done on separate premises,
under separate management, in the form of a distinct legal entity and in a manner which avoids
confusion between makes.
Pursuant to Article 3(4) of Regulation 1475/95, this is only permitted if a third party cannot
benefit unduly from investments made by a supplier, notably in equipment or the training of
personnel.
See Article 10(13) of Regulation 1475/95.

74 Article 6(1)(5) of Regulation 1475/95.
75 Article 5(2)(2) and (3).
76 Article 3(3) of Regulation 123/85.
77 Article 6(1)(9) and (10) of Regulation 1475/95.

21

spare-part producers are allowed to place their trade mark or logo on parts
which they supply to a manufacturer for the assembly of a vehicle or for repair
and maintenance of such vehicles.78 This provision is aimed at creating
transparency regarding the identity of the producer of a specific part. Based on
this information it was assumed that dealers,
repairers and
consumers are in a better position to find out who produced a given part of a
vehicle and who could be a supplier of spare parts in addition to the vehicle
manufacturer.

independent

(53) Secondly,

the new Regulation aims to give independent

repairers better
opportunities to compete with network dealers in the after-sales service market:
manufacturers have to supply repairers not belonging to their network with
technical information necessary for the repair or maintenance of cars. The
supply of this information may only be refused if it is covered by intellectual
secret know-how.
identified,
property rights or constitutes
However, an improper refusal is not permissible.79

substantial

(54) A further, more legalistic, aim of the new Regulation was to further clarify the
distinction between admissible and non-admissible agreements and behaviour.
Therefore, the list of so-called “black clauses” was amended and considerably
extended.80

3.3.3.2 Clarification of prohibited restrictive practices

(55) Regulation 1475/9581 establishes a “black list” comprising two types of

behaviour::

The first concerns “black clauses” which should not be used in agreements. If
they are included, this leads to an automatic loss of the benefit of the block
exemption. Such a loss takes place if: 82
• the two parties to the agreement are motor vehicle manufacturers;
• the obligations of the agreement are extended to products and services other

than motor vehicles or spare parts;

• the agreement contains obligations for the manufacturer or the dealer which

are more far-reaching than those permitted under the Regulation;

• the parties agree restrictions permitted under Regulations 1983/83 on
exclusive distribution agreements or 1984/83 on exclusive purchasing
agreements which go further
than those permitted under Regulation
1475/95;

78 Article 6(1)(11) of Regulation 1475/95.
79 Article 6(1)(12) of Regulation 1475/95.
80 Article 6 of Regulation 1475/95. By contrast, Regulation 123/85 contained only three black

clauses in Article 6.
See Article 6 of Regulation 1475/95
See Article 6(1)(1) to (5) of Regulation 1475/95.

81

82

22

• the manufacturer is given the right to alter the contract territory during the
period of the agreement, or to conclude distribution and service agreements
with other companies in the contract territory.

(56) The loss of the benefit of the Regulation in these cases means that all restrictive
clauses contained in the agreement are automatically and without any
declaration from the Commission or from a national authority no longer
exempted, and Article 81 is applicable.

(57) The second type is the list of “black practices” which also lead to the automatic
loss of
repeatedly
the behaviour
committed.83 “Black practices” occur where:
• the manufacturer, the supplier or another undertaking within the network

is systematically or

the exemption if

fixes resale prices or discounts;

• one of these undertakings directly or indirectly impedes final consumers,
their intermediaries or authorised dealers from buying a vehicle where they
consider it to be most advantageous;

• the dealer's remuneration depends on the final destination of a vehicle;
• the manufacturer or supplier interferes with the dealer buying spare parts of

equal quality from a spare-part supplier of his choice;

• these undertakings interfere with sales by a spare-part supplier although the

latter offers spare parts of matching quality;

• the manufacturer hinders spare-part producers from affixing their trade mark
or logo on parts supplied for the initial assembly or for the repair or
maintenance of vehicles;

• the manufacturer does not pass on technical information necessary for the
maintenance of the manufacturer's vehicles to independent repairers without
objectively justified reasons for such a refusal.

(58) The “black practices” can be unilateral

and may be adopted by the
manufacturer, importer or even by dealers. They have consequences only for
the undertaking engaged in the practice: restrictive clauses agreed in favour of
this undertaking which appear in the distribution and servicing agreements of
that party, in the geographic area in which the objectionable practice distorts
competition, are automatically and without any action on the part of the EU
Commission or national authorities no longer block exempted.

3.3.4 Notice on Regulation 123/8584

(59) This notice was adopted by the Commission together with Regulation 123/85.
It has not been modified since and is still in force85 and therefore also clarifies
issues of relevance to Regulation 1475/95.

83

See Article 6 (1)(6) to (12) and recital 20 of Regulation 1475/95.

84 Notice on Regulation 123/85, see footnote 4, page 7.
85

See Commission press release IP(95) 648, 21.6.1995, p. 3.; since the entry into force of
Regulation 1475/95 the clarification however only concerns those provisions which on substance

23

(60) At the request of the commercial sectors involved in car distribution, the notice
was intended to construe rights and obligations contained in Regulation 123/85.
It also sets out certain administrative guidelines for the withdrawal of the
benefit of the block exemption.

(61) The notice highlights and tries to make workable the consumer’s basic “right”86
to buy a motor vehicle and to have it maintained or repaired wherever prices
and conditions are most advantageous to him. In this respect, a number of key
issues relating to parallel trade and competition within the Community are
clarified.
• This “right” of a consumer exists, pursuant to the notice, first of all as
regards the normal product range that the dealer offers to his incumbent
customers. For passenger cars, this right87 also exists as regards cars which
correspond to vehicles distributed by a dealer but with the specifications
marketed by the manufacturer in the Member State where the consumer
wants to register the vehicle.88 An example of such a car is a passenger car
with right-hand drive.
In order to allow British or Irish consumers to buy
such cars from dealers in mainland Europe, the latter can order such cars
from their manufacturers with the specifications of cars which are sold in the
United Kingdom or in Ireland.89

• The notice also makes it clear that the European consumer’s freedom to
source a vehicle or after-sales services wherever it is most advantageous
may also not be jeopardised by direct or indirect bilateral or unilateral
measures on the part of manufacturers or distributors. Examples of such
actions are longer delivery times, a refusal to carry out warranty work or
lack of cooperation in the event of difficulties with the registration of a new
vehicle.

• As regards the possibility for consumers to purchase a new vehicle using the
services of a mandated intermediary, the notice makes it clear that it is for
the consumer or intermediary to give documentary evidence that
the
intermediary is acting on behalf and for the account of the consumer.

• As regards price differentials in Europe, the Commission may withdraw the
benefit of the Regulation if prices differ substantially between Member

have been left unchanged by this Regulation. This is not the case for example for Article 10 (4)
of Regulation 123/85: see Article 8 (3) of Regulation 1475/95.

86 The word “right” in this context may give rise to misunderstandings, because neither Regulation
123/85 nor Regulation 1475/95 creates any obligation for dealers to sell a vehicle to a consumer
which could be enforced by a consumer against a dealer.

87 Article 5(1)(2)(d) of Regulations 123/85 and 1475/95 contains the so-called “availability clause”.
88

See Article 13(10) of Regulation 123/85 and Article 10(10) of Regulation 1475/95.

89 Article 6(7) of Regulation 1475/95, leads to a similar result as Article 5(1)(2)(d) which concerns
passenger cars. Pursuant to Article 6 (7) a manufacturer looses the benefit of the block exemption
if it systematically or repeatedly refuses to deliver to its dealers, commercial vehicles, trucks or
buses corresponding as regards their specifications to those in the country where the vehicles will
be registered. The notice on Regulation 123/85 is therefore not up to date as regards this point.
See also the section 6.3.2.2., page 110, of this report on the availability of vehicles for cross-
border sales.

24

States, and if these price differentials are chiefly due to obligations exempted
by the Regulation90. However, the Commission declares in the notice that it
will not investigate price differentials if they are not above 12% or if they do
not exceed either a further 6% over a period of 12 months or if only an
insignificant portion of motor vehicles is concerned. The same is true if
taxes, charges or fees for a new vehicle amount to more than 100% of the
net price or if the level of resale prices is subject to state measures for more
than one year. The Commission will also take account of exchange rate
fluctuations when investigating price differentials.

• As regards the sale of passenger cars corresponding to a model within the
normal contract programme of a dealer, an objectively justifiable supplement
can be charged in addition to the price for a similar product of the contract
programme. This supplement has to be based on special distribution costs
and differences in equipment and specification. Today such a supplement is
charged if a British or Irish consumer purchases a right-hand-drive car in a
left-hand-drive country, where that car corresponds to a left-hand-drive
model within the normal contract programme of a dealer. The dealer may
charge an objectively justifiable supplement (the so called right-hand-drive
supplement) in addition to the normal price for the corresponding left-hand-
drive product. The same principle applies where left-hand-drive cars are sold
in a right-hand-drive country.

• In countries where taxes are above 100% of the net price of a car or where
prices are subject to national measures, the notice also allows the charging
of a “further supplement” for a passenger car due to be parallel exported.
This “further supplement” can increase prices up to the prices in the
cheapest country where no such taxes or price regulation exists91.

3.3.5 Notice on intermediaries92

(62) A basic objective of Regulations 123/85 and 1475/95 is to give consumers a
real possibility of purchasing a new vehicle wherever they like in the single
market. In order to facilitate such cross-border purchases, the Regulations
consider it desirable for consumers to be able to appoint an intermediary to
purchase and take delivery of a vehicle on their behalf. Accordingly, dealers
have the right
to sell and deliver a vehicle to final consumers who have
appointed an intermediary.93

(63) However, experience showed that the scope of Regulation 123/85, as it relates
the
required further clarification.

to intermediaries,

therefore,

In 1991,

90

See also recital 31 of Regulation 1475/95.

91 The text of the notice states that this supplement has to be a “further supplement” to the one
charged for passenger cars corresponding to a model within the normal contract programme (see
previous bullet point). This could be interpreted as meaning that no such supplement can be
charged if a consumer buys a car out of the normal product programme of the dealer (for further
details see also below pt. (316) on page 102).
92 Notice on intermediaries, see footnote 4, page 7.
93 Article 3(11) of Regulation 123/85 and Regulation 1475/95.

25

Commission adopted the notice on Regulation 123/85. Such clarification is
important because dealers are not allowed to supply new motor vehicles to
independent resellers.

(64)

In its Decision in the Ecosystem94 case, the Commission provided further
clarification in 1991 of what is permitted to intermediaries and distiguished
their activity from that of independent resellers. In order to give further
involved in motor vehicle distribution and to allow
guidance to all
intermediaries to play their role in promoting trade in the single market, the
Commission adopted its “notice on intermediaries” in 1991, based on the
principles developed in the Ecosystem case. The notice is still valid today.95

(65) The notice describes the leeway that intermediaries have for the provision of
their services to final consumers who have given them written authority to
purchase a vehicle. The notice in essence sets out the following:
• Intermediaries have to avoid creating the impression, if they advertise, and in
their contacts with consumers, that they are independent resellers. To this
end, they have to clarify, for example, that prices quoted are best estimates,
and they have to pass on to the customer all advantages obtained in the
negotiations carried out on behalf of the purchaser.

• They may not assume risks of the ownership of the vehicles, but may
provide other services in the context of the purchase of a new vehicle, such
as the risk of financing the purchase of a motor vehicle in another Member
State.

• Intermediaries may not establish a privileged relationship with dealers which
is contrary to the obligation of the dealer not to appoint distributors or
agents outside his contract territory or to actively seek customers outside his
contract territory96 or which undermines the dealer's obligation to endeavour
to sell within his contract territory a minimum quantity of vehicles in line
with his sales targets. In view of this, intermediaries may not receive higher
discounts than those which are customary on the market (which would
indicate that the intermediary acts as a sort of sub-distributor outside the
dealer's allotted area and thereby undermines the exclusive character of the
distribution system). Moreover, a dealer may not sell more than 10% of his
sales through any one intermediary since it is said that this would jeopardise
and run counter to the dealer's obligation to fulfil his sales targets.

94 Commission Decision of 4 December 1991 ECO System v Peugeot, OJ L 66, 11.3.1992, p. 1,
upheld by the Court of First Instance judgment of 22.4.1993 Peugeot v Commission, Case T-9/92
[1993] ECR II-0493, and the Court judgment of 16.6.1994 Peugeot v Commission, Case C-
322/93P [1994] ECR I-277.
See Commission press release IP(95) 648, 21.6.1995, p. 3.

95

96 Article 3(8)(b) of Regulation 123/85; this prohibition has been limited in scope by Regulation
1475/95, Article 3(8)(b) which only prohibits personalised advertisements outside the contract
territory.

26

3.4 FURTHER COMMISSION ACTION IN THE AREA OF MOTOR VEHICLE
DISTRIBUTION WITH A VIEW TO PROMOTING PARALLEL IMPORTS AND
CONTRIBUTING TO THE COMPLETION OF AN INTERNAL MARKET

3.4.1 Explanatory brochure

(66)

In order to specify the regulatory framework amended by Regulation 1475/95,
the Commission published a brochure in 1995 in all Community languages.97
This legally non-binding guide to the Regulation explains the rights and
obligations of manufacturers, dealers, spare-part producers and independent
repairers. It also provides consumers with detailed information on their freedom
to buy a new motor vehicle directly or via an intermediary in another Member
State of the European Union, to claim the producer warranty and to have the
vehicle serviced anywhere in the Community from a dealer belonging to the
network of a manufacturer.

3.4.2 Hotlines

(67) Consumers often face problems when buying a car in another Member State.
They tend to turn to the Commission first, which refers them to the
manufacturer or importer concerned. One of the Commission's instruments in
the
dealing with such consumer
Commission's request, of telephone "Hotlines", also known as "Help Lines", by
most car manufacturers.98 Where consumers experience problems in buying a
car abroad, they may directly contact the car manufacturer concerned, who can
supply the requested information or refer them to a dealer.

letters has been the establishment, at

3.4.3 The Commission's car price report

(68) Since 1993, the Commission has published a report on car prices within the EU
every six months (on 1 May and 1 November, respectively).99 These reports,100
of which currently more than 4 000 copies are sent out, attract a large degree of
interest from consumers and their associations.

(69) Until 1998, prices were published for only twelve of the fifteen Member States,
excluding Denmark, Finland and Greece by reason of the high taxes imposed on
car purchase in those countries. With the introduction of the euro, it was
decided from 1 May 1999 to include car price data for all fifteen Member

98

97 Document IV/9509/95; available on the Internet under:
http://europa.eu.int/comm/dg04/aid/en/car.htm.
See: http://europa.eu.int/comm/dg04/aid/en/car_hotlines_en.htm.
Pursuant to Article 11 of the Regulation, the Commission has to evaluate on a regular basis the
application of the Regulation with a particular focus on price differentials between the different
Member States. Such is the purpose of this report.

99

100 An extract of each report, which figures among the most popular publications of
is

Directorate-General
Directorate-General website: http://europa.eu.int/comm/dg04/aid/en/car199911.pdf.

the
the Competition

for Competition,

also made

available

on

27

States, with a distinction being made between, on the one hand, the eleven
participants of the euro zone and, on the other hand, the four non-participants.

(70) Prices for the 75 most frequently sold car models are expressed in euro and
national currencies, excluding and including taxes. The report also contains
prices for some major specifications and for the right-hand-drive supplement
requested for such right-hand-drive cars sold in mainland Europe.

(71) The prices published in each car price report are analysed as regards the
development of price differentials within the European Union. The result of this
analysis is published in press releases101 which accompany the publication of the
report.

(72) The report has created greater price transparency on recommended retail prices
and induced consumers to acquire cars in another Member State where prices
are lower. Such parallel trade, if substantial enough, should be an important
market-related factor for reducing price differentials.

3.5 ALLEGED BENEFITS OF THE EXISTING REGULATORY FRAMEWORK
GOVERNING CAR DISTRIBUTION AND SERVICING AGREEMENTS FOR
MANUFACTURERS, DEALERS AND CONSUMERS AND OTHER PARTIES

(73)

It is generally argued102 that the current distribution system operated in the
single market has brought benefits for parties involved in motor vehicle
distribution and servicing. Annex II lists the benefits generally cited.

4 MOTOR VEHICLE DISTRIBUTION: THE FACTS

4.1 STRUCTURE OF EU CAR AND SPARE-PARTS DISTRIBUTION

4.1.1 Car manufacturers: description of the market, market shares and brands

(74) A large number of manufacturers are active on the European market:

there are
eight large groups and a number of Japanese, Korean and smaller European
In 1998, motor vehicle production in the
suppliers (see diagram below).
European Union amounted to 16.6 million units, of which 14.5 million were
passenger cars.

101 For the most recent press release on car prices on 1.5.2000, see IP/00/781 of 13 July 2000; also

published on the Internet under: http://europa.eu.int/comm/dg04/aid/en/car.

102 See e.g. ICDP, Research Report 4/98, "Beyond the block exemption, an analysis of vertical
restraints and retail competition in the European Car Industry" by A. Tongue and J. Brown,
hereinafter: ICDP "Beyond the block exemption", 4/98. On pages 25 and 27, this paper lists in
more detail the benefits that it believes the current system of distribution has brought to the
various categories of operators concerned. It also explains the burdens that the system creates for
dealers.

28

(75) Trade in motor vehicles between the European Union and other countries is
substantial. Major destinations for exports are the NAFTA zone, western and
eastern European countries and Japan, while imports are mainly from Japan and
eastern European countries. The trade balance in motor vehicles shows a
currently high export
the European Union, amounting to
€
20.1 billion in 1998.

surplus for

(76) New passenger car registrations amounted to 14.37 million in 1998, and rose

by 4.9% to 15.08 million in 1999.103

(77) The western European car market is very close to maturity104 and new car sales
limitations for
generally serve to replace old cars. Moreover, the import
Japanese cars introduced in 1989 have been abolished as of 1.1.2000.105 The
industry is characterised in general by persisting excess production capacity
and, consequently, unsatisfactory capacity utilisation.106 However, this varies
from one manufacturer to the other and may also depend on the lifecycle of a
in particular a temporary lack of capacity may occur if the
car model;
production of a new car model starts.
In recent years, the industry has also
been characterised by an accelerating process of restructuring, including take-
overs, mergers, as well as cooperation in various areas between car
manufacturers.107

(78) There are more than 40 brands with a total of about 250 models, including an
increasing number of "niche" products108 competing for customers in the
European Union. Product cycles are becoming increasingly shorter, since the
improved products. Moreover, car
industry is under pressure to offer
manufacturers are tending to increase product differentiation.

(79)

In fact, as indicated below, the six leading manufacturers with market shares
above 10%, representing about 20 brands, together have a market share of
74%.109 The rest of the car market is shared between two other European car
manufacturers (+/- 11%), Japanese manufacturers (+/- 12%) and Korean

103 See also, for further details, ACEA, www.acea.be.
104 See ICDP “Future of the dealer- the evolving retailer”, 4/99, p. 10;

ICDP “Beyond the block
exemption”, 4/98, p. 10; A. Card in: OECD Proceedings, "Market Access Issues in the
Automobile Sector", July 1997, by M. Harbour, (hereinafter: OECD, “Market Access Issues in
the Automobile Sector”), p. 95.

105 The import limitations for Japanese cars still existed when Regulation 1475/95 was adopted in

1995.

106 See, for example, ICDP , “Beyond the block exemption"", 4/98, p. 43;

ICDP „Revenue
management – how the car industry can learn from airlines“ by Jonathan Brown, Managment
Briefing n° 2, p. 8.

107 See, for example, for mergers/take-overs BMW/Rover (Commission Decision M.416, 14.3.1994),
Ford/Mazda (Commission Decision M.741, 24.5.1996), Toyota/Daihatsu (Commission Decision
M.1326, 6.11.1998), Daimler-Benz/Chrysler (M.1204, 22.7.1998), Renault/Nissan (Commission
Decision M.1519, 12.5.1999), and Ford/Volvo (Commission Decision M.1452, 26.3.1999).

108 For example, multi-purpose vehicles, off-road vehicles, convertibles, coupés.
109 As to the car market in the United Kingdom, see UK Competition Commission report, pt. 2.82

et seq.

29

manufacturers (+/- 3%) (see following diagram). Although the European car
market is characterised by the presence of only few large suppliers, market
concentration is less advanced than in the US and Japan.110

Diagram 2: Market shares

MANUFACTURER

BRANDS

EUROPEAN/AMERICAN:
Volkswagen
group
PSA group
Renault
General Motors
group
Ford group

Volkswagen, Audi, Seat,
Škoda, Lamborghini
Peugeot, Citroën
Renault
Opel, Vauxhall, Saab,
others
Ford, Volvo, (Mazda),
Jaguar
Fiat, Lancia, Innocenti,
Alfa Romeo, Ferrari,
Maserati
Mercedes-Benz,
Chrysler, Smart
BMW, Rover, Land
Rover

Toyota
Nissan
Honda
Mazda
Mitsubishi
Suzuki, Subaru,
Daihatsu

Daewoo, Hyundai, Kia,
Ssangyong
Bentley, Lada, Ligier,
Lotus, Porsche, Rolls-
Royce, Aston Martin,
others

Fiat group

DaimlerChrysler
group
BMW group

TOTAL:

JAPANESE::
Toyota
Nissan
Honda
Mazda
Mitsubishi
Others

TOTAL:

KOREAN

Others

MARKET
SHARE
EU*
1999
18.8%

MARKET
SHARE
EU*
1998
18.0%

MARKET
SHARE
EU*
1997
17.1%

12.1%
11.0%
11.5%

11.4%
10.7%
11.5%

11.3%
9.9%
12.1%

11.2%

11.8%

13.0%

9.6%

10.9%

11.9%

5.6%

5.1%

4.4%

5.3%

5.7%

6.1%

85.1%

85.1%

85.8%

1999
3.2%
2.6%
1.4%
1.4%
1.2%
1.7%

1998
3.0%
3.0%
1.5%
1.5%
1.3%
1.7%

1997
2.8%
3.0%
1.6%
1.4%
1.3%
1.6%

11.5%

12.0%

11.7%

3.2%

2.7%

2.2%

0.2%

0.2%

0.3%

TOTAL:

100%

100%

100%

* New car registrations; source: ACEA (Association des Constructeurs Européens

d'Automobiles), www.acea.be

110 While in the European Union, the three largest car manufacturers (Volkswagen group, PSA group
and General Motors group) had a combined market share of 41% (1998), the three major groups
in the USA (General Motors, Ford and DaimlerChrysler) attained a combined market share of
72% (1998; source: www.autofacts.com), and the three major groups in Japan (Toyota, Nissan
and Honda) had a combined market share of 59% (1998; source: www.japanauto.com).

30

4.1.2 Manufacturers' distribution networks

(80)

General structure of the network:
Several different types of operators are involved in the distribution of new
vehicles. The following diagram gives an overview of existing distribution
channels:

(81)

The vehicles are supplied to consumers in the following ways by manufacturers
or, where relevant, by the national importers:

•
•
•

directly by using subsidiaries/agents; or
indirectly by using dealers; or
through combined systems using subsidiaries and/or agents and also dealers.

Diagram 3: Distribution demands in the automotive industry

CONSUMER

Sub -
dealer

Sub-
dealer

Main Dealer

Main Dealer

Agent
Subsidiary
Affiliate

Direct Sales

Indirect Sales

Combined Systems

MANUFACTURER/IMPORTER

Based on: ICDP, Multi-Franchising, Research Paper No 1/98, exhibit 2.

(82) As described earlier,111 retail distribution of cars is based on exclusivity and
It follows that manufacturers either entrust a limited number of
selectivity.
undertakings with the distribution of cars within a given contract territory or
appoint importers with a dealer network. As each car manufacturer applies the
same principles, car distribution as a whole is characterised by a system of
almost identical distribution networks (also referred to as the "cumulative
effect").112

(83)

In general, except for their home country, manufacturers appoint one supplier
the
for each Member State (generally referred to as the wholesaler or

111 See subsection 3.1, page 10, of this report.
112 See pt. (20) of this report.

31

importer), who concludes individual distribution contracts with dealers located
in this Member State.113
Importers are in most cases directly owned by the
manufacturers.114

(84) Manufacturers generally sell cars either to their dealers, or to their respective
importers located in other Member States. The importers sell the cars they
have purchased from their manufacturer on to their dealers. The bulk of the
cars delivered to dealers are usually sold to final consumers. The remaining
cars are sold on to sub-dealers or distributed by dealers' agents to final
consumers.

(85) Retail distribution is assumed by a large number of mostly independent, small
and medium-sized dealers.115
In addition to entering contractual relationships
with their manufacturer or importer, main dealers may be allowed to conclude
contracts with sub-dealers. Certain manufacturers also use subsidiaries or
agents for distribution of their cars; these may order cars either directly from
their manufacturer or importer, or indirectly through a main dealer.116

(86) Manufacturers generally reserve certain customer groups for direct selling with
or without involvement of a dealer.117 For these sales, manufacturers grant

113 The following exceptions have been found: Fiat has appointed two importers respectively in
Greece and Portugal; in a number of cases (in particular Japanese manufacturers), Luxembourg
is handled by the Belgian importer, and in one case (Rover) imports into Finland and Sweden are
handled by the importer of its parent company (BMW). The German importer of Honda also
handles distribution in Belgium, Luxembourg, the Netherlands and Austria, while its French
importer also serves the Italian and Spanish markets. General Motors Europe performs a co-
ordinating role in distribution throughout Europe, while actual distribution is undertaken by
National Sales Organizations primarily owned by General Motors Corporation (GMC, USA);
Adam Opel (D), Vauxhall (UK) and GM Espana are all directly owned by GMC and have
significant manufacturing operations. A comparable situation prevails for Ford of Europe.
114 Only a small number of dealers are owned by a manufacturer or a supplier. However, a small
number of producers rely on independent importers for distribution of their brand; this is true in
particular in the case of Volkswagen and some Japanese manufacturers.
In particular the French producers PSA and Renault control a more significant number of their
dealers, and DaimlerChrysler realise a great deal of its sales in Germany through wholly-owned
"Niederlassungen" and independent undertakings called “agents”.

115

116 In Germany, Volkswagen and Audi service outlets act as commercial agents for a main dealer or
for a sub-dealer. Also in Germany, DaimlerChrysler is distributing its cars through affiliates
("Niederlassungen") and “agents”, which order cars from one of the affiliates or from another
“agent”. In Italy, DaimlerChrysler uses some of its service outlets as “agents”, which order cars
from a main dealer.
Other Italian service outlets of DaimlerChrysler are sub-dealers.
DaimlerChrysler “agents” sell in the name and act on behalf of the manufacturer or importer
with whom he has concluded an agreement.

117 A great part of direct sales generally concerns the manufacturers' staff, in particular in Member
States where the manufacturer has production facilities, and other reserved customer groups such
as armed forces, diplomats or employees of suppliers, who normally submit individual orders. In
addition to that, manufacturers supply - either directly or assisted by a dealer - to fleet owners,
leasing and rental companies, and other undertakings which
such as national authorities,
normally order larger quantities. The proportion of direct sales in manufacturer's total sales
varies with the Member State concerned and may attain 20% of total sales. A particular situation
occurs in the United Kingdom, where up to 80% of all sales are so-called "direct" and "assisted"

32

high rebates normally well above the rebates granted to their dealers for
individual orders.

(87) The following diagram compares the main characteristics of the car distribution
systems prevailing in the US and in Japan, which are also based on a
manufacturer/dealer relationship with the following features:

fleet sales, while in Germany, as the next most important market for fleet sales, they account for
about 40% of total sales; see: Consumers' Association 2000, "The forecourt revolution: the future
of the car industry", Policy Report (hereinafter: CA 2000 "The forecourt revolution").

33

Diagram 4: Principles of car distribution in the EU, the US and Japan

UNITED STATES

JAPAN

Yes

Yes

PRINCIPLES

Territorial exclusivity

EUROPEAN
UNION

Yes; at least
limitation of
number of dealers
present in the
dealer’s contract
territory

Selectivity

Yes

Prohibition on
dealers selling to
resellers

Yes

Yes; dealers
require a public
licence to trade
from local
government,
which is subject
to a franchise
obtained by a
manufacturer or
importer, but no
contractual
prohibition on
dealers selling to
resellers

No; the activity of
a reseller of new
cars is not possi-
ble in the US118

Yes

No, unless there
is a valid reason.
Sales to resellers
who export car
outside Japan are
permissible.

Yes, subject to
permission by
manufacturer who
is not allowed to
withhold
permission
unreasonably

Yes

No protection in
anti-trust law.
Pursuant to civil
law, dealer
contracts can be
ended with
reasonable period
of notice.

Two-tier system with
main dealers, sub-
dealers and agents

Yes, subject to
permission by
manufacturer

No

Right of
manufacturer to carry
out direct sales

Protection against
unjustified
termination of dealer
contracts

Yes

Yes, in cases of
less than two
years’ notice:

No, through
franchised retail
dealers

Yes;
manufacturers
have very few
grounds to ter-
minate contract;
restructuring of
network by
manufacturers is

118 Resellers do not get a public licence to trade new cars.

34

Dealer standards

Yes

Yes

Yes

severely
inhibited.119

Brand exclusivity

Link between sales
and after-sales
services

Dealer can sell
vehicles of several
makes on separate
premises, under
separate
management, in
the form of a
distinct legal
entity and in a
manner which
avoids confusion
between makes120
or where the
dealer shows
objective reasons
for doing so121

Legal link; see
art. 5 (1)(1) (a):
in order to benefit
from Reg.
1475/95 manufac-
turers have to ob-
lige dealers to
offer after-sales
services

Do margins vary by
size of dealer ?

No

US franchise laws
allow dealers to
take additional
franchises if they
have objective
reason; multi-
franchised dealers
+ ‘automalls’
have expanded
recently

Leading manu-
facturers (market
share >10%) may
not impose re-
strictions on the
handling of com-
peting products.
Rules avoiding
confusion bet-
ween brands are
permissible.

No legal link , but
all dealers offer
both since it is
part of their
franchise
“package” agreed
upon with the
manufacturer

No;
either this is due
to dealer contract
or – in some
States – to State
statute

No legal link;
manufacturers
may require
dealers to offer
sales + after sales
services.

No;
differentiation of
margin according
to dealer size is
not permitted

Sales and stock
targets

Yes

Yes

Yes.

Based on ICDP, "Beyond the block exemption", Research Report
4/98, p. 21 – 24;
OECD Proceedings, "Market Access Issues in the Automobile Sector", 1997, p. 158 ss;
information supplied by ICDP, manufacturers or their associations.

(88) As may be seen from the above diagram, the characteristics of the European
and US systems of car distribution are largely comparable, while certain
differences exist between them and the car distribution system in Japan.
However, American dealers are said to be in a much stronger position towards
car manufacturers e.g. as regards the termination of dealers’ contracts, which is
very difficult and costly for the manufacturer. Moreover the rules on multi-
marketing are less strict. Manufacturers are also obliged by law to provide

119 ICDP ”The US Legal Framework for Car Distribution” by Philip Wade, 9/2000
120 Article 3 (3).
121 Article 5 (2) (1).

35

dealers with a fair supply of new vehicles or face penalities. In the USA
guaranteeing the independence of dealers is seen as a means of protecting
consumer choice.122

Retail distribution:

(89)

In 1998, a total of 113 400 distributors existed in the European Union,123 of
which 66 100 were main dealers. Between 1996 and 1998, the car industry
reduced the number of dealerships across the Community by about 6%.

(90) The dealership structure in many Member States has in the past been
characterised by a "two-tier" dealer network with main dealers and sub-dealers.
The importance of this aspect varies substantially, however, with the brand and
the Member State concerned.124 The proportion of secondary dealers is
relatively high in countries such as France, Italy and Spain, whereas in countries
such as Germany, the United Kingdom and the Netherlands, they play only a
minor role.125

(91) Many manufacturers have started to eliminate smaller dealers from their
distribution networks in order to better control service standards and brand
image. They have an incentive to rationalise their networks to ensure the
viability of the remaining dealers and to facilitate contacts and negotiations with
the networks. Consequently, dealers’ contract territories will be larger in the
future. At the same time, however, the dealers want to remain close to the
customer.126

122 ICDP ”The US Legal Framework for Car Distribution” by Philip Wade, Executive Briefing,
9/2000. In the USA the key laws affecting automotive distribution are mostly state laws. In Japan
the Antimonopoly law does not contain detailed rules on motor vehicle distribution like in the EC
block exemption regulation.

123 ACEA; European Car Distribution Handbook 1998; CECRA (European Council for Motor
Trades and Repairs) estimates that currently about 100 000 dealerships (including sub-dealers)
are involved in car distribution.

124 Few sub-dealers, or none at all, are involved in the distribution of the Seat, Citroën, Honda,
BMW and Renault brands. Sub-dealers are much more frequently made use of in the distribution
of the Mercedes-Benz, Fiat, Volkswagen and Toyota brands. See also ACEA / European Car
Dealer Handbook 1998; M. Habour in: OECD, “Market Access Issues in the Automobile Sector”
p. 155; Financial Times Automotive, "The Future of Automotive Distribution, Evolution or
Revolution?, A.T. Kearney, 1998, p. 12, which, however, gives a different picture.
Some manufacturers (in particular Renault, Citroën, Seat and DaimlerChrysler) prefer the use of
commercial agents. For Mercedes-Benz and Seat, commercial agents play an important role only
in their respective home markets, whereas Renault and Citroën are using this channel in many
Member States.
In most southern European markets such as France, Italy and Spain, the number of sub-dealers
in comparison to main dealers is particularly high, while in other markets, such as Denmark,
Greece, Ireland, the Netherlands, Portugal and the United Kingdom, sub-dealers play a very
limited role; see also: CA 2000, "The Forecourt Revolution", p. 22.

125

126 An example of this development is Ford, which has converted its smallest dealers into pure
service outlets. The declared objective was to provide better quality, consistent servicing across
the network and a more professional overall brand image.

36

Features and economic situation of dealerships:

(92)

In Europe, distribution costs, which include advertising, marketing support,
transport and other costs, are often said to represent up to 30% of a vehicle's
retail price before tax, a percentage which is higher than the figure for vehicles
sold in the United States (25-27%) but similar to that for the Japanese car
market (29-31%).127 This relatively high proportion for the European market
there is, in principle, real scope for cost reduction through
indicates that
network consolidation and distribution efficiency improvements in the context
of the move towards “lean distribution” systems for new motor vehicles.
However, the consolidation of the European dealership structure has so far
been rather moderate.

(93) The average number of annual sales per dealer varies considerably between
In the European Union in 1998, a dealer (including main
Member States.
dealers and sub-dealers) sold on average 137 cars, while a main dealer sold 223
cars.128 While dealers in the United Kingdom, Ireland, Italy, Portugal and
Spain generally sell much more than the average, sales in Germany and the
Sales per dealer in all the Nordic
Netherlands correspond to the average.
countries, Greece, France, Belgium and Austria are below the average.129 Sales
per main dealer outlet vary considerably across the European Union and range
from 422 in Italy to only 95 in Sweden.

(94) There are also big differences as to the number of dealerships in relation to
population and size of the Member State (dealership density). While the
density is relatively high in the geographical centre of the European Union, 130 it
is much lower in other countries.131

(95) Profitability of dealerships relies on new car sales margins which are relatively
low and are often supplemented by additional manufacturer bonuses. Other
linked activities - sales of used cars and credit broking - can add significant
extra revenue to dealers. Currently, after-sales service is - as a rule - more
profitable than new car sales activity.132 However, in comparison with other
forms of retailing, car dealer groups' profitability is said to be rather low.133

127 FT "The Future of Automotive Distribution, Evolution or revolution?", 1998, p. 33; CA 2000,
in this context, see also the overview: ICDP, "Beyond the

"The Forecourt Revolution", p. 20.;
block exemption", 4/98, p. 16, Chart: "Car Advertising Expenditure in France - 1996".

128 ACEA.
129 See ACEA / European Car Dealer Handbook, 1998 (sales per dealer outlet in Germany and the
Netherlands of 133 corresponded to the average); ICDP, "Multi-franchising, Developments and
Impact of Sales Channel Management of Automobile Manufacturers", by M. Hoffmeister and R.
Heinerberg, Research Paper 1/98, (hereinafter: ICDP, "Multi-franchising" 1/98), p. 24.

130 Austria, Belgium/Luxembourg, Germany, Denmark, France, Netherlands.
131 Spain, Finland, Greece, Ireland, Sweden, United Kingdom.
132 See OECD, "Market Access Issues in Automobile Sector" points 7-11.
133 ICDP, "Beyond the block exemption", 4/98, p. 29-30.

37

(96) The wholesale price is the recommended retail price determined by the
manufacturer, the supplier or the importer, less the margin. The main element
of the margin granted to dealers for each car to be sold is the difference
between the recommended retail price134 of a car and the price which dealers
pay to their supplier.
It generally ranges from 10 to 18%.135 One particular
feature of this main element of the margin is that it is identical for all dealers of
a given Member State for a specific model, irrespective of their size or the
volumes ordered. This is recognised as a distinctive practice in car retailing in
contrast to retailing of other consumer products. The margin allows the dealer
to cover his administrative and operating cost, and to grant discounts to his
customers.

(97) As another element of the margin dealers are generally granted bonuses by their
manufacturers or importers for achievement of sales targets and other, mostly
customer-related, objectives. Bonuses are fixed either as a percentage or as an
absolute amount for each car sold. Bonuses are granted upon achievement of
certain quantitative objectives (generally sales volume or market share) and
other, qualitative objectives (for example, customer satisfaction and quality of
service or premises). Bonus payments to dealers can attain the equivalent of 1
to 4% of a new car selling price.136

(98) As regards the proportion of both elements of the margin in the total
remuneration,
in the systems applied by
manufacturers. This can be true for different makes of the same manufacturer,
and also for the systems applied in different Member States for the same
brand.137

substantial differences exist

(99) A similar system of margins applies to spare parts, which the dealer purchases
from his supplier. Margins for spare parts are generally higher than for new
cars, and the granting of discounts to customers is not common practice.

(100) New sources of revenue are also emerging for dealers (selling of insurance,
financing, leasing etc.), which are liable to improve dealers' profitability.

4.1.3 Multi-brand dealerships

(101) Since 1995, manufacturers have had to allow dealers to sell a second (or more
than one) brand, generally from separate premises.138 However, true multi-
brand dealerships, where dealers sell brands from different manufacturers not
In most cases where a dealer sells a
belonging to a same group, are rare.

134 The so-called "list prices".
135 OECD "Market Access Issues in the Automobile Sector", p.8. Section 6.2.1.3 of this report gives

more precise figures provided by car manufacturers.

136 See also OECD, "Market Access Issues in the Automobile Sector ", points 7 to 11.
137 CA 2000, "The Forecourt Revolution".
138 Articles 3 and 4 of Regulation 1475/95.

38

second brand, this brand belongs to the same manufacturer, the most significant
examples being Volkswagen/Audi and Fiat/Alfa Romeo/Lancia.

(102) Across the European Union, 75 to 80% of all main dealers sell only one
brand. The following diagram gives an idea of the proportion of exclusive
main dealers in different Member States:

Diagram 5: Percentage of exclusive main dealers

PERCENTAGE OF EXCLUSIVE MAIN DEALERS

MEMBER STATE

1997

1998

Sweden

Norway

Switzerland

Denmark

Italy

France

Spain

United Kingdom

Germany

Netherlands

46%

53%

65%

66%

77%

80%

80%

85%

88%

91%

58%

67%

72%

77%

77%

80%

84%

88%

89%

89%

Sources: ICDP, "Multi-Franchising" p. 36 (for 1997); European Car Distribution Handbook
1998 (for 1998).

(103) While these proportions have been relatively stable over the years, distribution
networks in the Nordic countries139 are traditionally much more open to
multi-brand arrangements than other markets. More frequently, dealers whose
first brand has a low market share tend to take on a second brand, even from
another manufacturer.

(104)

In Sweden, before 1970, a system consisting of mutual exclusive distribution
contracts combined with territorial clauses between the dealers was applied
for car distribution as well as in neighbouring industries. However, this
situation was dissolved by the Competition Ombudsman in Sweden in 1970.
The landmark case was BIVA,140 where the Competition Ombudsman initiated
proceedings under the 1953 Competition Act against Volvo, Saab and
Volkswagen because of their refusal to supply the co-operative owned car
(department) store called BIVA with new cars due to fear of multi-dealership.
As a result of
the arrangements between the Ombudsman and the
undertakings concerned, car dealers were allowed to sell competing car

139 Because these countries are large and thinly populated, single-brand dealerships are not a viable

economic option.

140 NFR 1970:2.

39

brands from the same sales premises and to pursue passive sales outside their
territory.141

(105)

In the United States, multi-brand dealerships are more common. The analysis
shows, however, that dealers are taking complementary franchises rather than
franchises for products which directly compete with the products they are
already distributing. Typically, one US dealer will sell one of the big three
American car makes and add one European or Asian make. However, only
2% of US dealers are "duals" with competing American makes.142

4.1.4 Spare parts

Production of spare parts:

(106) Spare parts used for the maintenance and repair of vehicles are primarily
original spare parts (original equipment supplies) or spare parts of matching
quality (independent after-market - IAM -), which are products corresponding
in quality with those produced by the car manufacturer.143

(107) Original spare parts account for approximately 49% of total spare-part
production. They can either be produced directly by car manufacturers (19%
of total production), or be purchased by the car manufacturers for the
equipment of their new vehicles from independent producers. Outsourcing
In this case, spare-part
accounts for 30% of total spare-part production.144
producers co-operate with the car manufacturer in the development of parts
in research and development
and components, and,
programmes, the cost of which can attain 5 to 10% of their annual sales. It is
expected that in the near future, in order to counterbalance the contractual
power of car manufacturers, suppliers of spare parts will merge and will
become system integrators, providing complete systems for each commodity
area (chassis, body, powertrain and interior).
some car
manufacturers have introduced on the market new brands for their spare
parts, which are characterised by a low price and are to be installed on old
vehicles.145

to this end,

Recently,

invest

141 See also (NO 1972:24, 1973:36) Bernitz, Ulf, Marknadsrätt p. 86, Juristförlaget, second edition

1986.

142 OECD, "Market Access Issues in the Automobile Sector", p. 11 and 12.
143 The commercial policy followed to date by car manufacturers and component manufacturers aims
to promote high quality parts. Thus, sales of spare parts of non-corresponding quality with the
original ones are considered negligible.

144 The trend towards outsourcing has become very common among car manufacturers; for more
details see D. Audet: "L'accès au marché dans le secteur automobile," p. 30, published in
l'Observateur of l'OECD, December 1999.

145 In particular, Renault introduced the new brand "Motrio" and Ford the brand "Motorcraft". "La
pièce adaptable detrônera-t-elle l'origine ?", Auto Info, 1099, 21.1.2000, p. 34; Guaranteeing
Survival of the Independent Aftermarket, PriceWaterhouseCoopers for FIGIEFA - FMA/FAM,
May 2000, slides 36 et seq. (hereinafter PriceWaterhouseCoopers, “Guaranteeing Survival”,
May 2000).

40

(108) Non-original spare parts account for 51% of total production, and they are
frequently priced up to 30% below prices of corresponding original spare
parts. This percentage includes spare parts matching the quality of original
spare parts and other spare parts of lesser quality.146

Distribution of spare parts:

(109) The distribution of original spare parts and that of non-original spare parts

differ in some respect:

• original equipment

is sold by car manufacturers through their official
networks. This distribution organisation is very accurate and requires a
rapid delivery system which necessitates stockholding, marketing support,
packaging, additional sales personnel and technical training in maintenance
and repair;

•

non-original equipment is sold to dealers, in particular as regards spare
parts of matching quality, but it is mainly supplied to other repairers as
well as to distributors who can be generalists or specialists as well as "do-
it-yourself" outlets, which directly supply the consumer for work he can
carry out himself. The distribution chain of non-original spare parts
involves distributors acting at different levels (national, regional, local).
The current distribution chain contains some inefficiencies in terms of time
of delivery and costs, which will be avoided in the near future with the
introduction of new technologies, the reorganisation of the distribution
system and the offer of new services to independent repairers.

(110) Spare parts manufactured by independent producers are usually sold to
independent garages for price and competitiveness reasons. Supplies from
independent producers to car manufacturers' official networks are said to
consist almost exclusively of parts for vehicles of other brands. Dealers,
although they could potentially purchase parts from other sources than the car
manufacturer,147 would be reluctant to do so because of their dependency on
the vehicle manufacturer.

(111) The production of the various types of spare parts can be illustrated by the

following diagram:

146 "La pièce adaptable détrônera-t-elle l’origine ?", Auto Info, 1099, 21.1.2000, p.34; For
example, Lear Corporation Plc manufactures spare parts both for Fiat Auto SpA and for the
independent after-market - IAM -, UNIPART manufactures spare parts both for Honda and for
the IAM. This element
is underlined by several Commission decisions regarding merger
operations between spare-parts producers, Decisions of 31 July 1991, Case IV/M012 Varta v
Bosch (OJ L 320, 22.11.1991, p. 26) and of 29 May 1991, Case IV/M043 - Magneti Marelli v
CEAc. (OJ L 222, 10.8.1991, p. 38) and Commission Decision of 15 October 1993, Case
IV/M.337 - Knorr-Bremse v Allied Signal (OJ C 298, 4.11.1993)..

147 Recital 27 and Article 6(1)(9) and (10) of Regulation 1475/95; see also section 6.2.1.1, page 82

and section 6.2.3.1, page 93 of this report.

41

Diagram 6: Production of spare parts

COMPONENT MANUFACTURERS

Original
Spare Parts

VEHICLE
MANUFACTURERS

51%

49%
original
spare parts*

Other

Matching Quality

Original Spare Parts

* 30% are produced by component manufacturers
19% are produced by vehicle manufacturers

Source: European Commission

42

(112)

The distribution system can be illustrated by the following diagram:

Diagram 7: Distribution of spare parts

COMPONENT MANUFACTURERS
COMPONENT MANUFACTURERS

VEHICLE
VEHICLE
MANUFACTURERS
MANUFACTURERS

51%
51%

49%
49%

IAM Distributors or Chain Platforms
IAM Distributors or Chain Platforms

Car Dealers
Car Dealers

5%
5%

7%
7%

31%
31%

29%
29%

20%
20%

8%
8%

Do-It-
Do-It-
Yourself
Yourself

Repair
Repair
Chains
Chains

IAM
IAM
Repairer
Repairer

Car
Car
Sub-Dealer
Sub-Dealer

End-Users
End-Users

End-Users and Independent Repairers
End-Users and Independent Repairers

Source: CLEPA (Comité de Liaison de la Construction d'Equipements et de Pièces
d'Automobiles, European Association of Automotive Suppliers, Automotive Aftermarket in
Europe, 5 November 1999.

(N.B. Dotted arrow (

) added by the Commission).

(113) Figures provided by CLEPA in the above diagram concerning distribution of
spare parts partially differ from those provided by car manufacturers in their
replies. Car manufacturers estimate that spare parts of matching quality
represent from 5% to 20% of their official networks’ requirements, while
CLEPA said that this portion is limited to 8%. FIGIEFA, the association of
automotive after-market distributors, estimates that this percentage amounts
to +/- 15%.

4.2

AFTER-SALES SERVICING

4.2.1 Structure

(114) After-sales servicing is carried out by:

• network dealers belonging to the network of vehicle manufacturers;
• service outlets (about 119 000 in 1998) established by manufacturers;
• independent repairers;
• "fast-fit" repair chains, some of which are owned by car manufacturers.

43

(115) Dealers and service outlets focus mainly on after-sales services for vehicles of
one make; in contrast, the independent repairers and fast-fit chains generally
provide repair and maintenance for cars of different brands.148 However,
repair and maintenance under the manufacturer's warranty period is in
principle executed by dealers of the make concerned, while after this period,
customers use independent repairers for repair and maintenance. For certain
routine work, customers also turn to fast-fit chains, auto centres or similar.
The importance of the different players in the after-sales market is illustrated
by the following diagram.

Diagram 8: Shares of the different after-sales service providers for brake
pad fitment, 1997

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Other

Service station

Auto Centre

Fast Fit

Independent repair garage

Franchised dealer/ agent

D

F

I

GB

P

E

Source: Autopolis (GIPA)

(116) The following diagram illustrates the specifications of the different providers

of after-sales services:

Diagram 9: Specifications of
services

the different providers of after-sales

TYPE OF
PROVIDER

INVESTMENT /
TECHNICAL

KNOWLEDGE

REQUIRED

TECHN. LIMITS
IN PROVIDING
AFTER-SALES
SERVICES

Dealers

Pure Service

High

High

None

None

ASPECTS

AFFECTING

CONSUMER

SATISFACTION
149

High prices

High prices;

TREND IN
NUMBER

Decrease150

Decrease151

148 This is also true for authorised dealers, who have to prepare for resale second-hand cars taken in

with the sale of a new car.

149 As regards the quality of the after sales services provided by the different providers see in

particular pts. (395) and (396) of this Report.
150 See in particular pt. (91), page 36, of this report.

44

Outlets

Independent
Repairers
(multi-brand)

Medium

Fast-Fit Chains
(all brands)

Low

Decrease152

Lower prices
than authorised
dealers /
repairers;

Low prices

Increase153

Certain brand-
specific
knowledge and
equipment, in
particular in
electronics /
electricity,
diagnostics,
testing

Low brand-
specific
knowledge
required

(117)

It has been observed that there is an overall trend towards a reduction in the
number of service points (down 6% during the period 1996 to 1998),154 partly
as a response to longer service intervals and greater reliability of cars in
general, a phenomenon which may increasingly affect dealers' commercial
situations.155

(118) The following diagrams show that

the after-sales-service requirements of
newly launched cars are on a decreasing trend. This is true for the number of
inspections made156 as well as the time needed for them.

Diagram 10: Diminishing service requirements

151 In line with reorganisation of dealers' networks.
152 A majority of manufacturers consider that the number of independent repairers has somewhat

decreased.

153 The information available on this issue is not consistent: some manufacturers and studies (see
section 5.2) consider that the number will decrease, due to longer durability of components.

154 ACEA / European Car Dealer Handbook, 1998.
155 ICDP, "Beyond the block exemption II", 6/99, p. 15-18; CA 2000, "The Forecourt Revolution"

p. 28.

156 Cars sold in the 1970s had to be serviced every 5 000 km; today the service interval is 20 000 km

and in some instances 30 000 km.

45

Diagram 11: Trend in service needs of new cars

(119) Over recent years, many independent repairers have decided to focus on "low
investment-high profit", so-called "fast-fit activities" and to form and join
chains.157 The distinctive characteristics of fast-fit chains are a strong brand
name, a limited range of repairs (brake-pads, shock absorbers, tyres, exhaust
systems), rapid service and low price levels.158 The presence of fast-fit chains
varies according to the Member State. Their presence is particularly strong in
France and in the UK, where they were introduced in the mid-1980s.159

(120) Supported in the mid-1980s by intensive brand marketing, fast-fit chains have
captured large shares of
replacement parts.
the market
Nevertheless, demand for many of their standard items is nowadays declining,
as the components they are specializing in are of increasingly higher durability,
and the chains are finding it difficult to expand beyond their core areas.

fast-fit

for

(121) As a response to increased competition from independent repairers and fast-fit
chains, especially as regards older cars, car manufacturers have developed

157 For a comprehensive view of the phenomenon, see: ICDP, "After-sales in Europe" by P. Wade,
L. Buzzavo; T. Chieux, K. Zellmer, J. Kiff, 2/97 (hereinafter: ICDP, "After-sales in Europe".) p.
99; PriceWaterhouseCoopers “Guaranteeing Survival”, May 2000 slides 20ss. and 79ss..

158 Light repair and maintenance of automotive vehicles accounts for some 40% of the overall
market for repair and maintenance of automotive vehicles and represents a very profitable
activity; see also Commission Decision of 31 May 1999, Case No IV/1526 – Ford v Kwik-Fit.
159 In France, the major independent fast-fit chains are usually owned by supermarket chains or
organised in franchise networks. In 1995, the fast-fit chains in France were: Feu Vert (162
outlets), Midas (266 outlets), Norauto (120 outlets), Speedy (365 outlets), Stationmarche (104
In 1995, in the UK the leading national service chains included: Halfords owned by
outlets).
Boots (136 outlets), Lex Autocentres owned by Lex group (96 outlets), Apple Car Clinics owned
by Kwik-Fit (65 outlets), Flexi Car Care Centres owned by Caffyns dealer group (32 outlets).
ICDP, "After-sales in Europe", 2/97.

46

for

formulas

their dealers.160 Moreover, certain
their own fast-fit
manufacturers, such as Ford Motor Company and Fiat SpA, have recently
acquired control over very large and successful fast-fit chains.161 Dealers see
these fast-fit operations as having an advantage for the customer in terms of
service convenience rather than with regard to lower prices.

4.2.2 Manufacturers' warranty

(122) The manufacturers grant a warranty on each new car.

It covers in general
production faults and other shortcomings for which the manufacturer can be
held responsible. The warranty period begins at the time when a car leaves
the manufacturer's network, usually when the car is delivered by a dealer. 162
Warranty conditions usually provide for a one-year contract warranty, in some
cases limited to a maximum mileage. Certain manufacturers grant a two- or
In this
three-year warranty, sometimes only in certain Member States.
context it should be noted that the directive on certain aspects of the sale of
consumer goods and associated guarantees163 obliges the Member States to
introduce new legislation by 1st January 2002. According to this legislation a
dealer who has sold a motor vehicle will be held liable if lack of conformity of
the new vehicle with the contract becomes apparent within two years as from
delivery. If a dealer is liable to the consumer because of a lack of conformity
resulting from an act or omission by the producer, the dealer has the right to
pursue remedies against the manufacturer or importer liable in the contractual
chain. However, it remains open whether or not such new legislation will also
lead to an extension of the direct warranty granted by motor vehicle
manufacturers to consumers . In this context it should also be mentioned that
the majority of manufacturers grant already today an anti-corrosion warranty

160 For simple and standardised car repairs, dealers offer service packages at a predetermined price.
Moreover, some dealers have reacted by offering some services without prior appointment. They
also have introduced longer openings hours.

161 Decision 6556 of Autorità garante della concorrenza e del mercato, 12 November 1998, Case
C/3270 – Magneti Marelli/Midas International, Boll. 46/1998 (428 outlets in Europe) and
Commission Decision of 31 May 1999, Case IV/1526 – Ford v Kwik-Fit (1 907 outlets in
Europe).
Other fast-fit chains which belong to car manufacturers or to their official dealers are:
Volkswagen (Stop and Go), Opel and Vauxhall dealers (Master-Fit), Ford dealers (Rapid-Fit),
Renault dealers (Renault-Minute), BMW (Autotechnic).

162 Regulation 1475/95 expressly provides that authorised dealers are obliged to honour

the
manufacturer's warranty, to perform free servicing and vehicle recall work on vehicles even if
they were supplied by another dealer in the same or another Member State. This provision
ensures that a final consumer can have the benefit of these guarantees available from every dealer
of the manufacturer's network throughout the Community, irrespective of the place of purchase of
the car. It has however to be noted that this obligation is limited to the extent to which the
dealers are obliged under the terms of their dealership to service vehicles which they themselves
have supplied (Article 5(1)(1)(a), recital 12 of Regulation 1475/95).

163 Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain
aspects of the sale of consumer goods and associated guarantees, OJ L 171 , 07/07/1999 p. 12;
see in particular Article 3.

47

of up to 12 years, and some grant free assistance during a certain period and
under certain conditions.

(123)

Importers or dealers may grant additional benefits in certain Member States,
in particular in response to competitors' actions.164

4.3 CURRENT AND FUTURE DEVELOPMENTS

4.3.1 Introduction

(124)

It is sometimes said that the car distribution system has remained essentially
unchanged since Henry Ford established it in 1910. Whatever the truth in this
assertion may be, over the last five years significant changes have taken place
and are ongoing.165

(125) This section consequently describes the main current and future developments
in the car distribution chain. The developments can be divided into three
categories:
• the development of “lean distribution”,
• the development of the Internet as a new method for marketing and car

sales,

• more varied formats for sales and service channels.

(126) Another development already described in section 4.1.2 (in particular pt. (91),
page 36) observes the ongoing consolidation of the dealer networks by the car
manufacturers.

4.3.2 Development of “lean distribution”

(127) Over the last decade, car production has been the subject of a lean production
revolution and as a result has become more efficient and flexible. One
consequence has been an improvement in the quality and reliability of cars.
However, experts consider that this revolution at production level has not yet
fully translated itself into a revolution at the level of distribution, which is still
is known as the "stock-push'" supply system. They
partly run by what
emphasise that this latter system is designed to satisfy a dealer order and not a
real customer order; important elements for the consumer, such as the car
delivery date and the exact configuration that he wants, are not really
considered as an essential element of the supply chain.

(128) Manufacturers are now moving at different speeds towards a system of cars
"built to customer order". This is known as "lean supply chains" or "lean
distribution". The development of information technology and particularly of

164 The extension of warranty is, again, particularly common in the United Kingdom.
165 ICDP, "Beyond the block exemption II", 6/99, p. 13 to 17 and ICDP, "Beyond the block

exemption", 4/98, p.37.

48

the Internet166 should clearly act as a catalyst in building customer links in the
distribution system and in allowing customers to purchase cars built to order
and to have them delivered rapidly.

4.3.2.1 The traditional "stock-push" supply system

(129)

In this system, dealers order a selection of cars from the manufacturer on a
regular basis167 and try to sell these cars to customers after delivery to their
premises, which may take two or three months. Dealers amass high levels of
stock operating this way, but fail to deliver the precise car the customer
wants. As part of the order, dealers often are forced to buy a minimum
quantity of slow-selling models in order to be allocated the short-supply
models by the manufacturer. They may also be induced to purchase excessive
volumes by bonus schemes. Such a system naturally encourages the dealer to
sell from his stock in order to reduce his costs and normally does not give
him, to any large extent, the possibility of amending any orders he may
previously have made. At first glance, one of its effects is to create
opportunities for price competition at
the level of dealers in favour of
consumers.

(130) The result of such a system, where applied, is that most customers buy cars
from the dealer's stock. Dealers must then offer substantial discounts in order
to dispose of obsolete or less popular models or when demand falls, since
rather than slowing production, manufacturers generally continue production,
pushing stock out to dealers who must then arrange to sell it. This system
clearly has repercussions on the profitability of dealers and also of the car
manufacturer, who must make up for the additional discounts granted by the
dealers to clear their stock, by providing them with additional incentives.

(131)

In this "stock-push" situation, the system thus delivers the most appropriate
car according to the stock level situation. It is not actually designed to supply
the customer with a car tailor-made to his needs. The philosophy behind the
system is that it would be beneficial to manufacturers since dealers of the
same network would compete strongly with each other via discounts to sell
the cars they have in stock and that
this intra-brand competition would
thereby create incremental sales for the manufacturers. Such a system also
makes it possible to plan production lines and ensures that all the production
is financially secure for the manufacturer.
It has developed mainly for the
convenience of the manufacturer.

4.3.2.2 The new system of lean distribution

(132) The establishment and the operation of such a system has been facilitated due
to the type of selective and exclusive relationship which exists between

166 Development of Intranets between car manufacturers, importers and dealers should allow the

customer order to be easily accessible to all sectors of the supply chain.

167 Dealers are induced by the manufacturer to order sufficient number of cars to cover the planned

production for a certain period of months.

49

manufacturers and dealers under Regulation 1475/95 in which the
manufacturers have strong control over their dealers. Enforceable sales
targets set unilaterally by the manufacturers as permitted by Regulation
123/85 have helped to implement it. The changes introduced by Regulation
1475/95, which now imposes an obligation on manufacturers to agree sales
targets with their dealers has, to a certain extent, reduced the manufacturers'
independence has, however, not
control over
in this report, other
developed accordingly, since as explained further
measures taken such as the margin policy including bonus, and the rigid policy
of car manufacturers as to the supply of cars to their dealers, have kept the
balance of power in favour of car manufacturers.

their dealers.

Dealers'

(133) Manufacturers are moving more and more towards a new supply chain which
pursues a goal of cars "built to customer order". They are introducing to that
effect lean supply and stocking systems - integrated computer-based ordering
systems taking into account the specifications of the car required by the
customer, with the aim of cutting distribution costs and of enhancing
customer service.168

(134) The objective of this new method is to eliminate the inefficiencies of the
traditional system of building cars that the manufacturer wants ("supplier
push"), by introducing a system of building vehicles according to customers'
specifications (“market pull”). Dealers' profitability could thus also improve
due to the decrease in stocking costs and reduced discounting.169

(135)

In a lean distribution system, market inventories will be pooled and dealers
given free access to any model to meet a customer’s requirement. Such
changes imply a significant change in the role of the dealers and result in
lower levels of stock, faster turnover of stock and better matching of models
to buyers' wishes.170 The lean distribution system applies not only to the
distribution of new cars, but also to the distribution of spare parts where it is
important that the delivery is quick, accurate and reliable.

(136) The implementation of a lean distribution system requires a number of
changes at both the manufacturing and the dealership level. The manufacturer
may need to re-design the factory scheduling and production facilities to
manufacture cars as quickly as possible. The new system also requires
manufacturers to be more flexible and to permit
late changes to the
specification of vehicles. Moreover, the logistics need to be improved to
increase the speed of transport. Unsold cars need to be stored centrally
allowing free access to all dealers, rather than dispersing the stock through all

168 See ICDP, "Future of the Dealer, The Evolving Retailer", Research Report 4/99, (hereinafter
ICDP, "Future of the Dealer"), p. 24-27; an example is BMW (Yahoo, Deutschland Finanzen,
10.2.2000).

169 ICDP considers that intra-brand competition between dealers will inevitably be reduced partly as
a result of moves to introduce lean distribution; ICDP, "Beyond the block exemption", 4/98, p. 4.

170 See for example: OECD "Market Access Issues in the Automobile Sector", p. 168-169.

50

dealers. The above changes require an effective use of information technology
systems and improved communications channels.

(137)

It has been said171 that a move from a system in which dealers sell entirely
from stock to a system based on "sold customer orders" could generate
important savings for the distribution system as a whole.

Example: the Smart car

(138) One example of a lean distribution system is the "Smart" car.172 The
distribution of this car is not made via traditional DaimlerChrysler dealerships,
but through specialised "Smart centres", which are situated in locations with
high traffic and which receive weekly deliveries of cars directly from the
factory. The dealer is expected to pay MCC directly on receipt of the new car.
MCC hopes in this way to promote lean and efficient dealerships with the aim
of fulfilling each customer order within two weeks. Moreover, customers will
be able to order a car according to their exact specification and to organise its
delivery to the Smart centre of their choice.173

CONCLUSION:

The traditional "stock-push" system has given car manufacturers a method that allows them
to minimise the cost of production by achieving planned stable production volumes, which are
pre-sold  to  dealers.    Over-production,  or  non-successful  cars,  are  taken  care  of  by  dealer
discounts,  bonuses,  or  other  action  at  the  wholesaling  level.    This  puts  a  lot  of  financial
pressure on dealers and the customers' requirements are not a key element in the running of
the system.

In  this  traditional  system,  manufacturers  are  determining  the  output  without  taking  into
account the precise requirements of demand. Operation of  this system  has been facilitated by
the current dealer/manufacturer  relations established under Regulation 1475/95.    A  move
to lean distribution should bring a more flexible system which is more customer-orientated as
regards car configuration and delivery time. The use of lean distribution on a large scale is said
to generate important savings to all the actors involved in the distribution chain.

171 See M. Harbour and D. Jones, "Creating Profitable Customers Fulfilment, Applying Lean
Thinking to Car Distribution" and G. Williams, "European New Vehicle Supply - the long Road
to Customer Push Systems" in the ICDP Journal Summer 1999 -.
ICDP estimates that the
European industry would make the following gains by introducing vehicle and part supply
systems on a lean model for vehicles: 4 billion euro per annum in operating costs and 11.4 billion
euro in stock reduction and for parts: 6 billion euro in stock reduction. It estimates that savings
as a percent of price total for a car could amount to: 2% (reduced discounting), 2.5% (reduced
physical and managerial stock holding costs), 2.5% spending cost reductions, and 4% order mix.
A change to the approach of pricing could also produce further profit improvements. For these
latter figures, see: ICDP "Management Briefing No 1", J. Brown "Flexible pricing to match
demand with supply".

172 The Smart car was originally developed through a joint venture (Micro Compact Car -MCC)
between Mercedes-Benz and SMH (manufacturer of Swatch watches). MCC is now fully owned
by DaimlerChrysler.

173 Financial Times Automotive, "The future of Automotive Distribution", 1998, p. 58; the Smart car

distribution network is to be expanded substantially (de.biz.yahoo.com of 29.2.2000).

51

4.3.3 Internet - a new marketing method

(139) The Internet can offer an alternative distribution method for vehicles in
Europe174. The question is not if, but to what extent, this development will
influence the traditional model of car distribution in Europe.

(140) The main driving factors for the growth of automotive commercial activities
on the Internet are: comprehensiveness and quality of
information,
attractiveness of presentation, interactivity allowing personalised two-way
communication and cost-effectiveness. This retail method is considered the
most suitable for some users in the future, especially given the declining
demand of after-sales services and the greater integration of computer-based
forward ordering systems into production scheduling. It is conceivable that a
new entrant manufacturer, or even a new brand from an existing
manufacturer, without needing to look after a network of long-standing dealer
partners, might wish to select this route and sell directly to end-consumers.175

(141) The importance of e-commerce is influenced also by the number of Internet
users. The use currently varies between the different Member States. In
Sweden, where there is the highest percentage of Internet users compared
with other Member States, more than 500 car dealers use the Internet to
promote their cars, and the number is increasing every month. More than 20%
of the consumers use the Internet as a source of information before they
decide to buy their cars, and this number is steadily increasing. The success of
this distribution system is due to the prospect of cutting marketing costs by
half and to the possibility of having relation-based marketing, which will be
the leading marketing strategy. A central database covering the customers’
preferences makes it possible to create a very precise overview of how the
customers use their vehicles and which services they need.176 The diffusion of
the Internet in the European Union over the last few years and its forecast

174 As to the different

types of automotive e-commerce models see ICDP “Who’s afraid of
“infomediaries”? The task for the car distribution industry in the information age” by Leonardo
Buzzavo”, Management Briefings No. 3/2000, p. 8:

Model
Dealer controls price

Referral (refers lead to dealer in return for fee)
Broker (arranges purchase and delivery - assumes margin
risk)
Dutch auction/ reverse bidding (posts consumer’s desired
vehicle and (maximum) price and dealers bid for the sale)
Name your price (posts customer’s vehicle request and
amount customer will pay for it – interested dealers respond)

Example
Individual dealer sites
or Driveoff.com
Autobytel.com
Carsdirect.com

Ebay.com
Carchoice.com
Priceline.com

175 ICDP, "Beyond the block exemption II", 6/99, p. 14.
176 Source: Periodical, 1-2 February 2000, from the Swedish Association for Motor Retail Trades

and Repairs (Motorbranschens Riksförbund, MRF).

52

growth are described in the following diagram, which shows the yearly
increase in the number of Internet users in Europe since 1997.

Diagram 12: Internet users in the EU

136

114

160
140
120
100
80
60
40
20
0

87

63

41

23

users (millions)

1997
1998
1999
2000
2001
2002

Source: El País, 18 February 2000, p. 41.

(142) However, some constraints to the success of e-commerce in car distribution
can be identified: the low degree of access to the Internet in Europe, legal
factors (such as security of transactions, protection of intellectual property
rights), the attitude of certain consumers preferring to have direct contact
with dealers, and the manufacturers’ tight control of their network in
Europe.177

Replies on e-commerce

(143)

importers express a very
In general, car manufacturers and independent
cautious attitude towards Internet sales, saying that, while the Internet will
grow as an information tool with a wide range of services, all sales realised
through electronic sales methods will be directed through the existing
distribution network.178

(144) Other manufacturers and importers179 acknowledge that the Internet will grow
dramatically in many fields, although it is still unclear if and how the Internet

177 ICDP, "Vehicle sales & supply stream: electronic new media and car distribution", by T. Chieux
and P. Wade, Research Report 7/98, April 1998, (hereinafter: ICDP, “Electronic new media and
car distribution"), p. 6.

178 It is said the overall distribution policy will not change for three main reasons: (1) consumers
need to touch and feel “in the real world” a really emotional product, (2) cars cannot be delivered
by mail (unlike books from Amazon.com for instance), (3) pre-delivery inspection and used
vehicle exchange can only be dealt with physically by a dealer.

179 The importers refer to the US market where in 1999 5% of the new vehicles were sold via the
Internet and 35% chosen via the Internet according to the importer, who believes that there will
be a similar trend in Europe. Frankfurter Allgemeine, Le Soir.

53

may evolve to become a sales function.180 Car manufacturers still have a
cautious approach towards sales via the Internet.

(145) The association of spare-parts producers believes that new communication
technologies will make access to technical information and services easier for
the repairer and end-user. It will also produce greater transparency in the
market for spare parts and will reduce the geographical boundaries and allow
consumers to reach all dealers world-wide.

(146)

improves consumers’ access to relevant

Internet operators and consumer associations think that
the Internet will
significantly influence the distribution system for cars in the near future, since
information and facilitates
it
comparisons, which is likely to increase price competition, and brings about
more retail competition and more innovation at the retail level. It will also
allow the manufacturers to substantially reduce costs arising from the
distribution system.

CONCLUSION:

The Internet presents important possibilities for introducing new methods for the distribution
of motor vehicles.  In general, consumers are more and more willing to purchase products via
the Internet.  Car manufacturers still have a cautions approach towards sales via the Internet.

New companies acting as intermediaries on the Internet:

(147) The leading market for car sales via the Internet is the United States. In 1995,
Autobytel.com was launched in the United States as a free on line service for
consumers wishing to purchase a new car. The dealers also pay a subscription
and a monthly fee to this Internet operator. According to the company’s own
research in 1998, 63% of the consumers who contacted them for a price
quote placed an order within 24 hours.181

(148) This operator entered the European market on 30 April 1999 when it was
launched in the United Kingdom. Autobytel UK enables the consumer to
place a Purchase Request online for a new or used vehicle. The Purchase
Request is electronically passed to the supplying dealer for order fulfilment.182

(149) Autobytel UK does not regard itself as a reseller, but as an intermediary or
provider of a new marketing method. Its aim is to offer consumers all

180 Mc Kinsey: forecast to expand at a compound annual growth rate of 104% in western Europe for

1998-2002.

181 FT "The future of Automotive Distribution", 1998, p. 82.
182 The fees to be paid by dealers are £5 000 sign-on fees, and £500 monthly fees for new and used

cars.

54

information concerning cars,
information and car buying value.183

including proprietary research tools, pricing

(150) Similar services are offered by CarPoint, a service operated by Microsoft
which was introduced on the Microsoft Network in 1995 and on the Internet
in July 1996. It operates in a similar way to Autobytel.com except that private
sellers cannot yet sell their cars via the service. Another new entrant
is
OneSwoop.com, a UK-based company, which plans to establish a new on-line
intermediary service to facilitate the purchase of cars, by offering additional
optional services such as financial services,
insurance and car delivery.
OneSwoop started to operate in January 2000 in the United Kingdom and
intended to expand to additional EU countries by mid-2000.

European manufacturers:

(151) All European manufacturers have their web sites containing corporate and
basic commercial information (group or company identity, network, vehicle
range). Still, in only a few cases is information about car prices and financial
details available to consumers.184 A content analysis of European car
manufacturers’ web sites was conducted in comparison with those of US and
Asian manufacturers in 1998. This showed that European manufacturers
appear to stress the information content of their web sites, but that interaction
with customers was still poor. By contrast, US and Asian manufacturers have
already focused their web sites on seeking an end result from visitors i.e. a
decision to purchase.185

(152) Only recently, some car manufacturers have started experimenting with
transactions on the Internet. Renault has enabled potential clients to make
reservations on the Internet, but it is not yet directly involved in sales, which
are still carried out by the dealers. In the near future, however, it is planning
to invest massively in e-commerce. In particular, Renault has recently financed
the establishment of Autobytel in Europe, and it is going to create several web
In December 1999,
sites in order to sell new and second-hand vehicles.186
Ford started to sell vehicles on the Internet in Finland. General Motors has
begun a dedicated online agency in the United Kingdom through its Vauxhall
brand.187 Mercedes and Fiat are testing the Internet for specific models in

183 Inchape and Bilia, two of the leading European distributor and dealer groups, have both acquired
parts of the company. Inchape has acquired 100% of Autobytel in the UK and Bilia has acquired
the exclusive rights for the Nordic countries (Sweden, Norway, Denmark and Finland).

184 ICDP, "Electronic new media and car distribution", 07/98, p. 16.
185 ICDP, "Electronic new media and car distribution", 07/98, p. 21.
186 "Renault ouvre ses portailes sur le web", Autoinfo 25 February 2000. In particular, Renault is
going to establish several web sites: renault.site, to inform final consumers on products and
services of the car manufacturer and to sell new vehicles; carevia.com, to sell used vehicles of all
brands; a multi-make web site, developed together with other car manufacturers, to inform
consumers on models of different makes; renault.net, to organise the commercial activity of its
network.

187 In September 1999, Vauxhall became the first car manufacturer to sell a range of cars exclusively
on the net. However, the sale of these cars is still the responsibility of the dealer. Nevertheless,

55

their range (Smart and Barchetta).188 Other car manufacturers, including
DaimlerChrysler’s Jeep and Toyota’s Lexus, have set up Internet clubs for
their customers.189 The use of the Internet
is also growing for online
purchasing and retailing. Ford and General Motors have announced plans to
shift their purchasing system on to web-based exchanges in order to achieve
savings by moving their component sourcing arrangements on-line.190

(153) Official dealers (individually or in groups) have only recently started to set up
their own web pages. For the time being, web sites developed by dealers are
used mainly for corporate communication and for the sale of used cars. The
Internet is also a very convenient tool for providing names and addresses of
dealers from the group.

Future outlook:

(154)

(155)

It is generally accepted that the Internet will grow as an information tool and
will provide consumers with better information for the purchase of new cars.
It will also increase price transparency, since a consumer can more easily
compare prices of vehicles and take advantage of the market disparities and
the differences in prices which may exist within one or more Member States.

It seems unlikely for a number of reasons detailed in section 7.1 (page 129)
that in the near future the Internet will replace the traditional dealerships for
the purpose of selling new cars. However, the possible growth of the Internet
in car distribution in Europe especially for cross-border trade is potentially
important. It could develop parallel trade on a much larger scale, with all the
benefits that would result from that, including a reduction in price differentials
the
between the Member States of the European Union.191 Moreover,

the choice of vehicle, the test drive the used-car trade-in, and the vehicle delivery can be
arranged by the consumer from his home. The consumer can also conclude the sales contract
with the dealer electronically.

188 "Renault met le turbo", Argus de l’automobile, 17.2.2000. As regards Fiat, the experiment was
limited to Italian consumers and went on only for a period of 4 months. Only a small number of
vehicles were sold.

189 "Rush is on for online sales", Financial Times Auto, 29.2.2000, p. II.
190 "Fast-track drive on the road to e-commerce", Financial Times Auto, 29.2.2000, p. I; see also
the joint B2B-market place “Covisint” of Ford, GM, DaimlerChrysler and Renault/Nissan under:
http://www.covisint.com/.

191 The Internet is considered an important tool for reaching the objectives of price transparency and
harmonisation, since it has an enormous potential for cross-border shoppers and could act as a
mechanism for creating a true European single market. In this regard, see ICDP study “Future
directions for European car distribution: Evolution or Revolution?", synthesis of ICDP2
research 1996-98 by M. Harbour with J. Brown, P. Wade and the ICDP research team, Research
Paper 11/98, September 1998,
ICDP, "Future directions for European car
distribution"), 11/98, p. 10.

(hereinafter:

56

Commission is promoting the Information Society including e-commerce via
the Internet.192

(156) E-commerce will have a positive impact on the independent after-market.

It
will be an important vehicle for disseminating technical information from
manufacturers to the independent sector.
It will permit efficient and quicker
delivery of products to independent repairers and lead to a reduction in costs
following the possible elimination of intermediaries in the distribution chain.
Moreover, it will provide a better service to future customers, who will expect
better and more clearly presented information and more transparency as
regards margins and commissions. E-commerce will thus help to increase
competition in the after-market between the official networks and independent
undertakings.193

CONCLUSION:

The  Internet  is  already  an  important  additional  marketing  tool  for  car  manufacturers  and
dealers.    It  reinforces  price  transparency.  The  Internet,  by  its  nature,  gives  consumers  an
easy-to-use and more efficient instrument for seeking a competitive offer beyond the territory of
the local dealer responsible for the territory in which the consumer is located.

The  Internet  generates  a  new  category  of  entrepreneurs  wishing  to  act  as  intermediaries  for
consumers  facilitating  the  purchase  of  their  cars.    They  might  want  to  develop  it  at  a  later
stage as a sales tool.

For  the  moment,  contrary  to  other  retail  sectors,  where  direct  business-to-consumer  trade  is
happening,  none  of  the  Internet-based  operators  are  able  to  sell  cars  directly  to  consumers.
They  have  to  go  through  the  dealer  network  and  thus  the  existing  distribution  system.
Currently, car manufacturers are themselves carrying out direct selling of cars to customers on
only a very limited trial basis (but still via or in cooperation with the dealer network for the
collection of cars).

Some  car  manufacturers  are  now  developing  their  Internet  business  to  include  spare-parts
trade.

4.3.4 New formats for sales and service channels

(157) The sale of cars via supermarkets is one example of such an alternative
distribution channel. Another example is vertically integrated sales companies
or dealers who are specialised in the sale of a specific type of car194.

(158) New cars have traditionally not been sold through such channels. The current
car distribution system based on exclusive dealerships does not make this a
realistic, economically viable channel of distribution. (For further explanation,

192 See e.g. eEurope, An Information Society for All, Communication on a Commission initiative for
under:
23

special European Council Lisbon

the
http://europa.eu.int/comm/information_society/eeurope/pdf/com081299_en.pdf
193 See PriceWaterhouseCoopers, “Guaranteeing Survival” May 2000, slides 15 et seq.
194 E.g. a dealer who sells only small cars or four-wheel-drive cars or sports cars.

24 March

published

2000

and

57

see section 6, page 64 of this report). This is highlighted by the notice on
intermediaries, which imposes very strict requirements both on intermediaries
who want to act within a supermarket's premises, and on supermarkets which
want to act as an intermediary.195 In both cases the current Regulation allows
manufacturers to ban very large, multi-branded car stores, which display a
selection of cars, choosing the more attractive models or the ones which fit
the retailer's market "niche".
It is said this system could lead to a decline in
the customer’s choice over the vehicle he can buy, since not all the models
will be selected for display or made available.

(159) From the manufacturers’ point of view, marketing costs would rise because
they would be forced to compete with other makes for “shelf space” at the
supermarkets. They would also face the task of maintaining territorial
coverage in rural areas, and both of these costs might need to be recouped in
the price charged for the product. It is foreseen that price competition would
increase, since it would be likely that central purchasing by large chains would
secure volume discounts.196
if distribution via
supermarkets takes place, whether this new means of distribution would
develop in addition to existing dealerships and would increase customer
choice. Due to the fact that dealerships and supermarkets normally cover
large geographic zones, it
territorial coverage would not be
jeopardized.

It remains to be seen,

is said that

(160) Car manufacturers have made a number of limited attempts to distribute their
vehicles via certain supermarkets in order to increase market penetration.197
Supermarkets have also tried to begin marketing of cars, but sometimes
without success.198
It is noteworthy in this context that supermarkets are
successfully starting to sell motor bikes in certain countries.

195 Notice on intermediaries, section 2(a), 2nd paragraph and section 2(b), last paragraph.
196 ICDP, "Beyond the block exemption", 4/98, p. 50.
197 For example, negotiations took place between the French supermarket chain Auchan and Fiat
with a view to cooperation for the sale of the Lancia Epsilon model in France. It was envisaged
that the 118 supermarkets would act as commercial agents of the local Fiat dealers. Le Monde,
1.10.1999. The agreement was apparently not concluded due to the dealers’ opposition.

€

198 A recent example: in August 2000, the German supermarket group Edeka made promotion about
the sale of the Smart car from DaimlerChrysler. Edeka wanted to sell a package consisting of a
)], a printer, a GSM, a radio and a travel arrangement for
portable PC [worth 4,999 DM (2,500
€
] on the condition that the customer buys a Smart car from a Smart dealer.
1,000 DM [500
DaimlerChrysler gave instructions to its dealers not to take part in this action and Edeka
cancelled it (see e.g. http://www.swr.de/plusminus/beitrag/00_09_08/beitrag1.html). Another
example of the marketing of cars by a supermarket concerns Sainsbury’s in the UK: Starting on
14 August 2000, customers can choose and order a new car amongst 3,500 models at the same
time as they do grocery shopping under the Sainsbury’s Bank Drive scheme, which is a personal
contract purchase scheme with the possibility, after the end of the agreement (2 or 3 years), to
purchase the car or to give it back. (see: http://www.j-sainsbury.co.uk/investors/140800.htm).
The Spanish retailer El Corte Inglés is also trying to engage in new car sales in co-operation with
a joint venture founded by dealers as of October 2000 (see Expansión of 16 August 2000, p. 3).

58

(161) The Korean car manufacturer Daewoo has chosen another marketing method
in its effort to penetrate the European market without vertically integrated
sales companies. Daewoo chose to enter the European market by using a
combination of wholly owned national sales companies and distributors
instead of a traditional dealer network. The company established several
Daewoo car centres, company-owned showrooms where prospective buyers
could see and test-drive the product. Daewoo achieved its target 1 per cent
market share in the United Kingdom.199

(162) Spare parts and accessories are often sold through supermarkets. For
example,
the French retailer, Carrefour, sells parts and service products
through its supermarkets. It also has special Centre-Auto/Service Automobile
Carrefour centres (CA/SAC) centres where it carries out basic vehicle service
and "fast-fit" work. Carrefour currently has 130 supermarkets in France, of
which 52 have CA/SAC centres. Carrefour sells a wide range of car parts and
accessories.200
It is the market leader in France in the sales of lubricants,
wipers, batteries and seat covers.201

CONCLUSION:

Regulation  1475/95  allows  manufacturers  to  ban  large,  multi-branded  car  stores,  which
display  a  selection  of  cars,  choosing  the  more  attractive  models  or  the  ones  which  fit  the
retailer's  market  "niche".    Therefore  this  Regulation  limits  the  development  of  new
distribution channels for motor vehicles.

5

ENFORCEMENT OF REGULATION 1475/95 BY THE COMMISSION

5.1 LETTERS FROM CONSUMERS AND INTERMEDIARIES

(163) The Commission has received letters from consumers concerning their negative
experiences in exercising their single market rights. In 1995 and 1996, German
and Austrian consumers in particular wrote to the Commission complaining
about obstacles in buying Volkswagen/Audi cars in Italy. From 1997 onwards,
UK residents in particular have encountered many difficulties when trying to
buy right-hand-drive (RHD) vehicles on the continent. More than 500 such
letters concerning RHD problems were received in 1998 and 1999. In addition,
the Commission received about 90 requests for information on the subject of
buying RHD cars abroad. By comparison, in the same period some 130 letters
were received which concerned problems of cross-border purchases for left-
hand-drive cars. (See Annexes III and IV for further details.)

199 FT "The Future of Automotive Distribution", study, p. 28-30.
200 Windscreen wipers, seat covers, brake pads, car alarms, stereos, roof racks, tyres, lubricants and

batteries.

201 FT "The Future of Automotive Distribution", study, p. 163.

59

(164) Even if these letters do not give a comprehensive picture of the problems that
the consumers face,
they are an important source of information for the
Commission. They indicate that the single market in car distribution does not
yet function as it should if all involved fully complied with the relevant EU
competition rules and Regulation 1475/95.202
The proceedings against
Volkswagen/Audi in 1998 for impeding consumers from buying a car in another
Member State and the initiation of several proceedings for obstacles to parallel
trade against various car manufacturers, based on consumer complaints,
confirm this situation (see further section 5.2.1 below, page 61). As can be
seen from Annexes III and IV, in certain Member States distribution systems
seem to give rise to more complaints than in others. Consumers still quote the
same types of problems they encounter when ordering a car abroad. These are:
difficulty in finding a dealer who is prepared to take their order; difficulty in
getting a price quotation; much longer delivery time than for local customers;
high deposits; high RHD supplement; delays in agreed delivery time; non-
delivery of vehicles and cancellation of orders.

(165) Based on the information available to the Commission and the complaints
received, parallel trade takes or took place mainly between the following
countries:
• consumers, from Germany, try (or tried) to purchase new cars in Italy
(mainly between 1994 and 1996), Denmark, the Netherlands, Belgium and
Finland;

• consumers from Austria, tried to purchase new cars between 1994 and 1996

in Italy;

• British consumers have been purchasing new cars in the Netherlands,

Belgium, Germany, France, Denmark and Portugal since 1997;

• consumers from Belgium try to buy certain models of new cars in Germany;
• consumers from France try to purchase new cars in the Netherlands and
Germany, mainly because the delivery times are shorter in Germany and the
prices are lower in the Netherlands than in France; some French consumers
also buy cars in Belgium;

• consumers from Portugal purchase new cars in Spain;
• consumers from Spain purchase new cars in Germany;
• Swedish consumers try to buy new cars in Denmark;
• Norwegian consumers buy cars in Denmark.

202 Some of these complaints are about obstacles to parallel trade committed before the entry into
force of Regulation 1475/95 on 1 October 1995. However, under Regulation 1475/95 and also
under the Commission’s first motor vehicle block exemption, Regulation 123/85, the protection
of parallel trade was one of the core elements for the exemption of motor vehicle distribution
agreements (see e.g. notice on Regulation 123/85, chapter I 1; see also Court of First Instance
judgment of 6 July 2000 Volkswagen v. Commission, case T-62/98, pt. 241).

60

(166) The feedback received from intermediaries is also negative. They complain
about the obstacles they face from car manufacturers or dealers when they act
to exercise the right to buy a car abroad for a particular customer.

(167) Where letters from consumers or intermediaries indicate problems which should
not occur in a distribution system which is compatible with Regulation 1475/95,
the Commission forwards those letters to the relevant manufacturer or importer
and asks them to take action to remove the problem and to inform the
Commission and the complainant of the action taken.
In general, following
such action by the Commission, the car manufacturers are prepared to find
solutions to the problems. However, the manufacturers do not always put in
their distribution network in
place general measures applicable throughout
order to avoid repetition of the problem.

5.2 FORMAL PROCEDURES INVOLVING REGULATIONS 123/85 AND

1475/95

5.2.1 Major proceedings against car manufacturers

(168) All formal proceedings initiated against car manufacturers described below
relate to "black practices,"203 most of which are impediments to parallel trade,
encountered when consumers want to buy a car in a country other than their
country of residence, thereby profiting from a lower price.

(169) Between 1995 and 1999, the Commission carried out several inspections at the
premises of car manufacturers, their importers and some of their dealers. The
objective of these actions was to verify whether measures had been taken vis-à-
vis dealers with the aim of restricting or preventing sales to customers from
other Member States in a way which was contrary to Regulations 123/85 and
1475/95.
In all these cases, the decision to initiate an investigation had been
motivated by complaints from consumers who were trying to benefit from the
advantages of the single market and who informed the Commission about
alleged obstacles to such sales.

(170) During inspections carried out

in October 1995,

the Commission found
evidence that Volkswagen AG and its subsidiary Audi AG, in conjunction with
their common importer for Italy, Autogerma S.p.A., had developed a strategy
of hindering and/or preventing purchases of new cars in Italy by final
consumers, in particular German and Austrian consumers. The Commission
adopted a negative decision on 28 January 1998 against Volkswagen AG,
In its judgment of 6 July 2000 the
imposing a record fine of

102 million.204

€

203 See section 3.3.3.2, page 22, for more details.
204 OJ L 124, 25.4.1998, p. 60; see also Press Release IP/98/94, 28.1.1998. Volkswagen has

challenged this decision before the Court of First Instance.

61

Court of First Instance confirmed the essential findings of this decision,
although it reduced the fine to

90 million.205

€

(171) Another case involving Volkswagen AG concerns price-fixing for the new
Volkswagen Passat model in Germany. A statement of objections206 was sent to
the company in June 1999, stating that this measure infringed Article 81 of the
EC Treaty, as dealers were being discouraged from competing effectively with
dealers in other Member States where prices were lower. It also reduced
incentives for customers from other high-price markets (such as the United
Kingdom) to purchase a car in Germany.

(172) After inspections had been carried out

in December 1996, a statement of
objections was sent to DaimlerChrysler AG in April 1999, claiming that the
company, together with its importers in Spain, the Netherlands and in Belgium,
had undertaken measures intended to restrict and/or prevent sales of Mercedes-
Benz cars in these Member States to non-resident consumers.207

(173) In the case concerning the Dutch importer of Opel, the Commission imposed by
. The decision is based on
decision of 20 September 2000 a fine of 43 million
the documents found during inspections carried out
in December 1996.
According to these documents, Opel Nederland B.V. had implemented a
number of measures in order to restrict and/or prevent purchases of new Opel
cars in the Netherlands destined for immediate re-export.208

€

(174) In two further cases, the Commission carried out inspections at Renault S.A.,
Peugeot S.A. and Citroen S.A. and certain of their importers in March and

205 Court of First Instance judgment of 6 July 2000 Volkswagen v. Commission, case T-62/98. The
CFI decided that the measures adopted by Volkswagen, such as the bonus policy, by which it
sanctioned export sales through non-payment of the bonus normally granted for domestic sales,
the restrictive supply policy, the behaviour towards consumers who were discouraged from
buying new cars in Italy and through control, warnings and sanctions in respect to Italian
dealers, restricted parallel trade and infringed Article 81 (1). In contrast, the CFI considered that
it had not been established with sufficient evidence that Volkswagen had introduced some
measures on which the fine was based, especially the split margin system to limit parallel
exports.
The CFI held that the Commission knew about the above illegal bonus scheme and that it had not
been able to show that the infringement went on after Volkswagen had sent circular letters in
1996 to its dealers. It therefore ruled that the fine should be based on an infringement period of
only three years, i.e. from 1993 to 1996 (instead of more than ten years).
However, the CFI only slightly reduced the fine by
the CFI’s view that restrictions of parallel trade are very serious infringements.

90 million which indicates

12 million to

€

€

206 A statement of objections (SO) is the first step in a formal proceeding by which the Commission
informs undertakings in writing of the objections that it raises against them in view of an alleged
breach of EC competition rules; the undertakings concerned have the right to comment on the
SO, which in no way prejudges the outcome of a case.

207 See Memo/99/22, 16.4.1999 and Note BIO aux bureaux nationaux BIO/99/407, 27.10.1999. The
proceedings against DaimlerChrysler and the Volkswagen (price fixing for the Passat) are not
yet finalised. The Commission is currently analysing the replies to the statement of objections
submitted by these car manufacturers
208 See press release IP/00/1028 of 20/9/2000.

62

September 1999 respectively. The inspections were prompted by information
which indicated that non-resident customers, among them UK and French
consumers, were hindered (in particular in Germany,
the Netherlands and
Ireland) when buying a car. These cases are still under investigation. They all
concern core principles of EU competition rules for motor vehicle distribution,
which were protected both by Regulation 123/85 and by Regulation 1475/95.

5.2.2 Formal complaints

(175) The Commission has received a number of formal complaints in the field of car
distribution. Annex V describes the types of complaint received by subject
matter.

5.2.3 Notifications of distribution agreements

(176) There exist a number of agreements for the distribution and servicing of motor
vehicles which do not come under the Regulation and for which it does not
In 1997 the Commission received a notification of
provide any legal security.
the standard agreements for Ford service outlets. The Commission found that
the agreement did not fall within the scope of Regulation 1475/95, since it
the Commission recognised the
concerned servicing alone. However,
advantages for consumers, especially with regard to having services near to
hand. The Ford service outlet agreement fulfilled the conditions set out in
Article 81(3) and the case was closed by means of a comfort letter.

(177) The notification of the standard distribution agreements for the Smart car
concerned a new distribution concept for cars. However, after having insisted
that Smart dealers must be able to sell other makes and to seek, through
advertising, customers outside the contract territory, the Commission sent the
parties a comfort letter in which it confirmed that following these considerable
modifications the agreement was compatible with Regulation 1475/95. 209

CONCLUSION:

The proceedings initiated against car manufacturers indicate that one of the main objectives of
the  Regulation,  i.e.  to  protect  the  rights  for  consumers  in  a  single  market  described  in  this
report,  appears  not  to  be  entirely  fulfilled.    Moreover,  the  fact    that  new  types  of  car
distribution and/or servicing systems have been  notified  is  a sign that  Regulation  1475/95
does not cover other types of motor vehicle distribution  and/or  servicing agreements.  It thus
provides legal security for only one type of such agreements.

209 XXVII Report on Competition Policy, 1997, First Part, section I, B 3 and Press Release

IP/97/740, 4.8.1997.

63

6

ASSESSMENT OF THE APPLICATION OF REGULATION 1475/95

6.1 ASSUMPTIONS UNDERLYING REGULATION 1475/95: ARE THEY STILL

VALID?

6.1.1 Does effective competition exist in the motor vehicle industry?

(178) One of the basic assumptions underlying the exemption of exclusive and
selective distribution agreements
that effective
competition exists, not only between manufacturers of different brands
through their respective distribution systems (inter-brand competition), but
also to a certain extent between different dealers of the same brand (intra-
brand competition). An objective of Regulation 1475/95 is that European
consumers should take an equitable share in the benefit from the operation of
such competition.210

for motor vehicles

is

6.1.1.1

Intra-brand competition in car distribution

Limits set by the Regulation

(179) According to the Regulation, members of a dealer network must be free to
sell to final customers, either directly or through an intermediary, and to other
dealers belonging to the same network, irrespective of their place of residence
within the EU. Dealers are, however, not authorised to sell to undertakings
which do not belong to their network and which are not final consumers, but
carry out a resale activity, usually referred to as "independent resellers".211

(180) Due to the principle of territorial exclusivity, dealers have a particular
obligation to focus on their contract territory. They may, however, also sell
to customers coming from outside the contract territory (passive sales), or
seek customers outside their own contract
territory, unless this is done
through personalised contacts.212 Dealers within a given Member State
therefore have the right to compete with other dealers, and in particular with
dealers from other Member States.

6.1.1.2

Intra-brand competition within a Member State

(181) Dealers within the distribution network of a particular car manufacturer have,
in principle, a number of instruments available which allow them to actively
compete with other dealers.
In particular, dealers may grant discounts and
other benefits to customers. They can also rely on their professional skills, the

210 See recital 30 of Regulation 1475/95.
211 Article 3(10) and (11) of Regulation 1475/95.
212 See Article 3(8) of Regulation 1475/95 (right to carry out passive sales, and right to actively seek
customers outside the contract territory unless this is done through personalised advertising).

64

quality of service (sales and after-sales), the offer of favourable terms for the
trade-in of second-hand cars, and the provision of a large number of other
customer-related services (for instance, extended opening hours, flexible
service, replacement cars, 24-hour assistance). These measures allow them to
compete with other network dealers.

(182) The widespread use of such measures may serve as an indication of effective
competition. However, the “margins” granted by manufacturers or their
suppliers to dealers (i.e. the [wholesale-] prices at which cars are sold by the
manufacturer or importer to the dealer as compared to the recommended
retail prices) are similar for all dealers selling a given model in a given
Member State, and large dealers do not benefit from a higher volume-related
discount than small dealers. Intra-brand competition is thus to a certain extent
limited as regards price competition. There do not, in the current system,
seem to be sufficient incentives for manufacturers to reduce the supply price
when a dealer orders large quantities.

(183) Most manufacturer reserve themselves the right to make direct sales to certain
reserved customer groups.213 These deals are usually directly negotiated
between the customer and the manufacturer or its supplier in the customer's
Member State. Dealers have the right to compete for such deals. However,
the discounts usually granted by the manufacturer to reserved customers
largely exceed the discounts which a dealer is able to offer to his individual
customers, with the result that in practice dealers can not effectively compete
with their manufacturers on these deals.

(184) The trend towards fewer dealers and larger contract territories is described in
section 4.1.2, in particular point (91) (page 36).
It is said that this carries a
risk of some reduction in intra-brand competition,214 as customers have to
invest more time and effort in comparing offers. On the other hand, bigger
dealers are in a better position to make extensive publicity in particular
beyond their sales territory. The Internet may in general make it easier and
cheaper to advertise over a wider area.

6.1.1.3

Intra-brand competition across the EU

(185)

Intra-brand competition among dealers from different Member States is
fostered by the substantial price differences existing across the European
Union and by improved price transparency. The latter has been generated by
the Commission's regular Car Price Reports215 and by the introduction of the
euro in the Member States belonging to the Eurozone.

213 Typically,

reserved clients comprise company staff, national authorities, employees of
international organizations, larger undertakings and leasing and rental companies. The right of
direct sales can however be excluded according to Article 2 of Regulation 1475/95.

214 See, for example, ICDP, "Beyond the block exemption", 4/98, p.33; Auto Infos 1100, 11.2.2000,

p.14.

215 These Commission Reports are published twice a year. For further details, see section 3.4.3,

page 27, of this report.

65

(186) While price differences are the main driving force for parallel trade, other
factors such as availability of certain models or delivery times may equally
play a role in intra-brand competition. As customers become increasingly
aware of opportunities for buying a car in another Member State where prices
and other sales conditions are more favourable, dealers in certain markets
where prices are higher can face competition from foreign dealers.

Factors explaining price differentials:

(187) Prices, and consequently price differentials, are the result of a number of
factors which have to be assessed individually in each Member State. While
some of these factors may be considered to be variables which are beyond the
control of market operators and which can be influenced only in the long term
(such as taxation, exchange-rate fluctuations and the general economic
situation in a Member State), others are variables which may be changed in
the short or medium term.

Manufacturers' pricing policies

(188) Manufacturers decide on their pricing policies by assessing what a consumer
would be ready to pay for a car, taking into account factors such as the
general economic, monetary and taxation situation in the Member State
concerned, the purchasing power of potential car buyers and the prices of
competing models, and also elements such as market share objectives and the
relative importance of customer groups.
In this respect, differences in
standard equipment and options also play a role in price comparisons of a
particular model between Member States.

(189) Manufacturers also rely on make-specific aspects for pricing, such as the
different perception of the make in a national market, which may be
influenced by the manufacturer's historical presence in that market.216 Finally,
differences in distribution and transport costs, as well as other operational
costs, may have an influence on the final pricing of a make or model.217
Based on these elements, all manufacturers or, where relevant, importers issue
lists with recommended retail prices to their dealers.

Taxation of car purchase

(190) Manufacturers attribute a large portion of price differentials to differences in
the taxation of the purchase of a new vehicle, such as different levels of VAT
and differences in other taxes such as licensing, environmental or luxury taxes.
taxes have up to now been excluded from tax
As these other car

216 For

instance, Mercedes-Benz in Germany or Fiat

in Italy are manufacturers who are
traditionally strongly present
these
manufacturers have to apply different market strategies in countries where they face competition
from strong domestic producers.

in their respective home markets; on the other hand,

217 See also report by Lehman Brothers, 31.7.1998, analysing price differentials for various products

across the European Union.

66

harmonisation in the single market, wide differences still exist across the
European Union as to car purchase taxation.

(191) Recommended list prices before tax are relatively low in countries where
taxation of car purchase is high. A further particularity of the car sector is the
requirement that, in contrast to all other goods, taxes have to be paid in the
country of destination; this includes VAT,218 and any additional tax on car
purchase and registration tax. VAT rates, like other taxes, also vary between
Member States.219

(192) The following diagram gives an overview of taxation in the Member States for
a car with a 2000 cc engine. The columns give the percentage of car taxes
based on the car price, net of tax. The shadowed part of each column
corresponds to VAT, the white to other taxes.

Diagram 13: Car taxation in the EU Member States

Source: ACEA: Tax 1999

(193) These factors create strong incentives for re-exporting cars from Member
States where, due to taxation, prices before tax are relatively low into
countries where prices before tax are relatively high.

Currency fluctuations

(194) Exchange rate developments are another major cause for price differences.220
Prior to the introduction of the euro,221 fluctuations concerned in particular
the Italian lira,
Since
1 November 1999, exchange rate movements have been limited mainly to the
pound sterling and the Swedish krona.222 It has been observed that, in order

the Swedish krona and the pound sterling.

218 Value Added Tax.
219 See Annex VI, ACEA, "Motor vehicle taxation in the European Union", Summary Table, 1999

for details.

220 See also UK Competition Commission report, pt. 2.205 et seq.
221 On 1 January 1999 in Belgium, Germany, Finland, Spain, France, Italy, Ireland, Luxembourg,

Austria, the Netherlands and Portugal.

222 For an analysis, see section 6.3.1, pt. (319) page 103, of this report.

67

to avoid losing competitiveness as compared to local producers, or to
preserve currency-induced windfall benefits, manufacturers are reluctant to
sufficiently adapt local prices to exchange rate changes.223

(195) Such situations can create strong incentives for intra-brand competition, as
customers increasingly seek to acquire cars in Member States where, due to
exchange rate movements, cars are cheaper.224

The particular situation in the United Kingdom and Ireland:

(196) Regulation 1475/95 provides that customers must be able to order a car from
a dealer in another Member State with the specifications of their home
country.225 This provision (known as the "availability clause") particularly
concerns the right-hand-drive specification common for the United Kingdom
and Ireland.

(197) The supplement for such right-hand-drive specification226 is determined by the
manufacturer as an absolute amount
in national currency, for each of a
manufacturer's models. It has to be objectively justifiable and may include any
extra production and administrative costs, or an extra fee based on
administrative and logistics costs involved in the specification.227 Indeed, the
relative importance of the supplement depends on the car's price before tax,
although the absolute amount may be identical or similar for a given brand.
Therefore, in the eyes of consumers, the supplement charged outside the
United Kingdom or Ireland may be one element which may influence their
decision to buy a car in another Member State.228

(198) The degree of intra-brand competition between the United Kingdom and other
Member States has also been influenced by the fluctuation of the exchange
It has
rate of the pound sterling as already mentioned earlier in this report.

223 See Commission Decision of 28.1.1998 (Case IV/35.733 - VW, OJ L 124, 25.4.1998, which
mentions the situation in Italy, where, in 1995, the Italian lira had devalued substantially against
the German mark and the Austrian schilling, and Volkswagen did not sufficiently raise its prices
in Italy, because it feared losing market shares against its Italian competitors; or IP/99/554
concerning the situation in the UK; here, it was mentioned that so called "windfall profits" can
occur in cases where the currency of an export market (example: pound sterling) is re-evaluating
against the domestic currency of a manufacturer (example: German mark), and where the latter
does not reduce its prices in the re-evaluating currency.

224 See section 6.3.1, pt.(323), page 104 of this report for an analysis.
225 Article 5 (2)(d) and Commission notice on Regulation 123/85, Chapter I 1.
226 See also (61), page 24,pt. 5th bullet point
227 See Commission notice on Regulation 123/85, Chapter

II 2; see also UK Competition
Commission report, pt. 2.103 and 2.104: according to the UK Competition Commission, for most
cars the original planning and development includes left-hand and right-hand variants. Thus the
design costs of these variants should be part of the general production cost of the relevant model
and be spread across the whole production volume of that car model. Consequently, for the vast
majority of new cars a supplement based on planning and development and/or production costs
does not seem to be justifiable.

228 For further information, see pt. (327) et seq., page page 106, of this report.

68

been found that between 1 May 1997 and 1 November 1999, the value of the
pound appreciated by about 24% against the ECU/euro.229

Delivery times

(199) Delivery time is an aspect which becomes relevant for intra-brand competition
in particular when a car is ordered by a customer in another Member State
than his country of residence. Delivery times may differ between Member
States for all customers, i.e. national and foreign, and in particular, apart from
more general manufacturer-specific logistical factors,
for models newly
introduced on the market or specific versions of a model.

(200) Delivery times may vary, sometimes considerably, and are often longer than
usual or expected, when a car is ordered by a customer from another Member
State.
This concerns in particular, but not exclusively, models newly
introduced on the market. As regards delivery times for cars sold to
incumbent and foreign buyers, the rule is that they should be the same.
In
practice it is shown that delivery times quoted to foreign buyers are generally
considerably longer.230 However, such longer delivery times231 are only
permissible for the so-called corresponding cars.232

(201) Parallel trade should especially take place within border areas of neighbouring
countries, and/or between countries where appreciable price differences exist.
Due to their high car price level in general, Germany and France and, since
1997, the United Kingdom233 should be major destinations for re-imports,
whereas in countries such as the Netherlands, Denmark, Spain, Ireland and
Finland, strong re-export demand should exist.

229 For more information, see pt. (319) et seq., page 103, of this report.
230 For details see section 6.3.1, page 97, of this report.
231 In general not more than 6 weeks.
232 The most common examples of such corresponding cars are cars with right-hand-drive
specification for the United Kingdom and Ireland purchased in mainland Europe and cars with
engine versions meeting road tax-exempted emission standards in Germany.

233 See the Commission's Car Price Reports.

69

CONCLUSION:

Intra-brand  competition  relies  on  a  number  of  instruments  available  to  dealers  which  are
members  of  the  distribution  network  of  a  manufacturer.  The  granting  of  discounts  and  other
benefits to  customers  is  the most  important  instrument  available  to  dealers  for  the  purpose  of
competing  with  each  other.    However,  the  margin  and  bonus  policies  usually  applied  by
manufacturers,  which  provide  for  a  fixed  margin  for  each  car  sold  and  a  bonus  for  the
achievement of certain objectives, put a limit on dealers' financial leeway.

Intra-brand competition between dealers from different Member  States  relies basically  on  price
differentials  for  new  cars  across  the  Community,  and  should  be  fostered  by  an  increasing
awareness  on  the  part  of  consumers,  prompting  them  to  engage  in  parallel  trade.    Price
differentials  are  caused  by  certain  factors  which  are  outside  the  influence  of  market  operators,
but also stem from pricing strategies applied by car manufacturers.

Competition  is,  however,  limited  by  the  restrictions  on  personalised  advertising  outside  the
contract territory and by the ban on selling to undertakings not  belonging  to the network  who
carry out resale activity.  Both restrictions are permitted by Regulation 1475/95.

6.1.1.4

Inter-brand competition in car distribution

(202) The structure of the motor vehicle industry in the European Union has been

described in section 4.1 (page 28) of this report.

(203) Market shares and their trend over time may give some indication of the
degree of inter-brand competition. The market shares234 of manufacturers and
their brands not only vary over time across the European Union,235 but also
differ widely as between Member States (see following diagram for
illustration). Moreover, another
inter-brand
competition can be seen in the large sums spent by all car manufacturers for
the promotion of new car sales.

the level of

indicator

for

(204) The basic assumption concerning intra-brand and inter-brand competition
described above at the beginning of this section relates to the distribution of
new motor vehicles. However, since the Regulation establishes for the
purpose of the exemption a link between sales and after-sales services, this
report also analyses the degree of competition in the area of after-sales
services.

234 For the purpose of the table, market shares are calculated for a certain geographical area of the

European Union, or for individual Member States and for the total passenger car market.

235 Source: ACEA, CCFA.

70

Diagram 14: Car manufacturers market shares

EUROPEAN
UNION
MARKET

SHARE

DOMESTIC
MARKET SHARE
%

MEMBER
STATE(S)
LOWEST

MARKET
SHARE %

MANUFACTURER

Volkswagen
1999
1998
1997
1996
Renault
1999
1998
1997
1996
PSA
1999
1998
1997
1996
Ford
1999
1998
1997
1996
General Motors
1999
1998
1997
1996
Fiat
1999
1998
1997
1996
Japanese producers
1999
1998
1997
1996

D

28.2
27.5
27.3

F

29.0
27.3
26.6

F

28.2
28.6
29.4

I

39.0
43.1
43.7

-

UK

18.5
18.7
20

UK

13.4
14.3
14.8

D

8
11.1
11.4

D

14.5
15.8
16.4

18.8%
18.0%
17.1%
17.1%

11.0%
10.7%
9.9%
10.2%

12.1%
11.4%
11.3%
12.1%

11.2%
11.8%
13.0%
11.7

11.5%
11.5%
12.1%
12.4

9.6%
10.9%
11.9%
11.4

11.5%
12.0%
11.7%
10.4

MEMBER
STATE(S)
HIGHEST

MARKET

SHARE
(EXCEPT HOME
MARKET) %
A

31.1
29
27.4

E

13.7
12.8
13.3

E

21.0
21.8
20.6

IRL

11.3
12.9
13.7

UK

9.3
8.7
8.5

DK

3.7
3
2.8

S

1.2
3.3
3.7

GR

3.2
4.1
4.7

F

GR

FIN

P

6.4
6.9
7.4

6.7
5.9
7.3

S

1.0
0.6
0.3

F

4.8
4.4
3.8

14.6
14.1
15.5

GR

13.1
13.6
17.5

12.4
14.2
14.4

P

13.2
14.1
17.5

IRL

31.5
30.4
31.3

Source: ACEA; www.acea.be; CCFA (Comité des Constructeurs Français d'Automobiles),
"Analyse & Faits, Le marché européen," 1999, www.ccfa.fr.

(205) Car manufacturers generally hold strong market positions in their home
market, despite the fact that, since 1995, many national producers have lost
market shares to foreign suppliers.236

(206) However, nearly all manufacturers listed in this diagram sell cars under
various brands. If the market share trends are considered on a brand to brand

236 Source: ACEA.

71

basis, it can be seen that inter-brand competition takes place not only between
manufacturers, but also between the brands belonging to one manufacturer. 237
The latter type of competition between the brands of one manufacturer is,
from the competition view point, not relevant.

(207) A further indication for inter-brand competition could be that standard
equipment of cars has generally improved, while prices paid at the retail level
in absolute terms have diminished. As a result, it is argued that prices for cars
have diminished in relative terms, as compared with other products.238

Multi-make distribution:

(208) The possibility for a dealer to sell a second (or third) make239 is designed to
be a tool for promoting competition between brands belonging to different
manufacturers, and for enhancing dealers' commercial independence vis-à-vis
In reality, multi-brand
their primary manufacturers or
arrangements are usually limited to cases where a dealer sells a second make
of the parent company,240 or where a dealer's first make has a low market
share or is represented in a "niche market", where selling a second make is
In the Nordic countries in
vital to the dealer's business operations.241
particular, selling a second or third brand appears to be vital for the dealer's
business operations and profitability, given the low or very low population
density in many of their areas.

importers.

(209) Real multi-brand arrangements are very rare.

Consequently, existing
arrangements do not have an appreciable impact on inter-brand competition
across the European Union.

(210)

It is argued that brand loyalty from consumers when sourcing a car is very
high. This factor can have a limiting effect on inter-brand competition,
especially in an environment where real multi-brand distribution is very
limited.

Manufacturers pricing policies:

(211) Manufacturers claim that aggressive pressure by competitors is the major
element determining their pricing policies. Whilst this is true to a certain
extent, it has also to be acknowledged that large manufacturers or those
which have a strong market position on their home markets often act as price
leaders when setting list prices, others with smaller market shares are often
price followers (i.e. are orienting their policy with regard to the one adopted

237 See for details ACEA, "Western Europe New Passenger Car Registrations", 1999.
238 See section 6.3.1 of this report.
239 See Article 3(3) and recital 7 of Regulation 1475/95.
240 Important examples are Volkswagen/Audi, BMW/Rover, General Motors/Saab.
241 A particular case is the joint distribution of Renault/Volvo in the Nordic countries, a legacy of the

former cross-shareholding between both companies.

72

by the stronger players).242 However, some new entrants into the European
car market, such as Korean manufacturers, seem to set their prices at levels
which allow them to gain market access and to increase their market share in
Europe.

(212)

their
In using their pricing instruments, manufacturers take into account
strategic objectives,
in particular market shares, volumes and/or profits.
Subjective, customer-related aspects, such as the image of the make and the
perception of the price/quality ratio of the model, also have an influence on
the manufacturers' pricing decisions. Apart from this, exogenous factors such
as the economic conditions of the market and the taxes levied on new cars
play an important role when recommended retail prices are set for the
different Member States.

CONCLUSION:

I

t can be said that there is currently reason to believe that effective inter-
brand competition exists in the European Union.

6.1.1.5

Competition in after-sales servicing

(213) Dealers and service outlets of car manufacturers, independent repairers and
so-called "fast-fit" chains are competing in the after-sales service business.
During the term of the manufacturer's warranty, cars are almost exclusively
serviced by an authorised repairer, as customers may otherwise lose the
benefit of the warranty.243

(214) After the warranty period has expired, many customers continue to entrust a
dealer or service outlet with service, maintenance and repair work for their
cars, at least for some years. For certain routine work, many customers turn,
however, to an independent repairer or to a fast-fit chain. After 3 to 5 years,
cars are increasingly serviced by independent repairers or fast-fit chains.244
Contrary to the sale of new cars, consumers can, after the end of the warranty
period, choose amongst (three to four) different types of after-sales service
providers (dealers, independent repairers, fast-fit chains and, for some makes,

242 See also UK Competition Commission report, pts. 2.177 and 2.178, 7.4 and chapter 9. In this
context see also Frank Verboven “The markets for gasoline and diesel cars in Europe”,
discussion paper n° 2069, February 1999, Centre for Economic Policy Research, p. 2, 35: this
study on price differentials between a given car model equipped with a diesel engine and a petrol
engine comes to the conclusion that 70% to 85% of the price difference is attributable to price
discrimination; the remaining percentage follows from the higher costs due to differences in
specifications. The fact that such price discrimination is possible is one element which seems to
indicate that inter-brand competition in the car sector might not be as strong as it is generally
believed.

243 Articles 5 and 6 of Regulation 1475/95 provide that the warranty has to be honoured by any
dealer in the European Union, irrespective of the place of purchase of the car; in fact, all
manufacturers have introduced such provisions in their service booklets.

244 See section 4.2.1, page 43, of this report.

73

service outlets). Generally, after-sales servicing takes place close to the
consumer's residence in his home country.

(215) The freedom of dealers to source spare parts of matching quality for
maintenance and repair work245 should have a positive impact on competition
in after-sales servicing,
in particular between dealers and independent
repairers.

(216)

repairers

also depend on the

Independent
technical
information246 given the increasing importance of electronic components and
systems in cars. The access to technical information provided for by the
Regulation is aimed to promote competition in after-sales servicing.

availability of

CONCLUSION:
In  practice,  competition  in  after-sales  servicing  is  limited  to  the  period  after  expiry  of  the
manufacturer's warranty, as during that term consumers prefer to turn to dealers for the repair
and maintenance of their cars in order to not to loose the warranty.  After the warranty period,
competition  takes  place  since  consumers  can  turn  for  servicing  to  undertakings  inside  and
outside  the  official  network.    The  situation  is  thus  very  different  in  that  respect  from  the
distribution of new cars.

6.1.2 Are motor vehicles technical consumer goods whose maintenance and

repair require brand specialists?

(217) Regulation 1475/95 starts from the assumption that motor vehicles require
expert maintenance and repair and that manufacturers have to co-operate with
selected dealers or repairers in order to provide specialised servicing.247

(218) The categories of undertakings providing maintenance and repair, and the

type of services offered, are illustrated in the following diagram.

245 Article 6 of Regulation 1475/95.
246 See Article 6 (1)(12) and recital 28 of Regulation 1475/95.
247 See recital 4 and Article 5 of Regulation 1475/95.

74

Diagram 15: Characteristic features of the different providers of after-
sales services

TYPE OF
SERVICE

FULL RANGE

LIMITED

SIMPLE

OF SERVICE

RANGE OF

STANDARD

AGE OF CARS
SERVICED*

PROVIDER

AND REPAIR

SERVICE AND

SERVICE AND

REPAIR

REPAIR WORK

X

X

X

(only some)

Dealer

Service
outlet

Independent
repairer

Fast-fit
chains

X

0-3 years
(warranty
period); up to
4 years of age

0-3 years
(warranty
period); up to
4 years of age

after 3-4 years

X

after 4-6 years

Source: Commission
* The above reference to the age of the cars is, however, only indicative. Depending on national
habits, it may also occur that independent repairers carry out certain work before the car reaches the
age mentioned and that dealers continue carrying out work after the warranty period.

(219) New cars are increasingly reliable and need less maintenance,248 as has been

explained in section 4.2.1 (page 43) of the report.

(220) New cars are also becoming more complex due to the greater use of
electronic systems such as computerised controls for the antilock braking
system and emission control, but also to the use of single Central Processing
Units to control all the car’s functions. Many in the industry believe that the
reduction in the turnover and in the profitability of the dealership’s after-sales
departments due to longer service intervals and the need for less servicing per
visit will be offset by increased service retention due to the greater complexity
of cars.249 Network dealers and service outlets would thus be the only
specialists capable of repairing and maintaining motor vehicles.

(221) However, studies raise serious doubts as to whether technology will be the
saviour of the dealer's after-sales business.250 They point out
this
prophecy has proved unfounded in the past when new electronic devices were
built into cars. They expect that this will also be the case as regards the new,
even more complex systems which are now built into vehicles. Electronic
protocols used by diagnostic equipment is said to be shared across makes and
already available to the independent sector. Moreover, the issue of providing

that

248 See: ICDP, “After-sales in Europe” by P. Wade, L. Buzzavo, T. Chieux, K. Zellmer, J. Kiff,
Research paper 2/97 of July 1997 (hereinafter: ICDP “After-sales in Europe” 2/97), p. 74;
PriceWaterhouseCoopers “Guaranteeing Survival”, May 2000, slides 71 et seq.

249 ICDP “After-sales in Europe” 2/97, p. 77.
250 ICDP “After-sales in Europe” 2/97, p. 78.

75

adequate diagnostic equipment to the after-sales market is said to be getting
easier because the complexity is moving from hardware to software and the
latter is becoming more transparent and easily communicable.251 Moreover, it
is said 252 that the relevant software can easily be discovered or copied by a
process of reverse engineering – i.e. interrogating a car’s computer in order to
understand its software. Therefore, it is said that diagnostic equipment for the
independent repairers will be available at affordable prices by the time a new
model is serviced by these undertakings.

(222) The broadest possible access to technical information would be in line with
the spirit of the Regulation253 and would allow independent repairers to
compete with dealers and service outlets belonging to the network of a
manufacturer.

(223) Nevertheless, it is obvious that cars are and will remain complex technical
consumer goods for the repair and maintenance of which specialists are
required. These specialists should have the necessary technical knowledge
and equipment to carry out these services properly in order to preserve road
safety, the reliability of the vehicle and its value. However, based on the
above, it is not necessary for such specialists, who carry out all types of repair
and maintenance,
to be dealers or service outlets linked to a certain
manufacturer.

CONCLUSION:
Brand  specialists  are  needed  for  maintenance  and  repair  work  on  cars  if  such  work  requires
specific technical knowledge or equipment.  However, brand specialists do not necessarily have to
be  dealers  or  service  outlets  belonging  to  the  network  of  a  manufacturer.    Repairers  who  are
independent  from  a  manufacturer  and  who  are  willing  and  able  to  acquire  the  necessary
expertise and equipment are also able to maintain and repair modern vehicles.

6.1.3 Is the tying of sales of new vehicles and after-sales services still justified?

(224) The tying of the distribution and servicing of motor vehicles was regarded as
more efficient than a separation between a distribution organisation and a
link”
It was argued that
servicing organisation.254
between sales and servicing.
Regulation 1475/95 therefore requires
manufacturers, if they are to benefit from the block exemption, to impose on
their dealers an obligation to provide after-sales services as well.255 As has

there is a “natural

251 For example, the Internet has a site where one can download all diagnostic codes for Chrysler

cars.

252 ICDP “After-sales in Europe” 2/97, p. 78.
253 See in particular Article 6(12) of Regulation 1475/95, which obliges vehicle manufacturers to
give the independent repairers full and non-discriminatory access to technical information.

254 See recital 4 and Article 5 of Regulation 1475/95.
255 Article 5 of Regulation 1475/95

76

been noted, recent evidence from the market place would appear to contradict
the necessity of this link.256

(225) However, car manufacturers have also appointed a large number of service
outlets;257 dealers also run service centres, which are physically separated
from their sales outlets. The primary task of these outlets and centres is to
offer after-sales services for the vehicles of a given manufacturer. Some of
these service outlets may however also act, as regards the sale of new motor
vehicles, as agents of a dealer of the relevant manufacturer.258

(226) Car manufacturers generally are in favour of maintaining the option of tying
sales and servicing, as it is advantageous for manufacturers themselves (recall
campaigns, repair under warranty for free), for dealers (sales promotion,
crucial for economic viability) and consumers (safety, product reliability).
In
this respect, manufacturers have always stressed the requirement that dealers
carry out the sale and the pre-sale inspection of the car.

(227)

Importers underline the logistical advantages of the link between sales and
servicing for the distribution of spare parts, for the coordination of stocks in
spare parts, and in order to facilitate the operation of recall campaigns.

(228) Dealers generally confirm that,

in the eyes of consumers,

this link is
a car’s
indispensable, at least for servicing during the first four years of
life.259 While a minority of dealers submit that a separation of these activities
would affect their viability,260 others admit that some separation has already
become reality.

(229) Spare-part producers argue that the established practice of tying sales and
after-sales services has led to the result that all spare parts required by dealers,
including parts of matching quality, are sourced through car manufacturers, 261
thus preventing spare-part producers from having direct access to the dealer
networks. Spare-part producers therefore fear an evolution towards growing

256 ICDP, "Beyond the block exemption" 4/98, p. 58. ICDP, "Beyond the block exemption II" 6/99,

p. 17.

257 Ford UK has established pure service outlets in the United Kingdom, see Commission Press
Release IP/97/740 of 4.8.1997 and XXVIIth Report on Competition Policy, 1997, First Part,
Section I, B 3; further examples are Daewoo in the United Kingdom, who have contracted a
retail group to provide after-sale support (for details, see Financial Times Automotive, p. 29),
koda in Germany, who in 1995 established 250 service-only points to carry out after-sale
and
operations, following restructuring of their dealer network in view of their weak market position
with low sales per dealer, which required a reduction in the number of dealer outlets.

Ŝ

258 See also ICDP, "Beyond the block exemption", 4/98, p. 58.
259 Source: Commission information;

this view is shared by importers, who consider that a
separation of the activities would make it more difficult for consumers to obtain appropriate
servicing.

260 Certain consumers' associations see a positive effect of a link for customer relations, while others
would be in favour of a split; some criticise cross-subsidisation between sale and servicing
activities.

261 In particular, the manufacturers' selling companies and importers.

77

dominance of manufacturers and their dealer networks over spare-part
suppliers. Easing the tie between sales and servicing would therefore
strengthen the position of spare-part producers vis-à-vis authorised repairers.

(230) The majority of consumer associations hold the view that such a link is not
indispensable and that a split would be advantageous for consumers, while a
minority considers that a split would bring no change.
It seems that the
answer to this question depends largely on consumer perceptions and patterns
of behaviour, which may differ among Member States.

(231) All in all there seem to be three main arguments which are used to justify the

above “link” between sales and after-sales services.

Technical considerations:

(232) An argument in favour of the practice of tying sales and after-sales services
has been that
the sale of a new car requires a pre-delivery inspection
according to the manufacturer’s specifications, which could only be executed
by the dealer who delivers the car to the final consumer.262 This “link” is also
considered important for the purposes of the manufacturer's warranty, recall
campaigns and vehicle repair and maintenance.
It is also argued that the
technical nature of the product, with its potential unreliability, justifies the
need for manufacturers to insist that their dealers offer both sales and service
facilities.263

(233) However, nowadays pre-delivery inspections, if still necessary, are already
carried out, with the consent of the car manufacturer, by undertakings which
do not belong to its distribution network.264

(234) Moreover, manufacturers have no control over the repair and maintenance of
a vehicle once it has been sold. Consumers might come back to the dealer
who has sold a vehicle, but they may also use another dealer or service outlet
– this would even not affect the warranty - or an independent repairer for
after-sales services. As has been demonstrated in the previous section, all
these types of undertaking are able to provide state-of-the-art after-sales
services. It cannot therefore be argued that, for technical reasons, the dealer

262 Recital 4 of Regulation 1475/95.
263 See, for example, ICDP, "Beyond the block exemption", 4/98, p. 58 - 60.
264 See L’Argus de l’automobile, 24.2.2000, p. 48. According to this article, STVA, a company
belonging to SNCF, the national French railway company, operates 15 centres in France. In these
centres, new Ford cars are checked by specialists of STVA as regards the mechanics, as regards
the conformity with national regulations and equipped with additional specifications. The
vehicles are delivered to French Ford dealers in a condition which allows them to deliver the car
to their customer. STVA carried out these services on 16% of all new vehicles registered in
France in 1998. A major Japanese car manufacturer carries out pre-delivery inspections before a
car is handed over to a dealer. The latter can then deliver the car to his customers without a
further inspection.

78

who has sold a car has necessarily to perform after-sales servicing on the
vehicle too.

Economic considerations:

(235) There is a consensus that dealers' net profit margins from new car sales are
low and that they are likely to decrease further in the mature West European
markets – especially with continuing over-production.265
In contrast, after-
sales are a source of rather healthy profits for dealers. However, due to the
effects of improved technology, quality, reliability and longer service intervals,
this could also change in the future. 266

(236) On the basis of these elements, it seems that dealers need to have an after-
sales service department in order to be able to sell new cars.
In contrast, an
after-sales service undertaking, i.e. a service outlet, does not need a sales
department in order to generate viable profits.

(237) Consequently, today’s economic reality seems to indicate that it is necessary
for a distributor of new motor vehicles, in order to be viable, to have after-
sales services. However, the low profit margins generated by the sales
departments of dealers may also be due to the fact that they can offset this
after-sales department.
activity with the profits derived from the
Consequently,
for dealers there are less real economic constraints on
rationalising their sales departments, trying to reduce costs linked to car
these
distribution and make their
departments were stand-alone activities. If this is the economic reality, it
could be questioned whether there is a need to oblige267 car manufacturers to
impose an obligation on their dealers to provide after-sales services as well.

sales departments profitable as

if

(238) Moreover, some car manufacturers are already moving away from the sales-

service link and in future would like to have dealers who only sell new cars.

(239) Furthermore, in view of the greater reliability and the longer service intervals
of new cars, dealers will be less and less able to base their profitability mainly
on after-sales services, and they will have, in any event, to try to make profits
on the sale of new cars as well.

(240) The argument that manufacturers want to make arrangements with reliable
undertakings in order to be able to honour the warranty and to offer repair
services for faulty vehicles free of charge to their customers does not justify
the tying of the sale of new vehicles and after-sales services either: a service
outlet network could also reliably offer this type of repair services, for which
the repairer can normally ask to be reimbursed by the manufacturer.

265 ICDP, “Future of the dealer”, 4/99, p. 10.
266 ICDP, “Future of the dealer”, 4/99, p. 10; ICDP, "Beyond the block exemption II", 6/99, p. 15 -

17; ICDP, “Beyond the block exemption”, 4/98, p. 59.

267 Article 5 of Regulation 1475/95.

79

Consumer expectations:

(241) According to dealers, customers prefer after-sales service to be provided by
the dealer during the warranty period. The dealers also claim that during the
first four years of a car’s life, consumers prefer servicing to be carried out by
the dealer.268
It is, however, noteworthy that most consumers’ associations
hold the view that this “link” is not indispensable and that a split would be
the answer to this question
It seems that
advantageous for consumers.
depends largely on consumer perceptions and patterns of behaviour, which
may differ among Member States.

(242) Since a car is a very expensive and,

if not well maintained, potentially
dangerous product, it is understandable that consumers need easy access to a
reliable after-sales service network during the lifetime of a car. In addition, in
some countries consumers may also have a preference for having their car
serviced and repaired by the dealer who sold their car.
In view of these
consumer expectations, dealers also wish to offer after-sales services in order
to attract customers.

(243) Moreover, due to the high mobility of today's society, many cars are not
serviced by the dealer who sold the car, but by another dealer or a service
outlet belonging to the car manufacturer's network. All these undertakings
operate on the basis of the standards set by the manufacturer of the car, which
are the same or very similar throughout the manufacturer's network. The
behaviour of these consumers puts in question the existence of a "natural
link" between sales and after-sales. Such a link would basically require that
the consumers use the after-sales department of the dealer from which they
have purchased the car. Consumer behaviour, however, shows that this is, to
a considerable extent, not the case.269

(244)

In addition, especially as regards older cars, which normally need more repair
and maintenance in order to preserve their value and to remain safe,
consumers tend to turn to independent repairers and fast-fit chains. This is
also an indication that, from the consumer's point of view, there is no "natural
link" between sales and servicing.

268 This view is shared by the importers, who consider that a separation of the activities would make

it more difficult for consumers to obtain appropriate servicing.
269 OECD, "Market Access Issues in the Automobile Sector ", p. 16;

ICDP, "Future Direction for

European Car Distribution", p. 19.

80

CONCLUSION:

There are good reasons to believe that, due to technical progress, tying the sales of new cars and
after-sales servicing (or the  so-called "natural link”  between  sales and  servicing) has now lost
some of its justification which it had in 1985 or 1995.

Economic reasons for carrying out both activities may exist today: sales of new cars are not very
profitable.

Some, but not all, consumers may prefer to purchase a car from a dealer who also offers after-
sales services.

Consequently, the “natural link” between sales and after-sales services seems no longer to exist
in  the  way  it  may  have  existed  in  the  past.    A  more  flexible  approach  therefore  seems
possible,270 one which would allow dealers to decide which activity they wish to focus on.

6.2 HAS THE COMMERCIAL INDEPENDENCE OF DEALERS BECOME

GREATER?

6.2.1 Introduction

(245) This section will address those provisions of Regulation 1475/95 which, to a
certain extent, are intended to protect dealers against car manufacturers and
give dealers the possibility of taking autonomous economic decisions. The
reason for having these rules is that dealers are usually small or medium-sized
undertakings which cannot withstand the economic power of their supplier.
in favour of the regime provided by
Although dealers are in general
these provisions
Regulation 1475/95,
to be analysed in this report as well. This is all the more
nevertheless fall
necessary since dealers and their associations continue to insist
in their
discussions with the Commission271, that they still feel relatively powerless
when compared with the manufacturers. They point out that this inequality of
economic power severely limits their ability to be innovative and to take full
advantage of their rights under the Regulation.

the operation and

effects of

(246) The following subject matter is dealt with: the use of spare parts of matching
quality (section 6.2.1.1, page 82), the period for ending the dealer’s contract
(section 6.2.1.2, page 83), the dealer's remuneration (section 6.2.1.3, page
85), the freedom of dealers to determine their pricing policy (section 6.2.1.4,
page 86), the right to negotiate sales targets (section 6.2.1.5, page 87), the
right to sell more than one make, referred to as multi-branding (section
6.2.1.6, page 89) and the recourse to an arbitrator (section 6.2.1.7, page 90).

270 See also ICDP, "Beyond the block exemption", Research Report No. 4/98, p. 39, 58; ICDP,
"Beyond the block exemption II", 6/99, p.1, 14, 15; ICDP, "Future Directions for European Car
Distribution", 11/98; see also the UK Competition Commission’s report, pt. 2.419 to 2.423; it
takes the view that the car manufacturers or importers should not be able to insist on dealers
offering servicing and repair services.

271 The main reason put forward by the dealers is that the manufacturers can end their contracts with
two years notice without reason and that it is difficult to become a dealer of another major
manufacturer in case of termination of their contract.

81

6.2.1.1

Use of spare parts of matching quality

dealers

(247) Regulation 1475/95 enables dealers to purchase spare parts272 of matching
quality from sources other than the car manufacturer with whom they have a
contract for the repair and maintenance of cars273. In order to ensure that this
freedom for
the
manufacturer/importer, the aggretation of discounts for new vehicles and
original spare parts is not permitted under Regulation 1475/95.274 The
purpose of these provisions, which were also contained in Regulation 123/85,
is to limit
the economic dependence of dealers on car manufacturers as
regards the sources of supplies and at the same time to give final consumers a
wider choice as to the range of products offered and as to prices.275

economically

undermined

not

by

is

(248)

In practice, all car manufacturers authorise their dealers to use spare parts of
matching quality to original spare parts, and prohibit the use of parts of lesser
quality. They estimate that non-original spare parts of matching quality
account for more or less 5% to 20% of their networks’ requirements. This
low percentage is confirmed by the spare-part producers' and consumer
associations' replies to the Commission's questionnaire. They complain that
dealers only rarely use non-original spare parts for repair and maintenance.
They believe that this low percentage is due to dealers’ preference for original
spare parts or to car manufacturers’ sophisticated delivery systems.

(249) From the replies to the Commission's questionnaires, it appears that this low

percentage is due to a number of reasons:

• Car manufacturers grant large discounts to their dealers for the purchase
of original spare parts. Such discounts are higher than those for the
supply of motor vehicles (see below section 6.2.1.3, page 85) for a more
detailed analysis). The rate in most cases usually amounts to around 30%
of the value of the product and can amount to more than 50% in certain
Member States and for certain car manufacturers.

• Most car manufacturers do not oblige their dealers to keep in stock a
minimum, pre-defined quantity of spare parts. However, quite a large
number of car manufacturers recommend to their network the range and

272 Article 10(6) gives a definition of spare parts: "spare parts" are parts which are to be installed in
or upon a motor vehicle so as to replace components of that vehicle. They are to be distinguished
from other parts and accessories, according to trade usage.

273 The spare parts of matching quality may be used for the repair of cars outside the warranty if the
repair is not done in the context of a recall action; see Article 4 (7) and 10 (11) of Regulation
1475/95.

274 Article 5 (1)(2)(c). Aggregation of discounts would induce dealers to purchase original spare

parts in order to have higher discounts from the car manufacturers.

275 Dealers’ freedom in the choice of their source of supplies still encounters limits linked to safety
and consumer satisfaction: spare parts must correspond in quality to those produced and
distributed by the car manufacturer; the manufacturer is enabled by the Regulation to verify the
quality of those parts; dealers can be induced to use original spare parts only for work under
guarantee, free servicing and vehicle-recall work. Finally, there is a general obligation upon
dealers to inform customers on the use of non-original spare parts.

82

number of spare parts that a dealer should hold for optimum efficiency or
include annual target sales with dealers for the spare parts in value terms.
• Moreover, dealers’ profit margins are in general limited. They cannot
risk losing the end-of-year bonuses which are granted by car
manufacturers and which are also based on the original spare-part
turnover in a given year.276

• Dealers fear that their contract will be terminated if they use too many
non-original spare parts even where those parts are of matching quality.
• The obligation on dealers to inform consumers when they use non-
original spare parts of matching quality277 is considered by spare-parts
producers as one of the reasons why they have difficulty in supplying
spare parts to dealer networks. Usually, consumers consider non-original
spare parts as being of a lesser quality than the original ones even if they
are identified and produced by the same spare-part producer who
manufactures the original spare parts and, as a consequence, even after
being informed still prefer to have original parts installed on their
vehicles. This belief has a strong influence on the use of non-original
spare parts and drastically limits the use of such parts for the repair and
maintenance of cars.

• The producers of components and parts fitted on new vehicles indicated
in their replies to the Commission's questionnaires that they normally
cannot supply all these parts and components directly to the dealers of
the manufacturer which uses them for production of new vehicles: most
vehicle manufacturers seem to require their component suppliers to sell
components and spare parts for a given model only to the vehicle
manufacturer, even though this is clearly “black listed” behaviour278

CONCLUSION:

The use by dealers of non-original spare parts of a quality which matches that of original parts
is still very limited.  This seems to be due to  the fact  that  consumers  do not  receive  complete
information  on  the  characteristics  of  such    parts.    Many  consumers  therefore  believe  that
original spare parts are of better quality.  The other reasons underlying  this  limited  use  stem
from the commercial policy of the car manufacturers – setting higher margins for original spare
parts and obstructing direct sales to dealers by spare-part producers.

6.2.1.2

Longer period for terminating dealer contract

(250) Regulation 1475/95 provides that distribution agreements can be concluded
for a fixed period of at least five years or without time limit. The period of
notice for terminating the latter type of agreement has to be at least two years
for both parties and can be reduced to one year in special cases (e.g.
reorganisation of a dealer network). These provisions were introduced in

276 The position of spare-parts producers on this issue will be explained more fully in section 6.2.2

"Has the access of spare parts producers to dealer networks improved?".

277 Article 4(1)(8) and (9) of the Regulation.
278 Article 6 (1)(10) of the Regulation.

83

1995279 in order to give legal certainty to dealers as to their contractual
relations with car manufacturers and to better protect dealers’ investments
and give them a reasonable period to change their commercial activity.

(251) Nearly all dealer contracts used in Europe are concluded for an indefinite
period. If agreements lasting five years are used, they are normally renewed
or extended beyond this period. Agreements concluded for an indefinite
period are normally ended with two years' notice. However, especially in
Germany and Italy, dealer agreements have been ended with one year's notice
in the context of network reorganisations.280

(252) The relevant rules of the Regulation give dealers only limited protection, in
that they allow them a certain period of time to earn a return on their
particular brand-specific investments, part of which is lost if they become a
dealer of another network or an independent reseller or repairer.

(253) Otherwise, these rules do not really strengthen dealers' independence. Since
all other manufacturers use selective/exclusive distribution agreements with a
limited number of dealers and since all manufacturers are about to reduce the
number of dealers in the context of the ongoing restructuring process, it is
rather exceptional for a dealer whose contract has been ended to become a
dealer of another well established make.281 Such a dealer may however be
able to become a dealer of one of the new Asian car manufacturers which
have accessed the European car markets and which are trying to increase their
market shares in Europe.

(254) The above provisions are aimed at providing financial protection for the
weaker party to a distribution agreement and also at giving dealers some
leeway to engage in competition. The protection of the financial interests of
parties to a contract is normally not a matter for competition rules. When
appropriate, national legislation may protect such interests.282

279 Article 5(2) of the former Regulation 123/85 also contained provisions regarding the duration and
the termination of dealer agreements. These provisions were less favourable to the dealer, since
distribution and service agreements could be for a period of at least four years or for an indefinite
period. The period of notice for normal termination of the agreements was at least one year.
280 Almost all the German car manufacturers and Honda, Nissan and Toyota reduced their number

of dealers in Germany. General Motor did so in Italy.

281 Some manufacturers offer their ex-dealers a service outlet contract. Otherwise, if the dealer does
not want to stop his activities, he becomes an independent repairer or an intermediary; see also
UK Competition Commission report, pt. 2.258: it also points out that it is difficult for a dealer to
switch the make and to become a dealer of another manufacturer. Moreover, under pt. 2.259, it
points out that the manufacturer can also veto the sale of the ongoing business even to another
dealer of the same network.

282 In Germany, based on an analogy with the rules applicable to commercial agents, dealers can get

compensation for goodwill if their contract is ended.

84

CONCLUSION:

The rules  fixing  the  minimum  duration  of  a  distribution  agreement  to  five  years  or,  if  the
agreement  is  not  limited  in  time,  the  mandatory  minimum  two-year  period  of  notice  allow
dealers to earn a return on their investment for a longer period of time than under Regulation
123/85.    However,  these  rules  have  not  strengthened  the  position  of  dealers  vis-à-vis
manufacturers in any major way.

6.2.1.3

Sufficient margin to preserve dealers’ independence

(255) Regulation 1475/95 does not contain a general provision regarding dealer
margins, but it obliges car manufacturers, when calculating dealers’ margins,
to distinguish between supplies of motor vehicles, and suppliers of spare parts
or other goods.283

(256) One of the aims of Regulation 1475/95 was to strengthen the economic
independence of dealers. The system used by car manufacturers to remunerate
dealers for new cars is one indicator of that
independence which the
Regulation was intended to strengthen.

is based on various parameters, e.g.

(257) The largest part of dealers’ margins consists of a discount on the
recommended retail prices. This discount is the same for all dealers, whether
large or small, located in a given Member State and belonging to the network
of a manufacturer.284 The discount normally varies from model to model. In
addition to these discounts, dealers get a variable margin, a so-called "bonus".
It
the sales volumes, customer
satisfaction, quality of management, characteristics of showroom, attainment
of sales targets and other factors. Even if these parameters are known to
dealers at the beginning of each year, the method of calculation and the
magnitude of the bonus is made known by the manufacturer /importer to the
dealer only at the end of each year. Dealers therefore do not know the level
of this additional bonus when they carry out a transaction. This keeps
pressure on them during the year and may also have a negative effect on the
willingness of dealers to give rebates, since they never know how much they
will earn on top of their normal discounts.

(258) According to the information supplied by the car manufacturers, discounts to
dealers for new vehicles are between 5% and 20% of the recommended retail
prices of new cars, depending on the manufacturer, model and Member State.
This discount serves to finance the dealer’s distribution cost, overheads and
the rebates which dealers usually have to give to final consumers.

(259) For spare parts, discounts granted to dealers are in general higher and can
amount to 50% of the retail prices. The bonuses were in most cases between
3% and 5% and have been increased over the last few years.

283 Article 5(1)(2)(c).
284 See also UK Competition Commission report, pt. 2.273 to 2.279 and 6.105 et seq.

85

(260) Car manufacturers can also subsidise dealers’ activities by organising
promotional campaigns, during which they reduce vehicle prices, e.g. for a
special model, or offer packages of extras at highly discounted prices in order
to stimulate sales.

(261) Dealers maintain that

the criteria for setting bonuses are not always
transparent or objective and are out of their control. The same is true as
regards promotional activities of manufacturers.

(262) They also complain that they are granted the same margins irrespective of
their size or capacity in fulfilling contractual obligations regarding sales
targets, for example.

(263) Moreover, dealers receive a discount which is inferior to that granted to fleet
operators and other reserved285 clients, which usually receive a rebate of 20%
to 40 % of the recommended retail price. As a consequence, dealers cannot
compete with car manufacturers in supplying this category of consumers,
which in some Member States, such as the United Kingdom,286 is extremely
important in quantitative terms

CONCLUSION:

The margin dealers earn in the context of the sale of new cars consists of a fixed discount of up
to 20% on the recommended retail prices and of a variable bonus of 3% to 5%.  Whereas the
fixed discount barely covers the distribution costs of the dealers, the variable payment granted
by the manufacturer – the bonus - is based on criteria which are unilaterally fixed by the car
manufacturer.   Moreover, such bonuses are calculated at the end of the year and they are not
transparent for the dealers. Such a remuneration system is not imposed by the Regulation.

The  fact  that  all dealers  in a given  Member State  earn  the  same  margin  does  not  allow  big
dealers to source vehicles at lower prices and to pass part of this benefit on to their customers.
This hampers intra-brand competition.

6.2.1.4

Leeway in dealers’ pricing policy

(264) Regulation 1475/95 ensures price competition at the retail level. Dealers have
therefore to be free to autonomously determine prices and discounts to final
consumers; car manufacturers are not allowed to directly or indirectly restrict
this freedom.287 Consequently, they only issue lists with recommended retail
prices.

285 Pursuant to Articles 1 and 2 of Regulation 1475/95, manufacturers can "reserve" themselves the
right to sell vehicles to certain categories of customers. However, dealers must be prevented from
selling vehicles to these customers too.

286 In the United Kingdom, discounts set by car manufacturers to fleet operators vary from 30% to

35% of the vehicle’s price; see: CA 2000, "The Forecourt Revolution," p. 35.

287 Article 6(1)(6) and Article 6(2) and (3) of Regulation 1475/95. Article 6(2) of Regulation 123/85

contained a similar provision.

86

(265) However, dealers’ leeway to set prices freely is de facto limited due to the
margin system described in the previous section.288 Moreover, the rebates
granted by manufacturers to fleet operators and other reserved customers are
too high to allow dealers to compete with their manufacturer in this area.

(266) Although the freedom of dealers to set their prices is a core element of
Regulation 1475/95 and largely accepted by all interested parties, including
the motor vehicle manufacturers, the Commission is investigating a case of
alleged resale price maintenance operated by a major car manufacturer.

CONCLUSION:

Dealers must be free to determine their resale prices.  However, in the distribution systems run
under Regulation 1475/95, this freedom is  limited  due  to  the  homogeneous  margins  dealers
usually earn. Infringement proceedings have been initiated against one major car manufacturer
which appears to have restricted this core freedom of dealers.

6.2.1.5

Role of dealers as to sales targets

(267) Regulation 1475/95 allows car manufacturers and dealers to agree on annual
sales targets for cars and spare parts, which dealers have to endeavour to
meet.289 If both parties cannot reach an agreement on the annual targets, an
expert third party has to decide on these targets. The obligation to agree on
annual sales targets was introduced in 1995290 to create a level playing field
between dealers and manufacturers/importers in this respect and to ensure
that sales targets are not set at inappropriate levels. Dealers’ associations
indicate in their replies to the Commission's questionnaire that the right to ask
for the intervention of an expert third party if no agreement can be reached on
sales targets has had a positive effect: car manufacturers are now more
inclined to take account of the dealer’s position when setting sales targets.
Due to this greater flexibility, expert third parties have had to intervene in
only a very limited number of cases.
It should also be mentioned in this
context that some car manufacturers use two types of sales targets. First,
they agree with their dealers on annual sales targets; this seems to be in line
with the requirements of
in some cases
the Regulation.
manufacturers unilaterally and without giving their dealers a right to call for
arbitration set sales targets four times per year which are valid for the
following three months. The latter sales targets are also the basis for the

Secondly,

288 As to the situation in the UK:

see UK Competition Commission report, pts. 2.280 to 2.296,
which explain in detail the various measures used by car manufacturers/importers to limit UK
dealers’ freedom to set their retail prices or discounts.

289 Article 4(1)(3): Sales targets are determined taking into account sales previously achieved in the

territory and forecast sales for the territory and at national level.

290 Pursuant to Article 4(1)(3) of Regulation 123/85 the manufacturer could set the sales targets

unilaterally.

87

payment of bonuses. Such behaviour is likely to result in the automatic loss
of the benefit of the group exemption.291

(268) Sales targets for both vehicles and spare parts are negotiated each year
between dealers, importers and car manufacturers. Dealers have an obligation
to use their best efforts to meet or exceed the agreed sales targets. If dealers
fail to meet the sales targets due to insufficient efforts or bad faith, their
contracts can be terminated.

(269) Most car manufacturers are reluctant to modify a previously agreed sales
target during the year. In the future, however, with the combined use of “lean
for a
production” and “lean distribution”,
manufacturer to match the supply of new cars to the quantity that a dealer can
sell at any given time.

should be much easier

it

(270) Dealers state in their replies to the Commission's questionnaire that sales
targets are set too high. This is due to the car manufacturer's estimates and
expectations on market conditions. High targets can facilitate intra-brand
competition since they induce dealers to compete with one another in order to
sell more cars. However, when they are difficult to reach, they can penalise
those dealers which, notwithstanding a high performance rate, cannot fulfil the
target and will therefore not earn the highest possible bonuses.

to

to

as

has

been

decides

allocate

(271) Moreover, the existence of a link between sales targets and product allocation
has to be noted: sales targets are not only based on the cars which a
manufacturer can produce, they are also based on the marketing strategies a
If a
manufacturer wishes to pursue in the different Member States.
manufacturer,
its
observed,
importer/network in a certain Member State only as many cars as are needed
to achieve or maintain a certain market share in that country and sets the sales
targets accordingly, then the instrument of sales targets goes beyond the
function it should have pursuant to the Regulation292. The link between these
the dealer from selling the
targets and product allocation may prevent
maximum number of cars (i.e. sell a car to all consumers who wish to buy a
car from him) and thereby outperforming the target. This link may thus have a
hampering effect on intra-brand competition and also, to a limited extent,
indeed neutralize differences in dealer
inter-brand competition. It might
performance,
in situations of scarcity (e.g. new models).
Moreover, it can have the effect of hampering sales to foreign consumers
which might be triggered by price differentials due to exchange rate
fluctuations or differences in taxation.

in particular

291 See Explanatory Brochure on Regulation 1475/95, reply to question 13:

this states that
“minimum requirements” as to sales agreed for a shorter period ”than one year” may result in an
automatic loss of the benefit of the group exemption [Article 6(1)(3)].

292 Cf. Article 4 (1)(3) of Regulation 1475/95.

88

CONCLUSION:

The need to agree on sales targets and the right to ask an expert third party to set them in the
event  of  disagreement  has  balanced  the  interests  of  the  parties  involved  in  the  negotiation  of
these targets.

Nevertheless,  the practice of  manufacturers  to  set  sales  targets  in  a  certain  Member  State  is
based on national demand can also have negative effects on competition if it is combined with a
limited product allocation.

In  a  system  of  lean  distribution,  a  flexible  adaptation  of  sales  targets  to  market  conditions
should be possible.

6.2.1.6

Right of dealers to sell more than one make (multi-make, multi-

marketing or multi-brand)

(272) Regulation 1475/95 enables dealers to sell new motor vehicles offered by
undertakings other than the manufacturer. Such multi-marketing has to be
done by a distinct legal entity, in separate sales premises, under separate
management, and in a manner which avoids confusion between makes.293 A
manufacturer has to release dealers from these obligations if the latter can
show that there are objective reasons for doing so.294

(273) The introduction, in 1995, of the option to run multi-make-dealerships had the
objective of improving inter-brand competition by opening markets in terms
of geography, products and competitors and also of giving dealers financial
independence from their primary supplier.295 Although
in the UK, for
example, the number of multi-franchise dealers increased strongly between
1990 and 1995296 it is said that in general manufacturers support exclusivity at
all costs.297 However, Regulation 1475/95 leaves it to the sole discretion of
the dealer to decide whether he wants to joint the network of a second make
or not.

(274) Multi-marketing can have advantages for final consumers, who have a wider
range of products and/or of brands at one single site, and who do not
therefore need to shop around in order to compare different models. This
form of distribution could also have advantages for the distribution of brands
with low sales volumes, or for example in rural areas, where sales would
otherwise not reach a critical mass.298

293 Article 3(1)(3).
294 Article 5(2)(1), see also the Commissions’ brochure on Regulation 1475/95, question 7: Such
objective reasons exist if the obligations prevent a dealer from operating on an economically
viable basis.

295 See Commission brochure on Regulation 1475/95, question 8.
296 See : ICDP, "Multi-Franchising", 1/98, p.26, (hereinafter referred to as "Multi-Franchising").
297 ICDP, "Multi-Franchising" p. 26 and 35.
298 ICDP, "Multi-Franchising" p. 45.

89

(275) However, where a dealer is required to observe the restrictions permitted by
the Regulation and set out in paragraph (272) above, multi-marketing has
proved to be unattractive to dealers in financial terms. Moreover, these
restrictions do not allow dealers to take advantage of the economies of scale
which multi-marketing would normally allow then as regards overheads. The
restrictions are an obstacle (1) to developing a more efficient cost structure,
(2) to increasing sales volumes because of increased local market power and
(3) to spreading the risks for the dealer by reducing his dependence on one
brand’s market performance and the power of one manufacturer over its
dealer.299 Therefore, apart from the areas in the Nordic countries which are
sparsely populated and where the above obligations are only partially imposed
on the dealers, few true multi-make dealerships seem to exist in the EU.300

(276) Most multi-make dealers in Europe sell different makes, all of which are
controlled by one manufacturer.301 Such multi-make dealerships are normally
only used outside the manufacturer’s home country.
In the manufacturer’s
home markets they tend to sell each brand via separate dealer networks.

(277)

In general, dealers do not encounter any problems when they decide to sell
more than one make. Nevertheless, based on the information received in
some Member States (e.g. Italy), despite the Regulation,302 car manufacturers
seem to have given incentives to dealers to stay with one make. In other
Member States (e.g. Belgium), dealers who ask their main manufacturing or
importing partner for permission to take on a second make are said to have
been systematically refused.

CONCLUSION:

The rules on multi-make dealerships impose a heavy financial burden on dealers who want to
sell  several  makes  and  multi-make  dealerships  thus  become  unattractive  for  them  from  the
economic point of  view. True  multi-make  dealers  are accordingly  in  practice  rare.    The  main
advantages  which  would  normally  be  expected  to  follow  the  introduction  of  multi-marketing,
i.e.  improved  inter-brand  competition  and  improved  dealer  independence,  have  therefore  not
been attained.

303

6.2.1.7

Arbitration

(278) Regulation 1475/95 establishes that the parties to a distribution agreement
must, in the event of disagreement on issues regarding the annual setting of

299 ICDP, "Multi-Franchising", 1/98, p.50.
300 See section 4.1.3, page 38, of this report for more detailed information on multi-brand

dealerships.

301 Examples are VW/Audi, , Ford/Jaguar, Fiat/Lancia/Alfa Romeo dealers.
302 If confirmed, such action would contravene Regulation 1475/95.
303 See also section 6.1.1.4, page 70,of this report and UK Competition Commission report, pt. 2.328
to 2.339; the UK Competition Commission concludes that the rules on multi-make dealerships
contained in Regulation 1475/95 have negative effects on prices, reduce the choice of type of
retailer from which consumers may buy cars and reduce innovation in car retailing.

90

sales targets, stock requirements, demonstration vehicles and the termination
of the dealer’s agreement, accept a system for a quick resolution of a dispute,
such as recourse to an expert third party or an arbitrator.304 The role of these
provisions is to counterbalance the different interests of car manufacturers and
dealers and to give the latter greater commercial independence.

(279) Very few cases of intervention by an arbitrator are recorded by car
manufacturers and dealers. The effectiveness of the provisions on arbitration
may lie in the fact that they offer the possibility of threatening the other
partner with a call for arbitration. Most car manufacturers insist that their
policy is to strive to reach an agreement benefiting both parties before having
to go to a third party. The mere mention of this possibility in the contract,
and the will of the dealer to use this system, generally leads to a constructive
dialogue.
In this sense, arbitration could be considered to be a preventive
measure.305

CONCLUSION:

The rules giving the parties to a dealership agreement a right to call for the intervention of an
expert third party or an arbitrator have not been frequently used.  However, the possibility of
recourse to a third  party has generally led to more  serious and  balanced  negotiations  between
dealers and manufacturers. The rules are therefore considered a useful instrument by all parties
involved in motor vehicle distribution.

6.2.2 Has the access of spare-part producers to dealer networks improved?

(280) As has already been explained,306 under Regulation 1475/95, dealers have the
right to source and use spare parts a quality which matches those distributed
by car manufacturers, ("spare parts of matching quality").307 Spare-parts
manufacturers have a right to place their trade mark or logo on parts supplied
for the initial assembly or for the repair or maintenance of vehicles308 and may
not be impeded by car manufacturers from supplying such parts to dealers.
These provisions were introduced in 1995 to ensure effective competition on
the maintenance and repair markets.309 As a consequence, consumers, when
having their vehicle serviced or repaired by a dealer, should normally be able

304 Article 4(1)(3) on the annual setting of sales targets; Article 4(1)(4) on stock requirements;
Article 4(1)(5) on demonstration vehicles and Article 5(3) on the termination of dealer
agreements.

305 However, the UK Competition Commission in its report, pts. 2.125, 2.310 and 2.293, mentions
that sales targets are set at levels which 50% of all dealers cannot achieve and which are
unrealistic. Moreover, it found out that dealers are reluctant to ask for arbitration because they
are afraid that the manufacturer could terminate the dealer contract with two years notice if a
dealer dares to ask for arbitration.
It therefore concludes that in practice sales targets are set
unilaterally by the manufacturers.
306 Section 6.2.1.1, page 82, of this report.
307 Article 3(5), and Article 6(1)(9).
308 Article 6(1)(10) and (11) and Article 6(1)(3).
309 Recital 27 of Regulation 1475/95.

91

to choose between original spare parts and those of matching quality, the
latter being up to 30%310 cheaper than original spare parts.

(281) A further reason explaining the limited use of spare parts of matching quality
in addition to those mentioned in section 6.2.1.1 (page 82) of the report
relates to discussions as to the quality of such spare parts. Although recital 8
of the Regulation contains a presumption that parts coming from the same
source of production are identical in quality to original spare parts and that it
states that it is for the spare-part manufacturer to confirm that these parts
correspond to those supplied to the manufacturer of
the vehicle,
manufacturers can still raise doubts about the quality of such parts.

(282) Spare-part producers also point out that the term “spare part” 311 is not
entirely clear and may give rise to discussions between dealers and
manufacturers as to whether a given item is a spare part covered to the
Regulation or an accessory which dealers can freely buy and sell.

(283) Also, according to the associations of spare-part producers, some car
manufacturers’ policy is to hinder car part producers placing their trade mark
or logo in a visible manner on these parts in order to avoid transparency as to
the real origin of such parts. Consumers are therefore unable to make a real
choice between an original part and a part coming from the same part
Such behaviour of car
producer but distributed under his brand name.
manufacturers, if confirmed, would amount to a black practice. 312

CONCLUSION:

The  right  of  spare-part  producers  to  supply  their  products  to  dealers,  as  provided  for  in  the
Regulation, has not materialised in any substantial manner, for the various reasons explained
in this section and in section 6.2.1.1 (page 82) of this report.

6.2.3 Has the position of independent repairers been strengthened?

(284) As described in 4.2.1 (page 43) of this report, there are several players on the
market for the repair and maintenance of motor vehicles: dealers and service
outlets, and independent repairers.

(285) The motor vehicle manufacturers take the view that

the presence of

independent repairers313 will be more limited in the future.

310 "La pièce adaptable détrônera-t-elle l’origine?" in Auto Info, 1099 of 21.1.2000, p. 34.
311 Article 10(1)(6) of the Regulation defines "spare parts" as parts which are to be installed in or
upon a motor vehicle so as to replace components of that vehicle and leaves the distinction from
other parts and accessories to trade usage.

312 Article 6(1)(11).
313 They base this assumption on the fact that independent garages are usually small and remote, do
not advertise their activity and, as they purchase small volumes of spare parts, do not obtain
favourable conditions. Moreover, since cars are becoming more complex goods which require

92

(286) Notwithstanding the car manufacturers' position on this issue, the independent
sector has the capability to meet consumers’ expectations.
Independent
repairers have the skill and experience to compete in after-sales services with
the car manufacturers’ networks. The success of the independent repairers
and of “fast fitters” in recent years has obliged motor vehicle manufacturers
to rethink and improve their after-sales service activities.314 In order to allow
competition to work properly here, the Regulation obliges manufacturers to
allow their dealers to supply the independent repairers with original spare
parts.315 As to technical information manufacturers have to make sure that this
is made available to independent repairers under the conditions of the
Regulation.316

(287) The practical implementation will be analysed in the following sections.

6.2.3.1

Access to original spare parts

(288) Regulation 1475/95 enables dealers to supply original spare parts to
independent repairers for the repair or maintenance of a motor vehicle.317
This provision ensures that independent repairers, having access to original
spare parts, can compete with the car manufacturers’ networks in the repair
and maintenance of vehicles.

(289) No major problems are met on this issue, since spare-part sales by dealers to
independent repairers represent part of the revenues of official dealers.

(290) However, dealers do not normally sell original spare parts at the wholesale
price they acquire spare parts from the manufacturers, but at a higher price.
This may reduce the price advantage of independent repairers.

CONCLUSION:

In  general,  independent  repairers  have  no  major  problems  as  regards  access  to  original  spare
parts.  However, they cannot purchase them at the same wholesale prices as the dealers, which
makes it more difficult for them to compete.

6.2.3.2

Access to technical information

(291) According to Regulation 1475/95, each motor vehicle manufacturer has an
obligation to make any technical information which is necessary for the repair
and maintenance of its vehicles accessible to undertakings not belonging to its
distribution network. This information can be withheld if it is covered by the

more investment
qualified repair and maintenance.

in equipment and training,

independent repairers will be excluded from

314 For further details, see section 4.2.1, page 43, of this report and PriceWaterhouseCoopers

“Guaranteeing Survival”, May 2000, slides 72 et seq.

315 Article 3(10)(b).
316 Article 6(1)(12).
317 Article 3(1)(10)(b).

93

car manufacturer’s intellectual property rights or identified, substantial and
secret know-how; however, it may not be withheld improperly.318

(292) As a result of this obligation, independent repairers should have access to all
technical knowledge necessary for the repair and maintenance of motor
vehicles; consumers should thus have a real choice in the after-sales service
market between independent repairers, dealers and service outlets belonging
to the network of a manufacturer. This obligation has also been imposed in
order to avoid any unfair exploitation of the close link between dealers and
their manufacturers permitted by the Regulation.

(293) The full implementation of this obligation is not yet a reality, although access
to this information is already important today as regards vehicle safety and
protection of the environment. Moreover, in view of the highly complex
electronic systems installed in new vehicles, access to technical information
will become even more important in the future.319 Although non-compliance
with these obligations constitutes a black practice under the Regulation,320
only some car manufacturers publish a list of all relevant available technical
information with prices and sales conditions . Others provide information on
the technical characteristics of their products on a case-by-case basis. Very
often independent repairers get the information from the official dealer from
whom they source the original spare parts for the repair and maintenance of a
car.

(294) Most of the associations of independent repairers report problems as regards
access to technical information, especially to high-tech parts of motor vehicles
(so-called “black boxes”).
Independent repairers encounter the following
problems:

• Access to information on new vehicle models is extremely difficult during

the first year after the start of their production.

• Technical publications are expensive and they do not always contain all

the information required.

• Sometimes these publications cover the whole range of models offered by
a manufacturer, but sub-sections are not made available, even if the
independent repairer only needs information on a specific model.321 Even
if in these cases manufacturers give access to their information, the cost is
too high for independent repairers with a limited customer base, since they
cannot spread this cost over a sufficient number of customers.
• Information on electrical and electronic devices is rarely accessible.

318 Article 6(1)(12).
319 ICDP, "Beyond the block exemption", 4/99, p. 59-60; PriceWaterhouseCoopers “Guaranteeing

Survival”, May 2000, slides 21 et seq.

320 Article 6(12).
321 One manufacturer asked for a payment of

₤

whole model
maintenance of one specific model.

range even though the information requested was only about

2 500 for the information on CD-ROMs covering the
the normal

94

• Every manufacturer has its own information technology and systems.
There is no standard system or format used: for economic reasons
especially, small repairers are not able to buy the necessary information
systems needed to read the information provided by motor vehicle
manufacturers.

• Certain independent

repairers maintain that a access to diagnostic
equipment used by the manufacturer's network should also be granted to
to allow them to fully compete in the repair and
them in order
maintenance of motor vehicles.

(295) An alternative approach for giving independent repairers, car experts and
body repairers access to technical
information has been developed in
Germany. A joint venture in which the motor vehicle manufacturer, dealer
and independent repairer association participate, DAT-Treuhand, publishes on
CD-ROM the necessary information for the repair and maintenance of
vehicles of several makes. DAT receives this information from the car
manufacturers free of charge. Every interested undertaking can purchase
100.322
these CD-ROMs, which are regularly updated, for a monthly fee of
DAT offers this service in Germany, Italy, France and Spain. Recently, BMW
established a web site where independent repairers can have access to all
technical information necessary to repair vehicles of this brand by paying an
initial fee. This decision was adopted in line with the European Directive
against air pollution by emissions from motor vehicles,323 which requires
manufacturers to make available to independent repairers all information on
the on-board diagnostic systems of cars that is needed for the servicing and
repair of the cars. This information has to be made available against a
reasonable and non-discriminatory payment.324 BMW concedes that only
information for simple repair work is available, since a consumer who has an
important problem has to address it directly to BMW's official network.325

€

(296) The Commission has also received several complaints from independent
repairers pointing out that
the payment requested for this information is
prohibitive. This is, in particular, the case for independent garages which
provide after-sales services for cars of different makes and which need
technical information for each of these vehicles.

(297) Moreover, automobile clubs who provide for repair services on the road
(without being repairers in the strict sense of the word) and producers of
diagnostic equipment have pointed out that they too have a legitimate interest

322 However, even this monthly fee is said to be too expensive for very small (“family business”)

garages.

323 Directive 98/69/EC of the European Parliament and the Council of 13 October 1998 relating to
measures to be taken against air pollution by emissions from motor vehicles and amending
Council Directive 70/220/EEC, OJ L 350, 28.12.1998, p. 2.

324 See Annex XI, point 3.1.2. of the above Directive.
325 Autoinfo 1101, dated 25.2.2000, p. 19.

95

(298)

in getting access to the information in the black boxes of cars. They have
asked for an appropriate extension of the above information access right.

Independent repairers do not have full access to all technical information
needed for the repair and maintenance of motor vehicles as called for by the
Regulation.
In particular, the practical and economic conditions for the
purchase of such information are an obstacle for many independent repairers.
The lack of access to this information, which could become even more
important in the future with the increasing use of electronic devices on motor
vehicles, not only limits consumers' choice, but also gives rise to concern
whether
repair and
maintenance services are in line with the standards regarding safety and
environmental requirements set by the vehicle manufacturer. There is not yet
a level playing field as regards the availability of technical
information
between dealers and independent repairers.

repairers can guarantee that

the independent

their

CONCLUSION:

Independent repairers'  access  to  technical  information  is  made  difficult  by  car  manufacturers.
Other  parties,  such  as  automobile  clubs  and  producers  of  diagnostic  equipment,  also  have  a
legitimate interest in having access to technical information on motor vehicles.

GENERAL CONCLUSION ON SECTION 6.2:

The aim of the above provisions, namely to give dealers more leeway for their economic activity
as  distributors  of  new  vehicles  and  as  providers  of  after-sales  services  and  to  protect  their
commercial independence, has been achieved to only a limited extent.  Dealers are the weaker
party in a distribution and servicing agreement and they are wholly dependent economically on
the  vehicle  manufacturers,  even  if  manufacturers  were  to  comply  fully  with  the  Regulation.
This dependence gives manufacturers ample possibilities to exercise full control over their dealer
network.  Therefore the objective pursued by the Regulation adopted in 1995 of strengthening
inter alia intra- and inter-brand competition and of making dealers more independent has not
really been achieved, even if some of the measures introduced (in particular those relating to the
period of notice for ending dealer contracts and on arbitration) had some limited effect.

As  regards  the  situation  of  independent  repairers,  the  greater  sophistication  of  new  motor
vehicles makes it more important that all players in the after-sales service sector have access to
all technical information for the repair and maintenance of motor vehicles.  Car manufacturers
seem not to have created technical and economic conditions such that this access is granted, as
required by the Regulation.

6.3 IS THERE A BENEFIT FOR CONSUMERS AS TO THE PURCHASE AND

SERVICING OF MOTOR VEHICLES IN THE SINGLE MARKET?

(299) This section deals with the wider question as to whether the current motor
vehicle distribution systems, which operate under Regulation 1475/95 and the
two notices, offer consumers benefits in the area of the purchase and servicing
of a motor vehicle. A positive reply to this question is important, since such
benefits are a "conditio sine qua non" for exemption of an agreement pursuant

96

to Article 81(3). There are four main areas where such benefits should be
identifiable: (1) prices for new vehicles, (2) availability of new vehicles within
the home
and their
implementation, and (4) quality and prices of after-sales service.

(3) warranty provisions

country and abroad,

6.3.1 Are prices for new motor vehicles offered in the single market satisfactory?

(300) Car manufacturers argue that despite increasing marketing costs,326 new
models are in many cases offered at prices similar to those of the models they
replace.327 Taking into account the generally higher specifications of new
models, this reflects a trend towards better value for money. Studies seem to
support this view, showing that contrary to popular belief, car prices have not
increased in recent years.328 In France, official government data actually show
that new car prices in real terms have fallen by 5% since 1995.329
In
Germany, a similar trend can be observed with a fall in car prices of almost
3% since 1995.330 However, it has to be noted that considerable price
differences exist for a given model of car between Europe, Japan and the
United States.

(301)

In a market economy, it is not the role of a public authority such as the
European Commission to analyse whether or not a particular price for a car is
appropriate, nor is it the Commission's task to harmonise prices. In contrast,
price differentials within the single market are, from the competition point of
view, an important sign that there still exist distinct geographic markets within
the single market and that arbitrage may not take place to a sufficient extent
between these markets. Price differentials within the single market have
therefore been addressed in Regulation 1475/95 and the notice on Regulation
123/85.331 Price differentials are to be understood as differences between
recommended retail prices net of taxes.

(302)

In this respect, four questions will be analysed:

• Are the price differentials within the European Union below or above the

limits set out in the notice on Regulation 123/85?332

• What is the impact of national car taxes on price differentials?
• What is the impact of currency movements on price differentials?

326 According to manufacturers,

the intensifying competition resulting from the ever-widening
In 1998, car
source product offer
manufacturers spent $5.2 billion. advertising their products in the five main EU markets. This
represents a 6.5% increase over 1997. Car manufacturers generally are amongst the biggest
advertisers in the EU.

forces them to increase their advertising spending.

327 Source : ACEA.
328 "Pricing in Euroland" - Lehman Brothers European Strategy – 31.7.1998.
329 Source : INSEE. Consumer price index up 5.6%, new car price index down 0.5% over 1995-98

period.

330 Source : Statistisches Bundesamt.
331 Recital 31 of Regulation 1475/95 and notice on Regulation 123/85, Chapter II. 1.
332 Notice on Regulation 123/85, Chapter II. 1.

97

• Are there other factors which explain price differentials?

Are the price differentials within the European Union within the limits set in
the notice on Regulation 123/85?

(303) The motor vehicle industry has for many years been criticised by consumers
and others for maintaining high price differentials within the European
Union.333 However, a recently published study indicates334 that, out of a
range of 53 homogeneous product and service items across a variety of
industry sectors in the euro zone, the car industry actually maintains the
smallest differentials. Nevertheless, these criticisms can be understood from
the consumer point of view, since passenger cars are the second most
expensive item used in a household.335 Therefore, even relatively small price
differentials have a much greater economic impact on the budget of a
household than price differentials for less expensive products or services.

(304) The exemption for selective and exclusive distribution agreements provided
for by Regulations 123/85 and its successor, Regulation 1475/95, which allow
manufacturers to allocate dealers a geographically limited sales territory in a
Member State and to prohibit dealers from active sales336 - or at least certain
types of active sales337 - outside the allotted area, amounts to a limited market
partitioning system. Special care must therefore be taken with regard to price
differentials within the single market. One of the objectives of the single
market is to promote the integration of national markets and consequently
increase economic efficiency. In such a market, price differentials, which can
be an indicator of market partitioning, need to be closely monitored.

(305) Regulations 123/85 and 1475/95 accordingly stipulate that the Commission
can withdraw the benefit of the Regulation in the event of substantial price
differentials. They provide that, if prices or conditions of supply for contract
goods or for corresponding goods which are continually being applied differ
substantially as between Member States, such differences being chiefly due to
obligations exempted by the Regulation, then the Commission can withdraw
the benefit of the Regulation for the relevant network.338 The same applies if a
manufacturer or an importer
in supplying the distributors with cars,
unjustifiably discriminates prices or sales conditions.339

(306)

In its notice on Regulation 123/85, the Commission set out its interpretation
It indicated that recommended retail prices for any particular
of this clause.

333 ICDP; "Beyond the block exemption"; 4/98, p. 32.
334 "Pricing in Euroland" - Lehman Brothers European Strategy – 31.7.1998.
335 House of Commons, Session 1998-99, Trade and Industry Committee, First Report, "Vehicle

Pricing", 1998, p. 36, pt. 31.
336 Article 3(8)(b) of Regulation 123/85.
337 Article 3(8)(b) of Regulation 1475/95.
338 Article 10(3) of Regulation 123/85 and Article 8(2) of Regulation 1475/95.
339 Article 10( 4) of Regulation 123/85 and Article 8(3) of Regulation 1475/95.

98

car model within the single market must not exceed 12% of the lowest price.
However, the differential may exceed this percentage by 6 % for a period of
less than one year or for an insignificant percentage of motor vehicles.340
If
these limits are exceeded, the Commission declared that it may open an
investigation on its own initiative and examine the reasons. In order to be able
to monitor price differentials and to create transparency on recommended
resale prices,
the Commission started in 1993 to publish its "Car Price
Reports"341 twice a year.

(307) The 12% threshold342 was chosen because it was considered that beyond this
percentage demand would normally start to become mobile to a significant
degree. This would lead to more parallel trade and put downward pressure on
the higher prices and thus reduce price differentials.343
In this context, this
threshold has only been chosen as an indicator for price differentials which
might need to be investigated and not as an absolute limit for acceptable price
differentials.

(308) The figures in the Commission's latest Car Price Reports show that price
in recent years and
differentials have not become significantly smaller
regularly exceed 20% and can be as high as 65% within Europe.344 Even if
only the seven countries of the Eurozone with low car taxes are taken into
account, price differentials can be as high as 30%.

CONCLUSION:

Price differentials within the European Union are in excess of the 12% and  6% thresholds
mentioned in the notice on Regulation 123/85.

What is the impact of national car taxes on price differentials?

(309) National taxes levied for new cars range from 15% (value added tax) in
Luxembourg to more than 200% in Denmark (VAT plus specific tax on car
purchase).345 The following diagram shows that net car prices in countries
with high car taxes are lower than in countries with normal car taxation. One
exception is, however, the United Kingdom, where prices are inflated by

340 Chapter II of the notice on Regulation 123/85.
341 For further details, see section 3.4.3, page 27, of this report.
342 The 12% threshold was initially part of the “black clause” of the draft of Regulation 123/85.

If
it would have led to a temporary suspension of the

this percentage had been exceeded,
contractual clause which prevents the resale of vehicles to independent resellers.

343 In this context, it can be left open whether or not this threshold, which is a rule of thumb, is

appropriate or not.

344 See e.g. the Commission’s Car Price report with car prices on 1.11.1999 and the press release on
this report, IP/00/121, 7.2.2000; Commission’s Car Price Report with car prices on 1.5.2000 and
the press release on this report, IP/00/781, 13.7.2000.

345 See ACEA press release of 22.7.1999 (http://www.acea.be/acea/press_releases.html); see also

Annex VI of this report and diagram 13 on page 67.

99

exchange rate fluctuations. This will be further analysed in the next sub-
section of this report.

(310) The following diagram illustrates car price differentials in the EU. The yellow
(lighter) part of each column is the index for the average net price in each
country. The bordeaux (darker) part is the average car tax in each Member
State. This diagram confirms that net car prices are, on the average, lower
than in countries with high car taxes. The basis of this diagram is the average
prices in Denmark, which are the lowest in the EU. The index for net prices
in Denmark is shown as 100%.

Diagram 16: Car price differentials net of taxes and including taxes

IND EX BEFOR E TAX ES TAXES

300,0%

250,0%

200,0%

150,0%

100,0%

50,0%

0,0%

D K

GR

FIN

P

IRL

NL

A

E

S

B

F

IT

U K

D

L

Average Car Price Index Including Taxes - 1.11.1999

(311) Manufacturers claim that, especially in high-tax countries, they have to reduce
net prices artificially in order to be able to offer their customers cars at
affordable prices. Therefore, in countries with high taxation, pre-tax prices are
in general lower than in countries with low taxation. This is the result of a
pricing policy decided by car manufacturers.

(312) Based on this argument, the following section of the report will first of all
compare price differentials within the 7 left-hand-drive countries which have
comparable taxes with price differentials in 12346 or 15347 EU Member States,
i.e. including the high-tax countries (see diagram below).

346 These are the 12 countries for which prices were published in the car price reports until
1.11.1998. (Austria, Belgium, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, Sweden, the United Kingdom).

347 Starting with the car price report showing prices on 1.5.1999, all 15 Member States, including

now Denmark, Finland and Greece, were included.

100

Diagram 17: Comparison of price differentials in 7348 left-hand-drive
countries having low car taxes with price differentials in 12 or all 15
Member States

1 6 0 ,0 %

1 5 0 ,0 %

1 4 0 ,0 %

1 3 0 ,0 %

1 2 0 ,0 %

1 1 0 ,0 %

1 0 0 ,0 %

1 2 M S
1 5 M S
7 M S

N O V -9 6

M A Y -9 7

N O V -9 7

M A Y -9 8

N O V -9 8

M A Y -9 9

N O V -9 9

(313) This diagram compares the average of the car price differentials349 in the 7
left-hand-drive countries that have low car taxes350 (green (lighter) line) with
the price differentials of all 12 Member States quoted in the Commission's Car
Price Reports351 between 1 November 1996 and 1 November 1998 (blue
(darker) line), and with all 15 Member States for the period after 1 May 1999.

This diagram highlights two important developments:

• Between November 1996 and November 1999, car price differentials
between the 7 left-hand-drive countries were stable over time. The average
price differentials between these 7 countries were much smaller than price
differentials for 12 EU Member States. If the price differentials of all 12
countries, i.e. the 7 above mentioned countries plus the United Kingdom
plus 4 countries with high car taxation regimes,352 are analysed, then it can
be seen that high car taxes clearly increase the magnitude of car price
differentials within these 12 countries from 15% to up to more than 30%
of the net car prices.

348 Belgium, France, Germany, Italy, Luxembourg, Spain, Sweden.
349 For the purpose of this diagramm each of the car prices contained in the EU Commission’s car
price reports is converted into an index, whereby the cheapest price in a certain country equals
100%. For the other countries the index for each car is determined accordingly. For each date
shown in the diagramm an average of these indexes is calculated on a country to country basis.
The average of the latter is then used to draw the lines shown in the above diagramm.

350 The United Kingdom is also a country with low car taxation.

It is not included in this diagram

because the prices for this country are for right-hand-drive cars.

351 Until November 1998, the car price report gave prices for 12 Member States only. Denmark,
Greece and Finland were excluded because car taxes in these countries are close to 100% or even
higher. However, from May 1999 onwards, the car price report covers all 15 Member States.
352 The three Member States which have car taxes close to or higher than 100% (Denmark, Greece,
the period

taken into account

and Finland) of the net price of the car were not
1 November 1996 to 1 November 1998.

for

101

• For the period May 1999 to November 1999, the diagram shows all 15
Member States, i.e. including those countries where car taxes are close to
or above 100% of the net car prices. This section of the diagram confirms
the trend described in the previous paragraph. The inclusion of the three
Member States with car taxes close to or above 100% of the prices net of
tax increases car price differentials even further.

(314) Car taxation is a factor which is outside the control of the motor vehicle
industry. The Commission recognises this and in its notice on Regulation
123/85353 stated that it will not investigate price differentials if they can be
attributed to taxes, charges or fees amounting in total to more than 100% of
the net price of a car, as is the case in Denmark, Finland and Greece.
However, if these countries are excluded, price differentials are still above the
thresholds of 12% and the Commission could therefore, in line with its notice,
have used its powers to investigate car price differentials within the European
Union.

(315) However, the Commission has not done so, since - as the diagram clearly
shows - special car tax regimes have an impact on price differentials.

(316) The notice on Regulation 123/85 mentions another possible way of reducing
price differentials. According to the notice,354 the supplier of a car (e.g. the
manufacturer or his importer) may charge "a further supplement" to the price
of the vehicle in countries where car taxes are higher than 100% of the net car
price if such cars are due to be exported. This "further supplement" may
increase the price to the net price which would be charged for a similar car in
the Member State that is not subject to a car tax of more than 100%, and in
which the lowest price net of tax is recommended for the sale of such a
vehicle. However, the text of the notice clearly specifies that this supplement
is "a further" supplement.

(317) This text can be understood as meaning that the supplier can charge this
supplement only if he is already entitled to charge another supplement for the
relevant car, such as the supplement for the so-called “corresponding car”.355

(318)

it

is,

If this interpretation were correct, and some car manufacturers take the view
this clause would permit considerable price discrimination in
that
cross-border sales of right-hand-drive cars as against purchases of left-
hand-drive cars. Such an interpretation is clearly in contradiction with the
basic principles of the Regulation, i.e. to give all European consumer the right
to take full advantage of the single market and to purchase a car wherever
prices are most advantageous.

353 Chapter II, pt.1.
354 Chapter II, pt. 2, second paragraph.
355 Notice on Regulation 123/85 Chapter II, pt. 2, first paragraph. For example, such a supplement
for a corresponding model would be the right-hand-drive supplement for a car purchased in
Denmark.
In this case, the dealer could use the possibility mentioned in the notice and charge
this "further supplement".

102

CONCLUSION:
High car taxes have a clear impact on car prices and contribute to increased price differentials
within the single market.  Under the notice on Regulation 123/85, a further supplement may
be  charged  in  countries  where  car  taxes  are  above  100%.    This  would  be  discriminatory:  it
would  allow  to  make  an  additional  surcharge  for  exports  of  –  in  practice  –  right-hand-drive
cars which are  purchased in  these  countries.  With this  surcharge  manufacturers could increase
prices for such cars to the price level in the cheapest country where car taxes are below 100% of
the net car price. The maintenance of such a provision which allows price increases in view of the
tax regime in a certain Member state for export sales of – in practice  –  right-hand-drive  cars
does not appear to be justified.

What is the impact of currency movements on price differentials - in particular
the British case.

(319) The following diagram addresses this issue. It shows the trend in the value of
the pound sterling (first column), the index (November 1995 = 100) of UK
car prices in sterling (second column) and the index (November 1995 = 100)
of UK car prices in ECU/euro (third column).

Diagram 18: Development of the exchange rate of the pound sterling
against the euro and UK car prices in sterling and euro.

EURO/£ RATES - UK PRICES

30,00%

25,00%

20,00%

15,00%

10,00%

X
E
D
N

I

5,00%

0,00%

-5,00%

NOV 95 MAY 96 NOV 96 MAY 97 NOV 97 MAY 98 NOV 98 MAY 99 NOV 99

EURO/£ UKPRICES IN£ UK PRICES INEURO

Exchange rates Euro/£ showing the increase in value of the pound against the euro.
Recommended retail prices in pounds compared to prices in November 95 (index 0%).
Recommended retail prices converted into euro.

Source: DG Competition – Car Price Reports May 1996 – November 1999

(320) The above diagram shows that from November 1997 onwards, recommended
It also shows as a clear

retail prices in sterling have been relatively stable.

103

trend that the rise in UK prices converted into euro has closely followed the
appreciation of the pound sterling.

Diagram 19: Development of price differentials in countries with low car
taxes without the UK and same including UK prices

135,0%

130,0%

125,0%

120,0%

115,0%

110,0%

105,0%

8 M S***
7 M S****

NO V-96

MAY-97

NO V-97

MAY-98

N OV-98

M AY-99

N OV-99

Source : European Commission Car Price Reports

(321) The above diagram also clearly shows that price differentials within the 7 left-
hand-drive countries with low car tax regimes have been stable over the last 3
years [violet (lighter), nearly straight line]. However if the United Kingdom is
included, where car taxes are also low, price differentials increase in parallel
to the monetary appreciation of the pound [blue (darker) line].

(322) However, one would also have expected another element to play a role in
promoting downward pressure on prices in the United Kingdom. During the
period of the strength of the pound sterling, manufacturers located in the
Eurozone should have been in a position to produce at lower cost than their
competitors in the United Kingdom. In order to benefit from this competitive
advantage, and under the assumption that price elasticity of demand is
sufficient, manufacturers from continental Europe would have been expected
to lower their prices in the United Kingdom, with the aim of increasing their
market shares.356 However, experience has shown that only a minority of
manufacturers has reduced prices in the United Kingdom, while most of them
have maintained, or have even increased, prices.

(323) The above diagram reveals that despite the strength of the pound, car prices in
the United Kingdom have, since 1997, generally not decreased. Assuming
that parallel trade becomes lucrative if price differentials are above 12%,

356 The UK Competition Commission came to the same conclusion. See in particular its report, pts.

2.202 and 2.226.

104

significant trade should indeed have taken place and should have exerted a
downward pressure on car prices. The fact that producers can obviously
ignore the impact of parallel imports on prices in the United Kingdom357
implies that trade is very limited and that competition does not fully play its
role.358

(324) The following paragraphs will explain the rules regarding price differentials

due to currency fluctuations.

(325)

In the Commission’s 1995 Communication on the impact of currency
fluctuations on the internal market,359 it is stated that currency fluctuations do
not justify anti-competitive practices in the form of restrictions of parallel
imports; such measures would clearly contravene EU competition rules.
It
can be deduced from this Communication that exchange rate fluctuations do
not justify restrictions of competition which impede parallel trade and work
against a reduction in price differentials between Member States.

(326) Regulation 1475/95 also mentions currency fluctuations: in its recitals,360 it
states that the Commission will take account of currency fluctuations between
Member States before it takes a decision to withdraw the benefit of the
Regulation pursuant to Article 8(2). However, this Article does not allow the
benefit of the Regulation to be withdrawn simply because price differentials
exist which are due to currency fluctuations: withdrawal is possible only if the
price differentials
a
manufacturer's selective and exclusive distribution system exempted by the
Regulation. In this regard, the Commission would have to assess whether or
not such a distribution system prevents the development of unrestricted
parallel trade, which should exert downward pressure on prices which are
inflated due to exchange rate fluctuations. Whether distribution systems
compatible with Regulation 1475/95 limit parallel trade or not is examined in
section 6.3.2 (page 111) of this report.

to contractual obligations of

chiefly due

are

357 According to the findings of the UK Competition Commission in its report, pt. 7.190 et seq., in
1998 parallel trade in right-hand-drive cars accounted for 0.5% of all new cars registered in the
UK; as regards parallel imported cars registered by private customers, these accounted for 1% of
the registrations. However, these percentages varied from make to make and could be as high as
3% of all registrations of new BMW cars and over 5% of all registered new Mercedes cars.
358 It is noticeable that no car manufacturer in its reply to the questionnaire mentioned the level of
parallel trade as a criteria to be taken into account when determining prices – a reason could be
that parallel trade is negligible

359 COM(95) 503 final, 31.10.1995.
360 Recital 31 of Regulation 1475/95; Chapter II, pt. 1, last paragraph, of the notice on Regulation
123/85, also addresses this issue and states that “Particular account will be taken, for an
appropriate period, of alterations of the parities within the European monetary system or
fluctuations in exchange rate in a Member State”.

105

CONCLUSION:

The  car  price differentials calculated  in  ECU/euro  within the  8  countries with  low  taxes  on
cars show that the rise in value of the pound sterling after 1996 has automatically increased the
magnitude  of  differentials  between  these  countries:  UK  car  prices  increased  nearly  in  parallel
with the rise in value of the pound. However, the rise in value of the pound cannot, on its own,
completely  justify  the  level  of  prices  in  the  UK  since  other  factors  (increase  in  parallel  trade,
action of car manufacturers producing in the euro zone) should have exerted downward pressure
on prices.  These factors, which are to be expected in a market on which there  is  competition,
did not materialise.

Are there other factors which explain price differentials?

(327) The above price differentials between 7 countries in mainland Europe and the
United Kingdom do not take account of a basic technical difference between
the cars which are sold in the 13 EU Member States of mainland Europe and
the vehicles marketed in the United Kingdom and Ireland:
the latter are
right-hand-drive cars. The impact of this technical difference on car prices is
analysed in the following.

(328) Right-hand-drive cars sold in Europe are more expensive than left-hand-drive
cars sold in the relevant Member States. This is due to the so-called
"right-hand-drive supplement", which is a surcharge on the price for a
corresponding left-hand-drive model. (See section 6.1.1.3, pt. (197), page 68,
for further details).

(329) Regulations 123/85361 and 1475/95362 as interpreted by the notice on
Regulation 123/85363 allow manufacturers to charge such a supplement. When
a manufacturer is selling a right-hand-drive car to a dealer who normally sells
left-hand-drive cars, he can charge him, on top of the price for a similar left-
hand-drive car, "an objectively justifiable supplement on account of special
distribution costs and any differences in equipment and specification".364
This has obviously a knock-on effect on retail prices for right-hand-drive cars
in mainland Europe, and many car manufacturers even have a recommended
retail price for such cars or the supplement is included in their price lists.365

361 Article 10(4) in conjunction with Article 5 (1)(2)(d).
362 Article 8(3) in conjunction with Article 5(1)(2)(d).
363 Chapter II, pt. 2.
364 See also UK Competition Commission report, pt. 2.103 and 2.104: according to the UK
Competition Commission, for most cars the original planning and development includes left-
hand and right-hand variants. Thus the design costs of these variants should be part of the
general production cost of the relevant model and be spread across the whole production volume
of that car model. Consequently, for the vast majority of new cars a supplement based on
planning and development and/or production costs does not seem to be justifiable.

365 The supplements are published for all models and Member States in mainland Europe mentioned

in the Commission's car price reports, as far as right-hand-drive versions of cars exist.

106

(330) Following consumer complaints,

the Commission had to investigate the
recommended prices of three manufacturers who charged these supplements
for right-hand-drive cars sold in Europe. All three manufacturers based these
supplements on:

• cost associated with the development,

testing and production of a
right-hand-drive car as compared to such cost for an identical model with
left-hand-drive;

• additional

administrative

costs

associated with an order

for

a

right-hand-drive car in a left-hand-drive country, and

• additional transport costs for such a car.

(331)

In one of the three cases investigated, the Commission found that the relevant
manufacturer had in the past not based its right-hand-drive supplements on
objective criteria.366

(332) Two European manufacturers were able to show that their supplements, of up
to 12% of the price of a left-hand-drive car, were objectively justifiable in
view of the higher costs linked to the production of a small number367 of
right-hand-drive cars.368

(333)

and

In order to get a better view on the magnitude of price differentials for
right-hand-drive cars in Europe, it is appropriate to take account of this
supplement
for
the
right-hand-drive cars sold in 7 European countries with relatively low car
taxation, with the recommended retail prices of such cars for the United
Kingdom (where car taxation is also relatively low) and also Ireland, which is
also a right-hand-drive country.

recommended

compare

prices

retail

to

366 For one model, it was between 25% and 40%, for another between 10% and 31% of the price for
a left-hand-drive car, depending on the country of purchase. Following the Commission's
intervention, this manufacturer adopted a new approach: it now charges a very small amount
which takes into account the different costs for the production of left- and right-hand-drive cars.
This sum was increased by a mark-up for extra administrative and distribution costs. The right-
hand-drive supplement is now around 3% of the recommended price for left-hand-drive models.

367 For most European manufacturers, the ratio of production between left-hand-drive cars and right-
hand-drive cars is around 90:10; however, for Rover, this ratio seems to be close to 50:50 (see
UK Competition Commission report, pt. 2.103); for most Japanese manufacturers, the ratio is
also close to 50:50. If the ratio between left-hand and right-hand drive cars is close to 50:50,
the
supplement can only be based on higher distribution and administrative costs.

368 The lower supplement they had asked for in previous years was either a pure estimate of the
above costs or was only based on a partial recovery of the costs, e.g. the higher costs for the
production of those parts which are specific to a right-hand-drive car.

107

Diagram 20: Price differentials for right-hand-drive cars in 7 countries
with low car taxes compared to average right-hand-drive prices in the
United Kingdom and Ireland

RIGHT HAND DRIVE - AVERAGE DIFFERENTIALS
for 7 Member States (B,D,E,F,I,Lux,S), Uk and IRL

I

I

L
A
T
N
E
R
E
F
F
D
E
G
A
R
E
V
A
M
U
M
X
A
M

I

130,0%

125,0%

120,0%

115,0%

110,0%

105,0%

100,0%

may-98

nov-98

may-99

nov-99

UK

7 MS

IRL

Sourc

e: European Commission car price report

(334) The diagram shows the differential between recommended prices for
right-hand-drive cars sold in the 7 countries (violet line in the middle of the
diagram) and the United Kingdom (blue line in the upper part of the diagram)
i.e. for technically identical models. For information, Ireland is included as
well (brown line in the lower part of the diagram).

(335) Price differentials for right-hand-drive models sold in the 7 countries in
mainland Europe with low tax, are about 8%.
If the United Kingdom is
added, price differentials increase considerably from 13 to 25% for the period
considered (May 1998 to November 1999). In any case, the differentials are
always above the 12% threshold even if only prices for right-hand-drive cars
are compared.

108

CONCLUSION:
Recommended UK retail prices for right-hand-drive cars are considerably higher than prices for
such  cars  on  the  continent  and  are  above  the  12%  threshold  mentioned  in  the  notice  on
Regulation 123/85.

This differential can be as high as 25%.

Market structure of the passenger car market in the United Kingdom369

(336) Recommended retail prices in the United Kingdom are said to be inflated due
to the small number of cars which are marketed via dealers to final customers
at "normal" retail prices.

(337) Due to the British taxation system for company cars and also because of
convenience, many employers give their employees a company car instead of
an increase in salary.370 The fleets of such company cars are either bought by
the employer, who owns a fleet of vehicles, or by a leasing or long-term
rent-a-car company. They are then given to the staff of the employer for
permanent use. The payment for the car or the leasing-fee or rent is financed
or paid by the employer.

(338) There is some uncertainty about the size of this so-called "fleet" or rather
"company" car market. The British Consumers’ Association holds that 20%
of new cars are direct sales to daily rental companies and other direct
accounts, (utilities, government, other large fleet operators).371 These sales
The sales are
involve large, pre-planned blocks of identical vehicles.
negotiated directly between the manufacturer/importer and the customer.
Another 60% of new cars can be split into three groups: the largest part of
these cars are company cars purchased by operators of smaller fleets or sole
traders; these purchases are carried out by professional buyers. Although
most of these cars are sourced through dealers, price negotiations also take
place with the manufacturer, who might grant an additional direct discount.
Cars that have been used for demonstration are also part of this category of
cars which dealers have to sell at wholesale or semi-wholesale prices and on
which the dealers’ earnings are extremely limited. Only the remaining 20% of
new cars are sold to real private retail customers on normal terms. These
latter sales are, however, said to provide a significant contribution to dealers'
profits.372

369 For further details, see UK Competition Commission report, pts. 2.143 et seq. and 3.53 et seq.
370 CA 2000, "The Forecourt Revolution", p. 23 and p. 36.
371 The Motability scheme which provides cars to disabled British citizens is the largest owned fleet

in the UK. It is said to purchase 7% of the new cars sold in the UK.

372 CA 200, "The Forecourt Revolution", p.23 and p. 36; Autopolis, "Report to government select
committee on car pricing in the UK",
under:
http://www.autopolis.com/think.htm; see comments on slide 10 (hereinafter Autopolis "Report to
government select committee").

published

Internet

1998,

the

in

109

(339)

In contrast, the SMMT373 indicated that the fleet market (more than 25
vehicles) accounts for about 50% of the market. The market for small fleet
operators is said to account for 7% and the retail market for 43%.374 The
SMMT claims that only a small fraction of the cars of the fleet market are sold
at high discounts.

(340) The UK Competition Commission in its report375 points out that non-private
registrations (business and fleet) account for 55% of all registrations whereas
45% are private registrations. Based on these figures and those mentioned by
other interested parties mentioned above, it also comes to the conclusion that
fleet customers account for a large share of UK new car registrations.

(341) The quantitative figures provided by the car manufacturers to the Commission
in reply to the questionnaire do not give a clear picture. The fact that the
number of cars sold directly by the manufacturer and importers is not
considerably higher in the United Kingdom than in other Member States
indicates that such direct sales cover only a fraction of fleet sales. These
figures do not include the fleet sales which are handled through dealerships
and where manufacturers are also giving sales incentives or direct discounts to
the customers.

(342) However, even under these circumstances, it seems that the UK car market

presents different features in this respect from most other EU car markets.

(343) However, in their replies to the Commission's questionnaires, the associations
of fleet operators confirmed that up to now, fleet and business cars are not
sourced outside the country of registration. Looking at the discounts granted
by car manufacturers to fleet operators, the average of which is more than
20% and can amount to 41%, this conduct seems to be logical. These buyers
have to pay prices for new cars which are close to the car prices charged in
other European countries.376

CONCLUSION:

The size of the  British  market for fleet  and company cars  seems to be  much  larger  than  in
other European Member States.  Moreover, it is generally recognised that these cars are sold
either directly by the manufacturer/importer with high discounts, or via dealers at prices which
are  discounted  due  to  financial  incentives  paid  by  the  manufacuturer/importer.    In  the
United Kingdom,  the  majority  of  all  new  cars  are  thus  sold  at  prices  much  below  the
recommended  retail  prices  due 
the
manufacturer/importer.  Price lists issued by these companies do not give a realistic indication
on the manufacturer’s/importer’s point of view on the transaction prices which are appropriate
in view of market conditions.

intervention  by 

to  direct  or 

financial 

indirect 

373 Society of Motor Manufacturers and Traders.
374 Statement by Mr Thomson, Chief Executive of the SMMT, 9.11.1998, before the Trade and
Industry Committee, see Trade and Industry Committee, First Report, "Vehicle Pricing", p. 42.

375 Pt. 5.91 et seq.
376 Autopolis, "Report to government select committee", 1998, see comments on slide 11, 6th dot.

110

Purchasing power and wealth in different Member States

(344)

(345)

In its submission to the Commission, ACEA points out that wide variations in
purchasing power exist within the EU. It argues that this explains why cars –
as well as products and services - are more expensive in countries with
above-average purchasing power.

In order to analyse whether there is such a clear correlation, Annex VII
compares the per capita volume indices for gross domestic product (GDP) of
each Member State with the price indices for a number of car models sold in
each Member State. For this analysis, prices include taxes.377

(346) However, the argument does not stand up to closer examination. In this
the "richest" Member State and is

respect, Luxembourg is by far
simultaneously the lowest priced.

CONCLUSION:

There is no correlation between the level of purchasing power in the Member
States and the level of car prices including tax.

6.3.2 Can the availability of new vehicles be considered satisfactory?

(347) This section is about the core of motor vehicle distribution in Europe. It
analyses whether or not the systems put in place by vehicle manufacturers
meet the essential requirement of a distribution system, namely, to make sure
that the network dealers are supplied with sufficient quantities of new vehicles
in order to allow them to satisfy their customers' requests and compete with
other dealers of the same and other brands. It may be paradoxical to analyse
this question in a sector which has a general overcapacity of 30%.378 But
feedback received from consumers and distributors suggests that in certain
cases they do not get sufficient numbers of vehicles to satisfy demand. The
availability of vehicles for local and for cross-border sales by network dealers
will be separately assessed. Afterwards the question of the availability of new
vehicles from independent resellers who are not members of an official
network will be discussed.

6.3.2.1

Local availability

Sales via dealers

(348) Nearly all manufacturers/importers operating in Europe distribute new motor
vehicles via selective and exclusive distribution networks of dealers as
permitted by Regulation 1475/95.

377 Prices have to include car taxes in this context because they reflect the prices consumers have to
pay for a car bought in their domestic market. Pre-tax prices are only relevant for an analysis of
cross-border purchases of new cars.

378 See e.g. "Problèmes économiques"

2603, 10.2.1999, p. 29 ; source Conjoncture-Paribas,

December 1998.

111

(349) All vehicle manufacturers (be it the manufacturers or their importers for
certain Member States) have put in place procedures designed to make sure
that their network dealers can order a sufficient number of new vehicles for
sale. In essence, the procedure manufacturers use for the allocation of new
vehicles to their distributors (both importers and dealers) is as follows:

(350) The procedure starts with a discussion between the manufacturer or
importer379 and each dealer in which they try to find out how many cars the
dealer should endeavour to sell in the future. The relevant quantities are
decided on the basis of criteria such as sales achieved by the dealer in the past,
market expectations and strategies for the future in the relevant Member State
and the dealers’ contract area. In this context the manufacturer will also have
to take account of the foreseeable output of his production lines when certain
targets are suggested to importers or dealers. At the end of these negotiations,
the manufacturer/importer will agree with its dealers on their individual sales
targets. Most manufacturers/importers hold such meetings at the end of a year
in order
the coming year. Some car
manufacturers/importers review these sales targets with their dealers at
regular intervals and adjust them if there is a need or an opportunity to do so
in view of the development of the markets or of production output.

to agree the sales targets for

(351) As regards the criteria for the setting of sales targets, Regulation 1475/95380
gives some guidance: targets have to be set taking into account sales achieved
in the dealer's contract territory in the previous year, forecast sales for the
territory and at national level.381 In the event of disagreement, the Regulation
provides for the possibility of asking an expert third party to decide on these
targets on the basis of the above criteria.382 Even though the Regulation only
permits the fixing of agreed sales targets and provides for an arbitration
procedure in order to avoid one-sided decisions by the manufacturer (as
allowed before under Regulation 123/85383 until 1995), manufacturers and
importers still have more influence than the dealers in this process of
determining the sales that the dealers have to endeavour to achieve. The
manufacturer is the one who decides which models are produced, he can
control the output of the production lines and define the market strategy to be
pursued in the different Member States for the make. All these factors have a
strong influence on each dealer's past performance and will also have a
considerable impact on the dealer's potential future sales.

379 In Member States where the manufacturer has entrusted an importer with the role of a
wholesaler, the importer will discuss the sales targets with the dealers and report the overall sales
figures back to the manufacturer.
380 See Article 4(1)(3), first alternative.
381 See Article 4(1)(3), second alternative.
382 See Article 4(1)(3), second alternative.
383 See Article 4(1)(4) of Regulation 123/85.

112

(352) Manufacturers and dealers take the view that the procedure for setting sales

targets works in general satisfactorily.384

(353) However, a number of consumers’ associations point out that the availability
of new vehicles is far from perfect. They state that new vehicles are delivered
sometimes much later than agreed upon in the sales contract or are not
delivered with the right specifications.

(354) Even if some of these problems may be attributable to dealer attitude, sales
targets and allocation of vehicles can give rise to problems if demand is higher
than expected (as described in pt. (271), page 88, of this report).
If the
manufacturer is not willing to rapidly increase385 the supply of cars to a
certain Member State where demand is high, these problems may persist for a
certain time. As a consequence, delivery times may considerably vary from
one Member State to the other. Moreover, even within a given Member State,
the policy of certain manufacturers described in pt. (271), page 88, of this
Report can also have the effect that very efficient dealers who sell more cars
than expected will not be able to get more new cars
from the
importer/manufacturer. As a consequence their delivery times will be longer
that those of their (less efficient) competitors who stick to the sales target.

(355) Another problem arises due to the fact that manufacturers in general request
that dealers sell their whole model range and that sales targets include a
certain number of all models, including a number of vehicles which do not sell
well. In practice, this means that dealers will only get sufficient numbers of an
attractive model if they also take a number of less attractive models, which
can only be sold with some difficulty and at high discounts.

(356)

In order to allow adjustment of sales targets and the allocation of new cars to
their importers/dealers, most manufacturers monitor at regular intervals (e.g.
monthly, every three months) the agreed targets and the allocation of new
vehicles. Car manufacturers say that,
if necessary, sales targets and car
allocation are adapted to market conditions in the dealer’s contract area. In
addition, some manufacturers have introduced IT systems which allow dealers
who want to sell a new vehicle to an end-consumer to check whether another
dealer has placed an order with the manufacturer for his stock of such
vehicles. This ordering system enables the dealer who has a customer to order
a car which is built for the stock of another dealer. Other manufacturers have
IT systems which allow dealers to find out whether one of the other dealers
belonging to the manufacturer's network in the same Member State has in
stock a car with the specifications ordered by a customer. If both dealers
agree, this car can be cross-delivered386 to the dealer who sold the car. This

384 For further details, see section 6.2.1.5, page 87, and section 6.2.1.7, page 90, of this report.
385 By increasing production or by reallocating cars which – in the planning – should have been

distributed in other Member States.

386 See Article 3(10(a) of Regulation 1475/95: car manufacturers cannot prohibit such cross-supplies

within their own network.

113

allows him to deliver a car promptly to his client and avoids unnecessary
waiting times.

(357) Even if some manufacturers have put

in place procedures designed to
introduce some flexibility, the system of setting sales targets and allocation of
cars to dealers has negative effects on competition. If a dealer sells more cars
than anticipated, and if the relevant vehicle is very popular, he very often
seems to be unable to order more cars from the manufacturer because an
increase in production will not be possible and because all the other dealers
will also be able to sell the cars which have been allocated to them. The
possibility of cross-sales between network dealers is, however, not a real
option for overcoming the problem of undersupply, since the other dealers
will also be short of new vehicles. The system of setting sales targets therefore
hampers the scope for network dealers to outperform their competitors
especially as regards vehicles for which demand is higher than production
output. If a dealer sells more of such cars than his competitors, his delivery
times will increase, whereas dealers who are performing not so well will be in
a position to supply vehicles within shorter deadlines and attract new
customers, not because of their better performance, but because of their better
supply situation.

(358) The UK Competition Commission’s report387 mentions another method of
using sales targets in a way which works against the spirit of the single market
and seems to infringe EU competition rules. Some dealer agreements seem to
provide that only those cars which have been supplied by the manufacturer or
the official UK importer to a UK dealer count towards a dealer’s sales target.
If a dealer purchases new cars from a dealer located in another Member
State388 and sells them to his clients, these cars will not be taken into account
when it comes to deciding whether he has achieved his sales targets or not.
For a dealer who purchases new cars from his counterparts located in another
Member State, it will be very difficult to achieve his sales target. Since the
failure of a dealer to meet his sales targets is a reason for the termination of
most dealer agreements, such a policy deters dealers from buying new cars
from their counterparts located in another Member State. Such a policy is
exacerbated if cars which have been sourced from another dealer are excluded
from bonus payments. In any event, such a policy is likely to be considered as
a “black practice” under Article 6(1)(7) of Regulation 1475/95.

(359) Apart

shortcomings,

from these serious

received by the
Commission to its questionnaires and the Commission's own experience show
that the above system seems to function well in situations where there is no
shortage of supply. The small number of complaints from consumers
concerning the unavailability of cars from their local dealer or failure to meet
the delivery time quoted in the sales contract indicates that this system does

the replies

387 Pt. 2.311 et seq.
388 Pursuant to Article 3(10)(a) of Regulation 1475/95, such cross-supplies may not be prohibited.

114

not hamper the availability of cars to customers having their residence within
the dealer's contract territory.

(360) The above system, which is mainly based on local market data also, allows the
pursuit of national marketing strategies389 and the operation of distribution
systems with delivery times which differ from Member State to Member State.
The information available to the Commission shows that the delivery times for
a particular model can be three weeks in one Member State and up to 38
weeks in another. Such a policy may be justified in the light of consumer
preferences such as the fact that, in general, consumers in Nordic countries
are willing to wait longer for a new car than in the southern part of Europe,
where consumers tend to buy a car which is in stock if the waiting time is too
long for them. From the competition point of view, differences in delivery
times are not a problem in themselves, because they give car manufacturers
some flexibility if they want to strengthen their position in certain Member
States by offering cars with very short delivery times and, compared to their
competitors, advantageous prices. They can therefore be considered to be, if
anything, pro-competitive.

(361) However, this is only true if parallel import and exports are not made more
difficult and if consumers in other Member States can also take advantage of
the more attractive and competitive market conditions, e.g. of the shorter
delivery times or lower prices outside their home country. Whether this is the
case will be analysed further below.

CONCLUSION:

In general, the availability of new vehicles for customers living  in  the contract  area  of  a  dealer
functions well. Nevertheless, if there is a shortage of new vehicles, the allocation of these vehicles
to  dealers  on  the  basis  of  agreed  sales  targets  leads  to  some  inflexibility  and  hampers
competition:  dealers  selling  a  number  of  cars  above  the  agreed  sales  targets  will  have  longer
delivery times than their competitors who do not outperform their sales targets

.

Direct sales to consumers inside the Member States

(362) Manufacturers can reserve themselves the right to make direct sales to certain
final consumers (such as public authorities, fleet operators or international
organisations).390 The Commission is not aware of any difficulties as regards
the supply of vehicles
in the Member States.
Nevertheless, in this area competition is very limited for two reasons. Fleet
operators order large quantities of cars. The allocation of cars to network
dealers is not flexible enough to allow dealers to sell large numbers of cars to
fleet operators, in particular if such transactions do not take place at regular
intervals and if they could not be taken into account when sales targets were
set. Moreover, manufacturers traditionally offer to their reserved customers

through direct

sales

389 Only three of the car manufacturers which replied to the Commission's questionnaire pursue a

policy which aims at harmonising delivery times.

390 Article 2 of Regulation 1475/95.

115

such as fleet operators and public bodies discounts which are much higher
than the dealers’ margins and bonuses.
Dealers are therefore also
economically not in a position to compete with their manufacturer in this area.

CONCLUSION:

The  availability  of  new  vehicles  to  reserved  customers  buying  directly  from  manufacturers  at
national level seems to meet customers’ expectations
.

6.3.2.2

Availability of new motor vehicles for cross-border sales

Cross-border sales from dealers located in another Member State

(363)

In order to create a balance between selective and exclusive distribution,
which in themselves allow some partitioning of the single market because the
number of dealers is limited and each of them has to focus its sales efforts on
a geographically limited territory, Regulation 1475/95 contains a number of
provisions which aim at creating conditions for the development of a single
market for motor vehicles.

(364) The Regulation does not exempt dealer contracts which confine dealers only
to satisfying the demand for cars within their territories. Dealers must also be
able to meet demand from buyers in other areas of the single market, be it
inside or outside the Member State in which a dealer is located. In view of this
aim, Regulation 1475/95 provides that advertising by dealers via a channel
which is directed at customers outside the contract territory can only be
advertising.391 Moreover,
prevented
manufacturers and importers may not use product differentiation to partition
the single market.392 In order to avoid such partitioning the Regulation
contains the “availability clause”393 which gives dealers a right to order cars
with technical specifications which correspond to a model which is marketed
by the manufacturer in another Member State. The Regulation also contains a
number of clauses394 which aim at ensuring that consumers are really in a
position to purchase motor vehicles wherever in the European Union prices or
terms are most favourable.395

personalised

amounts

to

if

it

(365) As regards the availability of commercial vehicles including trucks and
buses for cross-border sales, it is to be noted that, in contrast to cars, the
technical requirements for these vehicles have not yet been harmonised. A
European vehicle type approval, which exists for passenger cars, does not yet
exist for commercial vehicles and is not expected to be introduced within the

391 See Article 3(8) and recital 9 of Regulation 1475/95, see also Chapter I of the notice on

Regulation 123/85.

392 Recital 16 of Regulation 1475/95.
393 Article 5(1)(2)(d).
394 Articles 6(1)(7) and (8) of Regulation 1475/95 and Chapter I, 1 of the Communication on

Regulation 123/85.

395 Recital 26 of Regulation 1475/95.

116

next two to three years. Nevertheless, according to one of the black clause of
Regulation 1475/95 which covers all
types of motor vehicles including
commercial vehicles, dealers have to be in a position to also order commercial
vehicles which match the technical standards of the Member State in which
such a vehicle is to be registered.396 According to this black clause,
manufacturers and importers loose the benefit of the Regulation if they restrict
the freedom of final consumers or their authorised intermediaries to purchase
from any network dealer contract goods or corresponding goods397.

(366) As

regards

the cross-border availability of passenger cars, all car
manufacturers argue that there are no obstacles in place and that they have
informed their dealers many times orally and in writing that the latter are free
to sell cars to any final consumer within the EU. In order to show that parallel
trade is unrestricted, they point to the increase in parallel trade in cars in
recent years between markets where price differentials are considerable.

(367) The figures provided to the Commission do not give a complete overview of
all parallel traded cars. They do, however, indicate that some parallel trade
takes place. Nevertheless, these figures are not evidence that every consumer
wishing to take advantage of the single market and the price differentials
within it will succeed in finding a dealer who is willing to sell a car and that
manufacturers or dealers do not try in one way or the other to discriminate
against these customers as compared with domestic buyers. The problems in
this field are also illustrated by the Commission decision in the Volkswagen
and Opel Nederland case and the other pending procedures398 as well as the
numerous consumer letters which the Commission has received.

(368) As can be seen from the British consumer associations' replies and from the
complaints from individual consumers (see Annex III) which the Commission
received in the last two years, the most frequent difficulties encountered by
consumers are as follows:

• dealers claim that the supply of cars from the importer or manufacturer is
not sufficient to meet both their local demand and the demand of foreign
consumers;

• dealers claim that the sale of new cars is not profitable and that therefore
they are not interested in selling cars to buyers who will not come back for
after-sales servicing or to buy a car to replace the one they wish to buy
now;

• dealers who are willing to sell new cars quote delivery times which are
much longer than their normal delivery times;
this is true both for
left-hand-drive and for right-hand-drive cars which are sold in mainland
this phenomenon seems to be particularly common in the
Europe;
Netherlands and in Denmark;

396 This right of dealers stems from Article 6(1)(7) of Regulation 1475/95.
397 See also footnote 89 of this Report.
398 For details, see section 5.2.1, page 61, of this report.

117

• dealers do not grant the same rebates to foreign buyers as they do to
domestic customers and/or they quote higher prices to foreign buyers than
the retail prices recommended for their country;

• foreign buyers have to pay very high deposits for vehicles which are
exported. These deposits can be as much as the full sales price of a car.

(369)

It
is noteworthy that such practices and refusals are, according to the
comments received from a number of consumer associations and the
complaints received by the Commission, used frequently, but not exclusively,
in regions geographically close to the border of an expensive country, like the
region of Maastricht in the Netherlands and the south of Denmark for German
consumers. The same was also true for some dealers close to harbours where
boats from the United Kingdom dock. In the past, during the devaluation of
the Italian currency in 1994 to 1996 similar arguments were used by VW and
Audi dealers in the north of Italy.399

(370)

In view of the “natural interest” of all dealers and importers in selling as many
cars as they can, the reasons for such”uneconomic” behaviour seem to stem
from factors which are outside the dealer's influence and linked primarily to
the unavailability of sufficient quantities of a particular model. The result is
that a dealer is not in a position to sell to his domestic and foreign buyers in a
satisfactory manner.400

(371) As explained previously in section 6.2.1.5 (page 87), dealers have a
contractual obligation to endeavour to sell a certain number of vehicles in
accordance with their sales targets. The criteria, which have to be taken into
account when sales targets are set, are in essence past and expected future
territory and the country of the
market development within the contract
the block
dealer. This is compatible with the Regulation.401 However,
exemption does not provide for a similar and clear procedure as regards sales
to buyers coming from outside the dealer's territory:
the “availability
clause”402 provides only for a right of dealers to request the delivery for
export of passenger cars which correspond to a model marketed by the dealer.
However, it is left open whether these cars are already included in the cars
which are allotted to a dealer based on the agreed sales targets,403 or whether
the dealer can request the delivery of additional cars in view of his exports.
The relevant “black clause” of the Regulation,404 according to which dealers
have to be in a position to sell all types of vehicles including commercial

399 See Commission Decision of 28 January 1998, Case IV/35.733 – VW, OJ L 124, 25.4.1998, p.

60.

400 Which is a priority for him in view of the sales targets and in view of the higher economic

attractiveness of such customers who will come back to the dealer for after-sales services.

401 Article 4(3).
402 Article 5(1)(2)(d).
403 Some car manufacturers maintain that this is the case.
404 Article 6(1)(7).

118

vehicles which match the technical standards of the Member State in which
the vehicle is to be registered, does not clarify this issue either.

(372) A further problem arises as regards the supply of cars due to be exported
which are identical to the models the dealer normally sells. Neither the
“availability clause” nor the above “black clause” clarifies the question
whether or not a dealer can request additional vehicles (on top of those
allocated to him in the context of the agreement on sales targets) in order to
be able to sell them to final consumers in other Member States. Manufacturers
often state that vehicles due to be exported have to be supplied from the
number of cars which have been allotted to the dealer in the context of the
sales targets.

(373) As far as the Commission is aware from its many contacts with car
manufacturers on the issue of the availability of cars for final consumers in
other Member States, it seems that none of the manufacturers has put in place
the necessary transparent procedures to make sure that dealers are well
informed and that cars to be parallel exported are made available to them in a
non-discriminatory way and in sufficient quantities, which should be the case
in a single market. However, in view of the above lack of clarity in the
Regulation and the notices, the existing legal framework does not provide for
clear guidance as to what is required in order to allow dealers to supply cars
to foreigners on the same terms and conditions as to domestic or local buyers.

(374)

In contrast to passenger cars, the Commission's investigation in the recent
merger case 405 Volvo/Scania revealed that nearly all heavy trucks (above 16
tons) and buses are purchased nationally because of the need for efficient
after-sales and service support, the risk of reduced second-hand value of
privately imported trucks and the different types of technical characteristics
prevailing in the various Member States. It is therefore difficult to draw any
conclusions on the availability of heavy trucks and buses for cross-border
sales.

CONCLUSION:

Although a core aim of the Regulation is to give every European citizen the right to purchase a
car in an EU country of his choice,  car buyers  still face  difficulties  when  they try to purchase
new vehicles in another Member State. On the one hand, these difficulties can be explained by
the  reluctant  attitude  of  manufacturers  and/or  their  distributors  towards  cross-border  car
purchases;  on  the  other  hand,  manufacturers  and  their  importers  can  use  a  system  of  sales
targets  allowed  under  the  Regulation  and  subsequent  allocation  of  production  output  to  their
dealers to organise distribution in a way which can  lead  to  discrimination against cross-border
sales  as  compared  with  national  sales.    This  makes  it  possible  to  apply  strategies  to  protect
dealers  in  some  Member  States  from  intra-brand  competition  from  dealers  located  in  other
Member States.

405 Case IV/M.1672.

119

Cross-deliveries within a manufacturer's network on a cross-border basis

(375) Under the Regulation, importers and dealers can engage in cross-deliveries
within the distribution network of the relevant car manufacturer.406 The
figures provided to the Commission in reply to its questionnaires show that
none of the importers has carried out such cross-supplies to importers or
dealers located in other Member States. As regards cross-deliveries between
dealers, the Commission is aware of a very limited number of cross-sales to
other dealers of the same make.407 However, in the case of popular vehicles,
dealers will not have sufficient quantities to cross-supply them to other
dealers. Moreover, due to the practice of linking the sales targets to the
allocation of new cars to the dealers,408 a dealer who supplies cars to other
dealers of the same network may be unable to reach his sales targets because
he is unable to obtain more new cars. Such a dealer will not qualify for a
bonus because he has not reached his sales targets – or, even worse, loose the
franchise. Moreover, a dealer who purchases cars from another dealer may
also face difficulties: as has been described by the UK Competition
Commission, some manufacturers seem not to count cars, which have been
sourced form another dealer located in another Member State towards the
dealers’ sales targets.409

CONCLUSION:

Cross-deliveries  between  dealers  belonging  to  a  manufacturer's  network  in  different  Member
States  exist  to  only  a  limited  extent.  They  do  not  seem  to  have  an  appreciable  effect  on  the
overall availability of cars in the various Member States.

Cross-border purchases via intermediaries

(376)

In view of the practical difficulties final consumers face when trying to buy a
car in another Member State, they can, by signing a written authorisation,
appoint an intermediary to make the necessary arrangements for the purchase
of a new vehicle in their name and on their behalf.410

(377)

In general, intermediaries are confronted with the same difficulties as final
consumers when they try to find a dealer willing to sell a car to their client.
These difficulties have been described in section 6.3.2.2 (page 116) .

(378) Nevertheless, in some cases, intermediaries have established contacts with a
dealer who is indeed willing to sell new vehicles to their customers. Here
another problem may arise which makes parallel trade difficult. According to
the notice on intermediaries,411 intermediaries should not establish with a

406 Article 3(10)(a).
407 As to the reasons for the limited number of cross-supplies, see also above pt. (358) on p. 114.
408 see pt. (271) on p. 88 of this report.
409 UK Competition Commission Report, pt. 2.316 to 2.318.
410 Article 3(11); for details, see also notice on intermediaries.
411 Chapter 2(c) of the notice on intermediaries.

120

dealer “a relationship which is privileged and contrary to contractual
obligations” accepted by the dealer.412 If a dealer takes orders amounting to
more than 10% of his annual sales from any one intermediary, this creates,
according to the notice, a presumption of a privileged relationship contrary to
the above Articles. The car manufacturer may in such a case take action
against the dealer and, for example, refuse to sell him cars to be supplied to
consumers who have ordered them via the intermediary in question. The
Commission has been informed of several such cases in the past. This also
represents an obstacle for certain dealers and intermediaries wishing to engage
in parallel trade.

(379)

It has to be noted that one of the provisions to which the notice413 refers has
been amended in Regulation 1475/95: the new Regulation allows dealers to
actively promote their sales outside their contract territory if they do not use
personalised advertisements414. This new freedom seems to be put
into
question if dealers are not able to freely respond to orders for new vehicles
presented to them by very efficient intermediaries.

(380) The intermediaries’ main task is to assist consumers in purchasing a vehicle in
another Member State. However, a number of provisions contained in the
notice on intermediaries seems to limit the scope of the latter to provide
efficient and attractive services. In particular the notice contains the following
limits: intermediaries have to avoid carrying out their operations using a
common name or sign because this could create the misleading impression of
an authorised distribution system. They may not use an outlet within the
premises of a supermarket where the principal activities of the supermarket
are carried out.415 Nor may an intermediary receive discounts different from
those which are customary on the market of the country in which the car is
purchased.416 All these restrictions limit the intermediaries’ scope to organise
their businesses freely and in the most efficient way. Moreover,
these
restrictions mean that an intermediary cannot get better deals for his
customers by grouping orders together and passing them on to a dealer who
in turn could grant higher rebates to the intermediary purchasing large
quantities of cars for which the dealer did not have any advertising costs.

(381) Market opportunities for intermediaries depend on price differentials within
the EU. This makes it necessary for intermediaries to change their sources of
supply over time, depending on which markets are cheapest for the sourcing
of new vehicles.

412 The text of the notice makes reference especially to Articles 3(8)(a) and (b), and (9) and

Article 4(1)(3) of Regulation 123/85.

413 Art. 3 (8) (b) of Regulation 123/85.
414 Art. 3 (8) (b) of Regulation 1475/95.
415 See Chapter 2 (a) of the notice on intermediaries.
416 See Chapter 2 (c) of the notice on intermediaries.

121

(382) All these factors explain why intermediaries are small and medium-sized
undertakings which are not in a position to organise a cross-border vehicle
trade in Europe which, together with the private cross-border purchases,
would in quantitative terms be sufficiently important to force manufacturers to
reduce the price differentials in Europe.

CONCLUSION:

Intermediaries  face  the  same  difficulties  as  final  consumers  when  they  try  to  purchase  a  new
vehicle in  another  Member  State.  The  rules  governing  the  activities  of  intermediaries  make  it
difficult for them to become an easy and efficient channel for buyers who want to take advantage
of  the  price  differentials  in  the  single  market  and  to  source  their  vehicle  in  another  Member
State.

Direct sales

(383) As regards direct sales of new passenger cars to fleet operators, the replies
received from rental and leasing companies indicate that there seems to be no
demand for cross-border purchases. The practice of direct sales at highly
discounted prices417 might make cross-border purchases from dealers in
another Member State uninteresting. Other reasons for the absence of such
cross-border purchases might be that the downstream market for long-term
is not sufficiently
hire and leasing, on which these companies operate,
competitive to give these operators an incentive to try to source cars outside
their home country. Nevertheless, the Commission is aware of a number of
fleet operators who tried to purchase cars directly from a manufacturer or an
importer and met with a refusal. Since no dealer or other independent
distributor is involved in direct sales, such a refusal is outside the scope of this
report.

CONCLUSION:

Since there still seems to be little demand for cross-border direct purchases of new vehicles from
other Member States, it is difficult to assess whether manufacturers’ or importers’  distribution
behaviour  within  the  framework  of  the  Regulation  gives  rise  to  discrimination  against  foreign
buyers as compared with domestic customers.

6.3.2.3

Availability of cars via resellers

(384) Regulation 1475/95 exempts clauses in dealer contracts which prohibit sales
of new vehicles to independent resellers who are not part of the distribution
network of a manufacturer.418
The rationale behind this exclusion of
independent resellers from the distribution of new vehicles is that, in view of
the technical complexity of motor vehicles, manufacturers need to co-operate
with certain dealers and repairers in order to provide specialised servicing for
the products. On grounds of capacity and efficiency, such cooperation cannot

417 For further details see also UK Competition Commission report, pt. 7.53ss.
418 Article 3(10)(a).

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be extended to an unlimited number of dealers and repairers.419 It is worth
noting in this regard that according to Regulation 1475/95 dealers undergo a
qualitative selection also regarding their capacity to carry out after-sales
In this system dealers are always providers of after-sales services
services.
and thus capable of carrying out any necessary technical
intervention,
including the pre-delivery inspection of a new motor vehicle according to the
manufacturer's specifications.
In view of these elements, it was considered
that this inspection could only be carried out by a dealer belonging to the
network of the relevant manufacturer and that therefore the sales of new
vehicles to independent resellers can be excluded.420

(385) Since network dealers are prohibited from selling new cars to independent
resellers, only a very small number of cars can be purchased from independent
resellers.

(386) The question arises as to whether the exclusion of such distributors is still
justifiable. Cars have become much more reliable today and there seems to be
no objective reason why the pre-delivery inspection of a car cannot be carried
out by the manufacturer before the car is transported to a dealer who has just
to do simple work like cleaning the car and making sure that it has no external
damage. It should also be borne in mind that there exist specialist independent
repairers who have the technical knowledge to carry out pre-delivery
inspections and/or who can request access to this information.421 Moreover,
quality comparisons between independent repairers and those belonging to the
manufacturers’ networks show that
the quality of repairs carried out by
independent resellers and repairers is just as good as the quality of repairs
carried out by official dealers.

CONCLUSION:

The exclusion of independent resellers from the distribution of new cars may be questionable.

6.3.3 Is there a benefit for consumers as regards the honouring of the warranty

and after-sales services?

6.3.3.1

Is the honouring of the manufacturer’s warranty satisfactory?

(387) Manufacturers provide for a warranty on new motor vehicles as regards the
proper functioning of the vehicle.
In addition, most manufacturers offer an
anti-corrosion warranty. As to the length and extent of these warranties,
please refer to section 4.2.2 (page 47) of this report.

(388) The following sections will analyse whether the way in which manufacturers
and their network dealers honour the warranty is satisfactory. This will be
discussed as to cars which have been purchased by a consumer from a local

419 See recital 4, sentence 3.
420 See recital 4, end of sentence 4.
421 Article 6(1)(12).

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dealer and as to cars purchased from another dealer in or outside the
consumer's home country.

General problems concerning honouring of the warranty of cars

(389) According to the Regulation,422 a dealer has to honour the manufacturer's
warranty and to perform free servicing and vehicle-recall work on the motor
vehicles he has sold, notwithstanding his own legal obligation pursuant to
national contract law in this respect.
In the replies to the Commission's
questionnaires, no major problems were reported as regards the honouring of
these warranties.

(390) However, consumers’ associations criticise the fact that most manufacturers’
warranty conditions provide that the warranty will end or be partly excluded if
a car has been repaired or maintained by an independent repairer. Consumers’
associations point out that such warranty conditions oblige consumers who do
not want to loose their warranty to have their cars serviced by network
dealers or service outlets. The competitive assessment of such warranty
conditions may also depend on the ratio between the duration of the warranty
and the lifetime of the vehicle.423

Honouring the warranty for a car which has not been purchased from a local
dealer

(391)

In order to benefit from the Regulation, vehicle manufacturers have to oblige
their dealers to honour the manufacturer's warranty, to perform free servicing
and vehicle recall work on vehicles within their contract or a corresponding
This obligation
range, wherever
the vehicle has been purchased.424
complements the freedom of consumers to purchase a new motor vehicle in
loosing any of the rights enjoyed by
another Member State425 without
consumers who buy a new vehicle from a local dealer.
Consumers’
associations, in their replies to the Commission's questionnaires, are in favour
of these rules and unanimously request that the relevant clauses should be
maintained after the expiry of Regulation 1475/95, on 30 September 2002.

(392) Although these obligations on dealers are an important element of the
Regulation, consumers still complain about the fact that dealers are reluctant
to carry out warranty work on cars which they have not sold. To some extent
this is said to be due to the paperwork involved for the dealer, who has to ask
for reimbursement for the spare parts and labour cost involved in the repair of
the vehicle. This is especially true if the warranty booklet for the car has not
been filled in by the dealer who sold the car; in such cases, the dealer who has

422 Article 5(1)(1)(a), first indent, and Article 4(1)(6).
423 As is the case for cars sold in the UK; see the Commission car price reports, which indicate the
length of the warranty in the different Member States. One Japanese manufacturer seems to
extend the warranty for its cars to 5 years (see: l’Argus de l’Automobile, 3.2.2000, p. 6.).

424 Article 5(1)(1)(a) and recital 12 of the Regulation.
425 Recital 12 of the Regulation.

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carried out the repair of a car under warranty does not know whether or not it
is still under warranty and will ask the consumer either to pay for the repair or
to have the warranty booklet filled in. Especially in cases of parallel traded
cars which have been sold in another Member State or via an independent
reseller, it is sometimes difficult for consumers to get the necessary signatures
and documents. However, the use of IT should enable car manufacturers to
check whether or not the car is still under warranty and to reimburse dealers
even if the warranty booklet has not been signed by the dealer who sold the
car: an e-mail to the dealer who sold the car or to the manufacturer should
suffice to establish when the car was sold.

(393)

In the past, some dealers and even one car manufacturer seem not to have
been aware of their obligations under the Regulation. As a result, following
action by the Commission, some car manufacturers have sent circular letters
to their dealers to rectify this and to inform them of their obligation to
honour426 the warranty for vehicles which have been purchased elsewhere in
the EU.

CONCLUSION:

No  major  problems  seem  to  exist  as  regards  the  honouring  of  the  warranty  for  cars  which
have been bought from a local dealer.

Car manufacturers  have not always informed  their network dealers throughout  Europe  that
they have also to honour the warranty of cars which have been bought from a dealer located in
another Member State.  After having been reminded by the Commission of their obligations,
the  relevant  manufacturers  informed  their  dealers  of  their  obligations  and  put  the  necessary
procedures in place to comply with the Regulation.  Consumers’ associations point out that the
provisions of the Regulation which oblige dealers to honour the warranty for a vehicle bought
from  another  dealer  are  essential  in  order  to  protect  consumers'  rights  on  parallel  imported
vehicles.

6.3.3.2

Can after-sales service be considered satisfactory?

(394) After-sales services are normally purchased on the local market. However,
since a car is a mobile product, in many cases consumers cannot do so or do
not want to have their car serviced by the dealer from whom they purchased
it. Regulation 1475/95 accordingly obliges all dealers belonging to the
network of a manufacturer to carry out repair and maintenance work on all
vehicles made by such manufacturer.427

After-sales-service by the dealers who have sold a vehicle

(395) As regards the quality of after-sales services, one can assume that dealers are
well acquainted with the technical instructions given by the manufacturers and

426 Without any charge for the consumer who claims the warranty.
427 Article 5(1)(1)(a), Article 4(1)(1)(e) and recital 12 of Regulation 1475/95.

125

that they also have the necessary staff, tools and equipment to provide after-
sales services of good quality.428

four

(two dealers,

(396) Consumers are less positive about the quality of after-sales service. For
instance, the UK’s Consumers’ Association recently reported429 that forty-
eight dealers and independent repairers were tested throughout the country.
Seven of the ten which stood out as particularly poor because they had missed
recommended
a serious safety fault, charged for work not done or
two
unnecessary work, were franchised dealers;
independents) of the undertakings tested received a top rating.
The
Consumers’ Association concludes that franchised dealers are no better than
independent repairers. Other surveys430 give a more positive picture of the
quality of after-sales services: they indicate that about 89 percent of the
motorists were satisfied with the quality of car servicing they received from
dealers. However, according to Lex’s findings,431 for many years consumer
satisfaction was higher if a car had been serviced by an independent repairer
than if it had been serviced by a dealer. According to the Castrol Trend
tracker, this is still true today: it indicates that although all sectors show high
satisfaction figures, the ’other paid source’ sector432 provided the highest
satisfaction followed by independent garages and then franchised dealers.433
As regards the range of services available, normally dealers are able to do all
types of repairs including complicated ones, such as repairs of airbags and
automatic transmissions. However for some types of repairs, such as car
bodies, dealers are in general not obliged to have their own repair shop: they
are allowed to subcontract this work to other network dealers or to a body
repair shop in which they are a majority shareholder or which has been
accredited by the manufacturer.

(397) The consumer’s expectation that after-sales services provided by dealers
should be of the highest in quality may be all the more legitimate since dealers'
prices are in general higher than the prices of independent repairers: a recent
British article434 shows that major services are on average 50% more
expensive when carried out by dealers – as compared to an average of 26% in
Spain.435 Based on the replies to the Commission's questionnaires, this can be

428 According to Article 4(1)(1) of the Regulation, manufacturers can impose on their dealers certain
qualitative standards as regards the training of the personnel and the equipment of their
after-sales departments.

429 “Secret Service” in: Which? Magazine, September 1999, p. 8.
430 “The 1999 Lex Report on Motoring”, p. 70; AA, “Consumer information for motorists”, Surveys
of motorists and the garage trade and proposals for actions, 1996, p. 3; see also “The Castrol Car
Service and Customer Satisfaction Trend Tracker” by Brian Taylor, published by The
Automotive Strategies Group, January 2000, p. iii.

431 “The 1999 Lex Report on Motoring”, p. 70;
432 Self-employed mechanics, fleet workshops, mobile servicing units and black economy repair (see

“The Castrol Car Service and Customer Satisfaction Trend Tracker”, p. 93).

433 “The Castrol Car Service and Customer Satisfaction Trend Tracker”, p. ii.
434 “Drive down your car running costs” in: Which? Magazine, March 1998, p. 20
435 1994 OCU study.

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explained by two reasons. Firstly, as has been explained in section 6.2.1.1
(page 82) of this report on the very limited use of spare parts, dealers do not
seem to exploit
the opportunity offered by the Regulation to lower their
prices by not using original spare parts but rather much cheaper, non-original
spare parts ofmatching quality. Secondly, dealers' services may also be more
expensive because they are obliged to have specific brand tools and testing
equipment which independent repairers do not normally have. After the end
of the warranty period, consumers tend to have their cars serviced by
independent repairers because of the lower cost. This tendency varies
between Member States.

(398) The following diagram illustrates the service retention of dealers after the end
of the warranty period.
In Germany, for example, 70% of consumers stay
with dealers; in the United Kingdom, only 25% do so, whereas 75% of all UK
consumers turn to other providers for after-sales services once the warranty
period has ended.

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Diagram 21: Service retention of dealers in different Member States

Source: Autopolis, “The need to reform the service and retailing system” 10/ 1998.

Units/year figures indicate the average size of the dealers436.
(399) As far as speed of service is concerned, fast-fit chains are able to offer new
types of services for simple, standardised repairs. However, as has been
explained in section 4.2.1 (page 43) of this report, dealers and manufacturers
are starting to react to this competition by offering service packages at pre-set
prices and without prior appointment (“ready-while-you-wait service”). This
also shows that it is important to have a sufficient number of efficient and
competitive independent repairers and fast-fit chains to protect competition in
the area of after-sales services.

After-sales services by another dealer than the dealer who has sold a vehicle

(400) As regards the provision of after-sales services for new vehicles bought from
another dealer, no major problem has been brought to the attention of the
Commission. Distribution agreements seem to abide by the Regulation in this
respect.437 This can be explained by the fact that after-sales services are in

436 As to the details of this diagram: the “traditional” system in countries such as Germany is
characterised by dealers with relatively low unit throughput and high service retention which
helps to ensure profits. In the Netherlands similar retail volumes per dealer are seen to those in
Germany; however, dealers there have a much weaker hold on the provision of auto servicing as
the independent market has made greater inroads.
In contrast to the northern markets, the
southern markets are “unbundled” . Here the main dealer sells cars but is flanked by a multitude
of service sub-dealers. Fairly high new unit sales keeps the main dealer in business even though
much of the service revenue goes to sub-dealers. As regards the UK, it is said to be in the worst
position: more than half of all the cars which pass through the books of the dealer (shown in the
above diagram with an O) are fleet purchases which contribute very little to the dealer’s revenue.
The sales to private consumers by UK dealers are much lower (shown in the diagram with an u)
and are said to be “declining”. The diagram also shows that British consumers use the dealers
only to a very small extent for the repair and maintenance of cars (in particular once the warranty
has expired); see CA 2000, "The Forecourt Revolution", p.29.

437 Second indent of Article 5(1)(1)(a) of Regulation 1475/95.

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general profitable and it would not be logical for dealers to refuse to offer
after-sales services for such cars.

CONCLUSION:

The after-sales services provided by dealers seem not always to be of the
quality required by manufacturers and consumers. Moreover, after-sales
services provided by dealers are on average more expensive than those
provided by independent repairers, who are able to offer most services at a
generally similar quality level. In order to protect competition in the after-
sales service market, it is important to have a sufficient number of efficient
independent repairers and fast-fit repairers.

7

ASSESSMENT OF FUTURE DEVELOPMENTS UNDER REGULATION
1475/95 - INTRODUCTION

(401) The marketing and sales of new cars via the Internet was not considered at the
time Regulation 1475/95 was adopted, since at that time commercial use of
the Internet was still in its infancy. The Regulation does therefore not give any
guidance on a number of issues concerning this new marketing method or
selling tool.

(402) The present section tries to take into consideration the future evolution of car
distribution with particular regard to Internet sales (section 7.1 below) and/or
new sales via supermarkets or specialised shops (section 7.2). The interest in
these two distribution systems
several car
follows
manufacturers and Internet service providers to develop their activities in
these fields. Car manufacturers encountered difficulties in harmonising their
traditional organisations with these new sales methods. These difficulties are
linked not only to practical problems, but also to possible impediments
resulting from the Regulation.

the attempts of

7.1 INTERNET SALES

Application of Regulation 1475/95 to e-commerce concerning the marketing
and sales of new cars

Dealers selling cars via the Internet

(403) Pursuant

to Regulation 1475/95 a dealer can use all existing means to
promote the sales of new motor vehicles provided that he observes the
minimum standards laid down by the manufacturer relating to advertising438
and does not personally contact potential customers located outside his
contract territory (e.g. by e-mail).439 Thus the promotion of new vehicles by
the only limit being that the
dealers via the Internet can not be prohibited440

438 Article 4 (1)(1)(c) of the Regulation.
439 See article 3 (8) (b) of the Regulation.
440

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dealer may not personally contact potential customers located outside his
contract territory (e.g. by e-mail).441

Internet operators acting as broker or agent for a dealer:

the

(404) Regulation 1475/95 not only concerns

relationship between a
manufacturer and its dealers.
It also covers the activities of intermediaries
acting on behalf of the consumer for the purchase of a car. However, some
Internet companies may not want to act as intermediaries within the meaning
of the Regulation, but rather as a broker or agent acting for the dealers.
(405) The Regulation contains some provisions which could be used to limit the
development of such Internet operators who want to offer new services with
respect to new cars. Firstly, it requires the dealer to have the agreement442 of
the car manufacturer to appoint an agent for distributing the cars in its
territory. Secondly, it prohibits the dealer from entrusting third parties with
the distribution of cars outside its contract
the
manufacturer may also oblige the dealer not to maintain branches or depots
outside his contract territory and not to solicit customers for contract goods
or corresponding goods by personalised advertising outside his contract
territory444. However, the use of the Internet removes geographical barriers
and does not take into account territorial exclusivity. The question arises as to
how the activity of an Internet operator has to be assessed under the above
rules. Moreover, in the view of the ever increasing use of the Internet it is
questionable whether these rules are still appropriate.

territory.443

Thirdly,

(406) These provisions could be, and already have been, used445 by car
manufacturers to impede the activity of such an Internet operator acting on
behalf of a given dealer in the exclusive territories of other dealers.
Internet operators acting as a dealer:

(407) An Internet operator has no right, in the current system of distribution, to
become a dealer, since he would not fulfill the traditional criteria for the
selection of new dealers446 used by all car manufacturers and covered by the
Regulation.

It is also worth to note that general advertising or promotion on the Internet, that reaches
customers in other distributors’ exclusive territories and which is a reasonable way to reach
consumers outside those territories (in particular the consumers inside the dealers own territory)
are considered as passive sales in the sense of Regulation 2790/99; see Commission Notice
Guidelines on Vertical Restraints, pt. 50, 2nd indent and pt. 51.++

441 See article 3 (8) (b) of the Regulation.
442 Article 3(6) of the Regulation.
443 Article 3(9) of the Regulation.
444 Article 3(8)
445 A major car manufacturer has relied on these provisions to justify its opposition to any

commercial relation between its dealer and such internet operators.

446 E.g. up to now all dealers have to focus on a sales territory, which is always a geographically
defined territory of a Member state (see article 1 and 4 (1)(3) of the Regulation). Futhermore an
Internet operator may have a particular interest in advertsing by electronic means vis-à-vis a
large range of customers. This may be in contradiction with the obligations which can be

130

(408) Moreover, Regulation 1475/95 only exempts distribution agreements for new
cars if the distributor not only sells new vehicles, but also provides after-sales
servicing.447
So far Internet operators are only interested in providing
services related to the sale of cars. They do not have an infrastructure to
provide after-sales service in the geographic area in which they operate.
Internet operator acting as a reseller:

(409) The Regulation exempts the prohibition of the sale of new vehicles by dealers
to independent resellers.448 As a result of this rule, dealers cannot sell to an
Internet operator who would sell new cars directly to consumers. Thus, the
development of this type of commercial activity can be severely limited.

Internet operator acting as an intermediary:

(410) The only real option available for an Internet operator under the present legal
framework is to act as an intermediary for the consumer ("OneSwoop" for
instance). However, even in this scenario, legal problems still exist.

(411)

If an intermediary buys a car in the name of, or on behalf of, a consumer, he
must be able to show a written and signed mandate that identifies the final
consumer by name and address. The authorisation must also specify the type
of vehicle.449
If the intermediary fails to show such authorisation, the dealer
may refuse to sell the vehicles to him.450 The requirement that the mandate
has to be a written and signed document creates a practical problem for
transactions carried out via the Internet, where the authorisation may consist
of an electronic message.451

imposed on a dealer pursuant to acticle 3(8).
.Dealers have also to have a physical showroom
within their sales territory which corresponds to the standards of the manufacturer (see article
4(1)(1)(a)). These criteria, which an Internet dealer can not meet, are criteria of a distribution
system based on territorial exclusivity and on quantitative selection of the distributors.

447 Article 5(1)(1)(a).
448 Article 3(10)(a).
449 Article 3(11) of the Regulation states that a dealer cannot sell motor vehicles within the contract
range or corresponding goods to final consumers using the services of an intermediary unless that
intermediary has prior written authority from such consumers to purchase a specified motor
vehicle or where it is taken away by him, to collect it.

450 According Article 3(10) of the Regulation, a dealer cannot supply vehicles to a reseller not

belonging to the distribution system.

451 This problem has been pointed out by intermediaries operating via the internet who state that

their activity could be seriously damaged by Article 3(11) of the Regulation.

131

(412)

In the past, only hand-written signatures have been considered legally valid.
However, the recent Electronic Signature Directive adopted on 30 November
1999452 also promotes the validity of electronic signatures. The Directive
that Member States have to introduce legislation
stipulates,
ensuring that an electronic signature cannot be legally discriminated against
solely on the grounds that it is in electronic form.453

inter alia,

CONCLUSION:

The  Internet  offers  wide  scope  for  introducing  new  methods  for  the  distribution  of  motor
vehicles.    In  general,  consumers  are  more  and  more  willing  to  purchase  products  via  the
Internet.  They already use the Internet to purchase complex and expensive products such as
computers and financial services.

The regulatory framework for the distribution of motor vehicles is not adapted to certain new
e-commerce activities: it can be used to prevent or limit Internet operators not  belonging to a
distribution  network  to  become  dealers  or  brokers  for  the  marketing  or  distribution  of  new
motor vehicles.

7.2 SALES VIA SUPERMARKETS

Regulation 1475/95 and sales via supermarket

(413) The following section of this report examines the legal problems resulting

from the Regulation as regards sales of new cars by supermarkets.

Supermarkets acting as a broker or agent of a dealer, as a dealer, or as a
reseller of new cars:

(414) Supermarkets wanting to promote the sale of new vehicles in one of these
capacities will face similar problems to Internet operators454 (see section 7.1
(page 129).

452 Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a

Community framework for electronic signatures, OJ L 13, 19.1.2000, p. 12.

453 Press release IP/99/915, 30.11.1999.
454 The main obstacles for supermarkets to become a dealer are:

since manufacturers operate
quantitative selection, there is no “right” of a supermarket to be appointed as a dealer. Moreover,
the geographic area in which a supermarket operates is in Europe already allocated to one or
several dealers as an exclusive territory. Dealers can therefore object to the appointment of a
supermarket (or another dealer) in their sales territory.

132

Supermarkets acting as an intermediary:

(415) A supermarket could offer its services as an intermediary for final consumers.
However, according to the notice on intermediaries,455 a supermarket has to
take all measures to avoid confusion in the minds of consumers as regards, on
the one hand, its activities as an intermediary and, on the other, its normal
commercial activity as a supermarket selling goods.
In view of the way
supermarkets operate, the opportunity to act as an intermediary does not
seem to be very attractive for them, and the above obligations imposed by the
notice on intermediaries limits this option for the distribution of new cars even
further.

(416) Dealers and independent importers do not like car manufacturers' attempts to
distribute cars via supermarkets. They believe that supermarkets will use cars
as a product to attract consumers' attention by setting lower prices. However,
supermarkets do not represent a valid alternative to distribution via dealers.
Cars are high-priced goods about which consumers expect
to be well
informed and in relation to which they expect to be offered the possibility of
after-sales services. Consumers' associations point out that such sales would
result
in lower prices. However, consumers would have to turn to an
undertaking other than the supermarket such as a dealer or an independent
retailer for the after-sales servicing.

CONCLUSION:

The  current  regulatory  framework  is  not  adapted  to  any  form  of  distribution  of  new  cars  by
supermarkets in parallel to the existing distribution via dealer networks.

455 Notice on intermediaries, Chapter 2 (b), last paragraph.

133

TERMINOLOGY USED IN THIS REPORT

ANNEX I

TERMS

EXPLANATION

CONTRACT GOODS

New motor vehicles intended for use on public roads and
having three or more road wheels (cars, commercial
vehicles such as trucks, Buses) and spare parts therefore,
which are the subject or an agreement within the meaning
of Article 1 (see : Article 10, pt. 4)

CROSS BORDER SALE

Sale of a motor vehicle by a dealer to a final consumer
who has his/her residence in another member state.

CROSS SALES

DEALER

Sale of a new motor vehicle from a dealer belonging to
the network of a motor vehicle manufacturer to another
dealer belonging to the same network.

Undertaking entrusted by a motor vehicle manufacturer
or with the manufacturer’s consent with the distribution
and servicing of contract goods. „Contract goods“ are
according to Article 10 of Regulation 1475/95 new motor
vehicles intended for use on public roads and having three
or more road wheels, and spare parts therefore.

INDEPENDENT REPAIRER Undertaking offering maintenance and repair services for
cars, which does not belong to the network of the
If a dealer
relevant motor vehicle manufacturer.
belonging to a manufacturer’s network maintains or
repairs a car of another brand, than he is considered, as
regards this activity, as an independent repairer.

INDEPENDENT RESELLER Undertaking active as a retailer of new motor vehicles,
which does not belong to the distribution network of a
motor vehicle manufacturer.

INTERMEDIARY

SERVICE OUTLET

An intermediary is, in accordance with the Notice on
Intermediaries, a provider of services acting on account
of a purchaser and final user; he cannot assume risks
normally associated with ownership, and is given prior
written authority by an identified principal, whose name
and address are given, to exercise such activity.

Undertaking entrusted by a motor vehicle manufacturer
or with the manufacturers consent with the servicing of
motor vehicles and the distribution of spare parts.

134

SPARE PARTS

Parts which are to be installed in or upon a motor vehicle
as to replace components of that vehicle. They are to be
distinguished from other parts and accessories, according
pt. 6 of Regulation
to trade usage (see Article 10,
1475/95).

135

ANNEX II

BENEFITS FOR MANUFACTURERS

Manufacturers can set up a network for the distribution and servicing of motor
vehicles run by other undertakings and tailor this net of distributors according to
criteria, most of which are set unilaterally by each manufacturer.

Furthermore, a manufacturer can ensure that his products and after sales services are
offered in all geographic areas of the Community and decide on the density of his
distribution system.

Manufacturers can ensure that they are represented by dealerships, which run their
businesses in premises and in a way corresponding to the brand image1 and qualitative
standards2 set by the manufacturer. This right
to tailor the distribution system
according to the strategy pursued by the manufacturer is also highlighted by the right
to end dealer contracts with one years’ notice3 in case of reorganisation of part or the
whole network.

Nearly all dealers are undertakings, which are not wholly owned by the manufacturers
or in which it does not hold a stake. Therefore, it is the dealers who have to make the
investment into the premises and the equipment required by the manufacturer and the
dealers who have to employ the necessary qualified staff. They have to bear the full
economic risk of their operations. Nevertheless, manufacturers have a right to closely
monitor their distributors activities and performance through sales targets for e.g. the
sale of new vehicles and spare parts, or as regards requirements on stocks of contract
goods.

The measures that manufacturers can adopt have a strong influence on dealers
In
performance, and dealers do not have much power to oppose this influence.
addition, manufacturers can always use their normal right not to renew or to end a
dealer contract.4

CONCLUSION:

The current  rules for motor  vehicle  distribution  give manufacturers extensive  possibilities  to  tailor
their distribution systems according to their strategies.  Manufacturers can dicide on the level of the
presence  in  the  different  Member  States  and  to  steer  the  businesses  of  their  dealer  networks
accordingly

.

1

2

3

4

The brand identity of manufacturers is protected e.g. by Article 3 pt. 3 of Regulation 1475/95, which stipulates that a
dealer may only sell another make in separate premises under separate management and in the form of a distinct
legal entity. Moreover, Article 3 pt. 4 protects any investment made by manufacturers in the after sales service area of
the dealers, notably in equipment and training, form being used for the servicing of cars from other makes.

See Article 4 (1) pt. 1: The manufacturer can oblige dealers to comply with minimum standards, in particular (a) the
equipment of the business premises and the technical facilities for servicing; (b) the specialised, technical training of
staff, (c) advertising, (d) the collection, storage and delivery of contract goods or corresponding goods and sales and
after sales servicing, (e) the repair and maintenance of contract goods, in particular as regards the safe and reliable
functioning of motor vehicles.
Article 5 (5), 1st indent of Regulation 1475/95.

See Article 4 (2) pt. 2 of Regulation 1475/95.

136

BENEFITS FOR DEALERS

Dealers are allocated a territory, in which they exclusively, or sometimes together
with a limited number of other dealers belonging to the same network, can develop
their business activities. The contract territory of each dealer is a sort of ”safe
harbour” which is protected from intra-brand competition stemming from new
operators within the allotted territory5. This protection gives dealers, most of which
are small and medium sized undertakings and which have to finance their premises
and technical installations according to the requirements of the make, a better basis to
earn a return on their investment.

The dealers investment is also protected for a certain time: Either dealer contracts
have to be concluded for at least five years or, in case they are unlimited in time, they
can be ended with two years notice without reason or, in case of a reorganisation of
the network, with one years notice.

The manufacturer guarantees the supply of contract goods to dealers. Moreover,
dealers get a wide range of support services offered by the manufacturer.6

Dealers may source contract goods from, and supply them to, other network dealers.
As to spare parts, dealers may source them also from other suppliers as long as they
match the quality of original spare parts.

The current distribution systems provide the same margins for nearly all distributors,
whether they are small or large, in a given Member State. This quasi uniformity of
the margin for all distributors creates a level playing field regarding prices in that it
does not allow big dealers to obtain high volume based discounts which they could
pass on to their customers and thus undercut smaller dealers. Therefore, the current
margin system is considered to be beneficial for smaller dealers and helps them to stay
profitable.

Based on what has been explained in the previous paragraph, freedom of dealers to
7
is a theoretical advantage of the
set their prices and sales conditions for new vehicles
current distribution system, all operators have a similar leeway to set prices.

5

6

7

However, territorial protection is not absolute. Dealers have to face a certain degree of intra-brand
competition under the Regulation: Other dealers can advertise outside their contract territory and
actively promote sales by other means than personalised advertising (see Article 3 pt. 8 of Regulation
1475/85). They are also allowed to sell cars to customers having their residence or head office in
another dealers territory. They are not however normally submitted to price competition from high
volume independent resellers.
Such as financial aid, technical and IT assistance, supply of additional services which can be offered
together with the sale of a new vehicle, such as credits for the financing of new vehicles, leasing,
insurance.
See Article 6 (2) of Regulation 123/85 and Article 6 pt. 6 of Regulation 1475/95.

137

CONCLUSION:

The current regime gives dealers a certain protection with regard to their investment  It allows them
to operate  within the framework  set-up  by  the  manufacturers  with  limited  possibilities  to  operate
outside the contract territory.  The freedom of dealers to set their prices and sales conditions for new
vehicles is largely a theoretical advantage of the current distribution system, since all operators have
a  similar  leeway  to  set  prices
    In  order  to  protect  their  investment  in  premises  and  technical
facilities  and  keep  them  in  line  with  the  requirements  set  by  the  manufacturer,  dealers  enjoy
protection as regard the ending of their contracts.

.

BENEFITS FOR CONSUMERS

The first aim pursued by the current rules is to allow manufacturers and importers to
set up a system of undertakings which distribute new vehicles in an efficient8 way,
which offer consumers after sales services of good quality9 taking safety aspects into
account10, and all this at competitive prices and conditions.11
It is said that such
framework provides customers with a wide choice of cars and with a high degree of
convenience due to the presence of a full dealer network selling the complete model
range and offering local access.12
The second aim is to protect the consumers “right” to purchase a new motor vehicle
from a dealer of his choice everywhere in the Single Market.13 Such supplies are made
normally with the vehicles a dealer gets for his incumbent customers. Due to the
single vehicle type approval system for passenger cars,
these vehicles can be
registered in any Member State without any technical modification. If a final
consumer requests a car built to the specifications of his home country, dealers have a
right to order such cars from the manufacturer due to the so called "availability
clause".14 In order to protect this “right” all network dealers have to honour the
warranty and to do after sales services on vehicles which have been purchased
elsewhere in the Single Market.15
The possibility to use an intermediary for the purchase of a new vehicle in a foreign
country16 was also introduced in order to give final consumers, who might not want
to make the purchase arrangements in a foreign Member State themselves, a real
opportunity to take advantage of the Single market. The possibility of dealers to

8

9

Recitals 4 of Regulations 123/85 and 1475/95. Recitals 6 of both Regulations indicate that account was taken of the
consumers interest in readily availability of spare parts.

See Article 3 pt. 4 of Regulation 123/85 and Article 3 pt. 5 of Regulation 1475/95; Article 4 (1) pt. 1of Regulations
123/85 and 1475/95.

10 Mentioned in Recital 8 of Regulations 123/85 and 1475/95.
11 Article 6 (2) of Regulation 123/85 and Article (6) pt. 6 of Regulation 1475/95.
12

See ICDP Research Report 4/98 "Beyond the block exemption", p. 28.

13

This aim is underlined in both Regulations and the Notice on Regulation 123/85. Recitals 9 and 16 of Regulation
123/85 and 1475/95, Notice on Regulation 123/85, Chapter I, (1) and Chapter I, (3) regarding the possibility to use
an intermediary to purchase a motor vehicle in another Member State.

14 Article 5 (1) pt. 2 d) of Regulations 123/85 and 1475/95; see also Art 6 pt. 7 of Regulation 1475/95 for all types of

vehicles.

15

See Article 5 (1) pt. 1 of Regulation 1475/95.

16 Article 3 pt. 11 of Regulations 123/85 and 1475/95; Notice on Regulation 123/85, Chapter I (3); see also Notice on

Intermediaries.

138

advertise outside their home territory, which was introduced by Regulation 1475/9517
in order to create further and better opportunities for a final consumer to buy a new
vehicle from another dealer than the one which is responsible for his place of
residence.

CONCLUSION:
The  current  regulatory  framework  provides  that  distribution  and  servicing  systems  should  be
tailored  such  that  motor  vehicles  are  distributed  in  an  efficient  way  to  final  consumers  and  that
after-sales services for these vehicles are of good quality and offered at competitive prices. Moreover,
the  framework  aims  at  giving  each  consumer  a  real  opportunity  to  buy  a  new  motor  vehicle
anywhere in the Internal Market.

17 Article 3 pt. 8 of Regulation 123/85 prohibited active sales outside the dealers contract territory; however dealers
were allowed to advertise their products in media which covered their contract territory first, even if these media were
also distributed outside the contract areas. Article 3 pt. 8 lit b) of Regulation 1475/95 allows active advertising
without geographic limitation as long as it does not amount to personalised advertising.

139

ANNEX III

RIGHT HAND DRIVE – CONSUMERS LETTERS

British consumers attempts to purchase a car in another Member State

1998

1999

MEMBER STATE

Number of
letters

AUSTRIA
BELGIUM
DENMARK
FRANCE
GERMANY
IRELAND
ITALY
LUXEMBOURG
PORTUGAL
SPAIN
THE NETHERLANDS
U. KINGDOM*
UNSPECIFIED**

TOTAL

4
60
9
12
34
30
6
3
4
13
121
8
7
311

MEMBER STATE

BELGIUM
DENMARK
FINLAND
FRANCE
GERMANY
IRELAND
ITALY
LUXEMBOURG
SPAIN
SWEDEN
THE NETHERLANDS
U. KINGDOM*
UNSPECIFIED**

TOTAL

Number
of letters
24
23
5
8
14
10
4
2
8
5
93
12
1
209

* Letters received from British consumers about the situation in the United Kingdom
without further attempt to purchase in another Member State.
** Letters concerning difficulties in purchasing in another Member State without
further indication of the Member State concerned.

140

ANNEX IV

LEFT HAND DRIVE – CONSUMERS LETTERS
European consumers attempts to purchase a car in another Member State

1998

1999

MEMBER STATE

AUSTRIA
BELGIUM
DENMARK
FINLAND
FRANCE
GERMANY
ITALY
LUXEMBOURG
PORTUGAL
SPAIN
THE NETHERLANDS
UNSPECIFIED*
TOTAL

Number of
letters
1
5
29
1
2
3
2
2
1
2
21
4
73

MEMBER STATE

BELGIUM
DENMARK
FINLAND
FRANCE
GERMANY
ITALY
LUXEMBOURG
SPAIN
SWEDEN
THE NETHERLANDS
UNSPECIFIED*
TOTAL

Number of
letters
5
14
3
5
4
2
1
2
1
22
2
61

* Unspecified Member State or several Member States visited

141

ANNEX V

MAIN CATEGORIES OF COMPLAINTS:

(1)

(2)

1

2

3

4

The first type of complaints is about the validity of a standard-form exclusive
dealership agreements for motor vehicles. A number of, mainly French but also
German, dealers maintained that
their dealership contracts which were
concluded under Regulation 123/85 are void. An agreement which is not
covered by Regulation 123/85 or Regulation 1475/95, normally falls under the
prohibition of Article 81(1). As these Regulations and Article 81(1) EC are
directly applicable in the Member States, national courts and national
authorities can apply these provisions directly.1 Consequently, the complainants
can enforce their rights on the national level.2 Therefore, the Commission
normally rejects these complaints for lack of Community interest.3

The second type of complaints concerns points which have already been
clarified by the Court of First Instance (CFI) or the European Court of Justice
(ECJ),
for example, cases concerning the role and the activities of
intermediaries.4 Based on these clarifications and the fact that national courts
can apply EC competition rules, the Commission considered that pursuing these

Block exemption regulations, such as Regulation 1475/95, are meant to facilitate the application
of EC Competition rules by national courts and authorities (see Notice on cooperation between
the national courts and the Commission in applying Articles 81 (ex Article 85) and 82 (ex
Article 86) of the EC Treaty OJ C 39, 13/2/1993, p. 6 and Commission Notice on cooperation
between national competition authorities and the Commission in handling cases falling within
the scope of Articles 81 (ex Article 85) and 82 (ex Article 86) of the EC Treaty, OJ C 313,
15/10/1997, p. 3). However, according to Article 10 of Regulation 123/85 and Article 8 of
Regulation 1475/85 as well as Article 7 (2) of Regulation 19/65 EEC as amended, only the
Commission and the authorities of the Member States can withdraw the benefit of the block
exemption.
CFI Judgement of 18/09/1992 (Case T-24/90) Automec ./. Commission (“Automec II”), ECR.
p.II-2223; see also Notice on the co-operation between the national courts and the Commission in
applying Articles 81 (ex Article 85) and 82 (ex Article 86) of the EC Treaty, OJ C 39 of
13/02/1993, p. 6, CFI Judgement of 24/01/1995 (Case T-114/92) BEMIM ./. Commission, ECR
p. II-147.
CFI Judgement (Joint Cases T-185/96, T-189/96 et T-190/96) of 21/01/1999, Riviere Auto
Service v. Commission, ECR 1999, p. II-0093 (VAG France); Court Judgement (Case C-282/95
P) of 18/03/1997, Guérin (Volvo) v. Commission, ECR 1997, p. I-1503.
CFI Judgement (Case T-23/90) of 12/07/1991, Peugeot SA v. Commission (Eco System), ECR
1991, p. II-0653; Commission Decision confirmed by the CFI Judgement (Case T-9/92) of
22/04/1993, Peugeot SA v. Commission (Eco System), ECR 1993, p. II-0493 and the Court
Judgement (Case C-322/94) of 16/06/1994, Peugeot SA v. Commission (Eco System), ECR 1994,
p. I-2727;

see also XXIII Report on competition policy, 1993, p.222.

142

(3)

5

6

complaints is not in the Community interest and that they should be treated by
national courts.5

in 1996,

in a number of preliminary rulings confirmed that

The third type of complaints concerns the role of independent resellers. The
the
ECJ has,
activities of independent resellers cannot be opposed (in particular by network
dealers) based on Regulation 123/85.6 Following this clarification and given
that Regulation 1475/95 has not altered the approach towards resellers,
complaints relating to the status and activities of independent resellers can also
be treated by national courts and Competition Authorities.

SGA v.
CFI Judgement (Joint Cases T-9/96 and T-211/96) of

CFI Judgement (Joint Cases T-189/95, T-39/96 et T-123/96) of
Commission (not yet published);
13.12.1999, Européenne Automobile Sarl v. Commission (not yet published).
Court Judgement (Case C-226/94) of 15/02/1996, Grand Garage Albigeois SA ./. Massol, ECR
1996, p. I-0651; Court Judgement (Case C-309/94) of 15/02/1996, Nissan France SA ECR 1996,
p. I-0677; Court Judgement (Case C-128/95) of 20/2/1997 Fontaine, ECR 1997, p. I-967; Court
Judgement (Case C-41/96) of 5/6/1997 VAG Händlerbeirat/SYD-Consult, ECR I p. I-3123; see
also, cases IV/35137 Trabisco , IV/35149 Serieys and IV/35150 Aqueducs c/ dealers XXVIII.
Report on competition policy, 1998, p. 190, 191.

13/12/1999,

143

MOTOR VEHICLE TAXATION IN THE EUROPEAN UNION
SUMMARY TABLE

ANNEX VI

TAXES ON ACQUISITION

Sales/Registration tax

PC

CV

Registration charge

Belgium

VAT

21%

Denmark

25%

Based
cc+age
on
e.g. 1,8 litres: 5000
BF

None

105% up to 50,800
Dkr
180%
remainder

the

on

95%
value
of
exceeding 12,500 Dkr
(below
2t)
value
of
30%
exceeding 30,900 Dkr
(2 - 4t)

Germany

Spain

16%

16%

None

<1,6
>1,6 litres: 12%

litres:

None

7%

None

France

20,6% None

None

2500

1070

50 dm

10,250

bf

dkr

pts

FF-195

102
& parafiscal charge

FF

Greece

Ireland

18%

21%

New car: 16-128 %

New vehicle: 6-46%

<1,4
22,5%
litres:
1,4 - 2 litres: 25%
> 2 litres: 30%

13,3%
other 40 £ -100£

LCV

Italy

Luxembourg

The Netherlands

20%

15%

Iet + apiet

None

17.5% Petrol car: 45,2 %-
3394
DFL
diesel car: 45,2 %-
1278 DFL

Iet + apiet

300,000-720,000 lire

None

None

1128 flux

22 -93,25 dfl

Austria

20%

Portugal

17%

Finland

Sweden

22%

25%

Based
on
consumption
(M VEG) max. 16%

fuel

None

on

Based
cc
e.g. 1,6 litres: 935,762
esc.

None

100% - 4600 fim

None

None

tax
weight

Excise
on
pollution

based
and

842-1269 ats

5000 esc

United Kingdom 17,5% None

None

None

PC
CV : Commercial Vehicles

:

Passenger

Cars

144

ANNEX VII

PER CAPITA VOLUMES INDICES FOR GDP

COMPARED WITH CAR PRICE DIFFERENTIALS IN THE EU1

Audi A4

BMW

Citroën
Xsara

Ford
Focus

Opel
Corsa

Renault

Mégane

Seat
Ibiza

Peugeot

306

318I

102

208

103

121

127

105

147

107

105

153

107

115

106

143

137

100

193

103

115

126

101

133

104

105

148

99

107

103

133

123

→

Models /

Member
States2 ↓

Per
capita
volumes
indices
for GDP

L

DK

B

A

NL

D

IRL

F

I

FIN

S

UK

E

P

GR

EU
(average)

164

125

115

114

110

109

107

105

103

103

101

101

80

73

69

101

Methodolgy:

n.a.

162

100

110

113

102

123

105

106

129

108

122

108

123

92

109

191

109

120

125

108

141

108

109

149

121

126

100

141

111

100

177

105

116

132

114

128

104

102

153

129

121

108

115

97

100

176

105

115

119

109

135

113

111

138

117

128

102

129

94

100

182

107

128

130

133

149

115

108

145

122

152

115

143

102

102

180

108

122

120

111

135

114

110

155

111

133

100

124

104

For each of the eight selected models, the three Member States with the highest price
including taxes have been marked (in bold), and the three Member States with the
lowest prices including taxes have been marked (in italics).

1

2

Indices, based on recommended retail prices for selected models; expressed in euro including
taxes (source: Commission, Report on Car Prices within the EU, 1/11/1999.
Source : OECD - Main Economic Indicators, © April 1999 (Ranked by index calculated for
the year 1998).

145

Findings:

For the eight selected models, the following general statements can be made:

1)

Prices including taxes are among the highest in Denmark (all eight models),
followed by Finland (seven of the models), and Ireland (seven of the models).
Only two exceptions have been found (Opel Corsa and Seat Ibiza; see table).

2) While Denmark has the highest PCI of all EU Member States (after
Luxembourg), the PCI in Finland and in Ireland is only little above the EU
average.

3)

Prices including taxes are the lowest in Luxembourg (six models), in Greece (five
models) and in Germany (four models). Certain of the models are relatively
cheap in Belgium, Spain and Italy.

4) While Luxembourg is the Member State with the highest PCI, Germany,Belgium
and Italy have a respective PCI above the average, while in Greece and Spain,
the PCI is substantially below the average.

Conclusions:

As concerns prices including taxes in the different Member States, no general rule has
been found. In particular, prices are not generally the highest in Member States with a
high PCI, and are not generally the lowest in Member States with a low PCI.

On the contrary, it appears that prices are relatively low in countries with a high PCI,
such as Luxembourg, Belgium and Germany, but also in countries with a low PCI,
such as Greece and Spain.

On the other hand, it appears that prices are relatively high in countries with a high
PCI, such as Denmark and Ireland, but also in Finland with a PCI only little above the
average.

146

Annex VIII

Request to:

AB VOLVO (Trucks)
ACEA
ADAM OPEL AG, Rechtsabteilung
AESRA/EASRA
AgV Arbeitsgemeinschaft der Verbraucherverbände
AUDI AG
AUTO-BY-TEL UK LTD.
AUTOGERMA
AUTOHIT PLC.
BAK (Bundeskammer für Arbeiter und Angestellte)
BEUC
BMW AG, Rechtsabteilung
BMW Import A/S
BOVAG
BRITISH INDEPENDENT MOTOR TRADERS
ASSOC.
BVRLA (The British Vehicle Rental and Leasing
Association)
CCA (Comitato Consumatori Altroconsumo)
CECRA 2 different questionnaires
CECRA 2 different questionnaires
CECU (Confederacíon Estatal de Consumidores y
Usuarios)
CETRAA
CLEDIPA
CLEPA
CNPA (Conseil National
l'Automobile)
CNPA (Conseil National des Professions de
l'Automobile)
CONSUMERS' ASSOCIATION
D A F
DAIMLERCHRYSLER AG, Rechtsabteilung
D'IETEREN
EAIVT (European Association of
Vehicle Traders)
ECATRA
ECG (European Car Transport Group of Interest)
EGEA (European Garage Equipment Association)
FACONAUTO (Federacion de Asociaciones de
Concesionarios de la automocion)
FEDERAICPA
FEDERAUTO

des Profession

Independent

de

147

send on
02.09.1999
09.09.1999
02.09.1999
02.09.1999
02.09.1999
02.09.1999
22.09.1999
02.09.1999
22.09.1999
31.08.1999
31.08.1999
02.09.1999
03.09.1999
22.09.1999
14.10.1999

replied on

10/12/1999
29/11/1999
12/11/1999
29/11/1999
04/11/1999
22/11/1999
24/11/1999
19/11/1999
22/12/1999
28/10/1999
03/12/1999
11/11/1999
28/10/1999
26/11/1999
08/11/1999

31.08.1999

08/12/1999

31.08.1999
02.09.1999
22.09.1999
31.08.1999

02.09.1999
02.09.1999
02.09.1999
02.09.1999

06/01/2000
24/11/1999
29/11/1999
29/10/1999

21/10/1999
30/11/1999
22/11/1999
09/11/1999

14.10.1999

04/01/2000

22.09.1999
14.10.1999
02.09.1999
02.09.1999
02.09.1999

?
27.09.1999
02.09.1999
02.09.1999

22/12/1999
06/01/2000
16/11/1999
12/11/1999
08/11/1999

30/11/1999
16/12/1999
19/11/1999
19/11/1999

03.09.1999
14.10.1999

16/11/1999
22/11/1999

für

den

Bundesgremiums

FEDERAUTO (Fédération Belge du Commerce et
de la Réparation Automobile)
FEGARBEL ASBL Service VZW
FERRARI S.p.A.
FIA/AIT (Affiliated Members ANWB, TCB, RACC,
ADAC,ÔAMTC,AVD,ACI&AA)
FIAT
FIATSagi (Fiat Auto & Iveco)
FIEV
FLA (Finance & Leasing Association)
FORBRUGERRÅDET
FORD OF EUROPE (& VOLVO)
FORD-WERKE AG (& VOLVO)
GARAGE VANDE KERCKHOVE N.V.
GCR (Groupement des Concessionnaires Renault)
GENERAL MOTORS (Europe) AG & VAUXHALL
MOTORS Ltd.
GENERAL MOTORS EUROPE
Wirtschaftskammer
Fahrzeughandel Österreich
GEWERBE- UND WIRTSCHAFTSKAMMER FUR
DAS FÜRSTENTUM LIECHTENSTEIN
HONDA MOTOR Co. Ltd (Factory)
HONDA MOTOR EUROPE U.K..
HYUNDAI MOTOR COMPANY - EUROPE OFFICE
IGA (Independent Garage Association)
INC (Institut National de la Consommation)
INCHCAPE Plc
IV (Industriellenvereinigung)
JAMA
JARDINE MOTORS Plc
KK (Kulattajat-Konsumenterna ry)
Konsumentverket
LANCASTER Plc Lancaster House
MAHAG
MAN NUTZFAHRZEUGE AG Rechtsabteilung
MASERATI S.P.A.
MERCEDES-BENZ
Center
MERCEDES-BENZ PORTUGAL S.A.
MITSUBISHI MOTOR SALES EUROPE B.V.
MOTORBRANSCHENS RIKSFÖRBUND
NFDA (National Franchised Dealers Association)
NISSAN EUROPE N.V.
NORPART C/o Kongsberg Automotive ASA
OCU (Organizatíon de Consumidores y Usuarios)
OPEL NEDERLAND
OPEL OY
OY VEHO AB
PON'S AUTOMOBIELHANDEL B.V.

Ltd Mercedes-Benz

(U.K.)

148

02.09.1999

04/11/1999

22.09.1999
02.09.1999
03.09.1999

24/11/1999
04/11/1999
07/11/1999

02.09.1999
02.09.1999
02.09.1999
31.08.1999
31.08.1999
02.09.1999
02.09.1999
06.09.1999
02.09.1999
02.09.1999

17/11/1999
17/11/1999
19/11/1999
29/10/1999
08/11/1999
22/11/1999
22/11/1999
…..
07/12/1999
16/11/1999

02.09.1999
30.09.1999

11/11/1999
14/12/1999

03.11.1999

10/12/1999

29.09.1999
02.09.1999
02.09.1999
02.09.1999
31.08.1999
14.10.1999
02.09.1999
09.09.1999
14.10.1999
31.08.1999
08.09.1999
02.09.1999
02.09.1999
02.09.1999
22.09.1999
02.09.1999

02.09.1999
02.09.1999
03.09.1999
02.09.1999
02.09.1999
03.11.1999
31.08.1999
02.09.1999
02.09.1999
03/09/1999
02.09.1999

22/11/1999
22/11/1999
06/12/1999
29/11/1999
06/01/2000
14/12/1999
08/12/1999
,,,
26/11/1999
……
03/01/2000
26/11/1999
04/11/1999
15/11/1999
04/11/1999
04/11/1999

04/11/1999
29/10/1999
29/11/1999
26/11/1999
25/11/1999
16/11/1999
10/11/1999
10/11/1999
16/11/1999
22/11/1999
10/11/1999

PSA PEUGEOT CITROËN
RENAULT SA
ROVER Ltd International
S.I.M.I.
SAAB DANMARK A/S
SCANIA AB
SEAT ESPAÑA
SKANDINAVISK MOTOR Co.
TEST-ACHATS
TOYOTA MOTOR EUROPE
ULC (Union Luxembourgeoise des Consommateurs)
UNIVERSAL HONDA LTD.
Universität Kaiserslautern - Fachbereich Sozial-un
Wirtschaftswissenschaften, Lehrstuhl
für Zivl- und
Wirtschaftsrecht
UNRAE
automotoveicoli)
VAUXHALL MOTORS Ltd
VIKH (Verband innovativer Kfz-Unternehmer und
Handelsvertreter e.V.)
VKI (Verein für Konsumenteninformation)
VKW (Vereinigung freier Kfz-Werkstätten, e.V.)
VOLKSWAGEN AG
ZDK
Kraftfahrzeuggewerbe)

(Zentralverband

Deutsches

distributori

nazionale

(Unione

02.09.1999
02.09.1999
02.09.1999
22.09.1999
03.09.1999
02.09.1999
02.09.1999
03.09.1999
31.08.1999
02.09.1999
31.08.1999
22.09.1999
07.09.1999

10/11/1999
16/11/1999
08/11/1999
06/01/2000
05/11/1999
11/11/1999
22/11/1999
08/11/1999
06/12/1999
09/11/1999
10/01/2000
24/11/1999
26/11/1999

02.09.1999

22/11/1999

02,09,1999
02.09.1999

12/11/1999
07/12/1999

31.08.1999
14.10.1999
02.09.1999
02.09.1999

08/11/1999
03/11/1999
19/11/1999
04/11/1999

STATISTICS

117

101

149