The Government and Retail Motor Industry Federation have re-ignited the controversy surrounding high UK new car prices and fleet discounts.

By fanning the flames of an issue that appeared settled, the Department of Trade & Industry and RMI will prompt fears of another slowdown in new car sales and residual value meltdown, as happened with the publication of the Supply of New Cars Order 2000.

The Order paved the way for dealers to access fleet equivalent discounts and advertise the price at which they are prepared to sell without fear of penalty from manufacturers, but the DTI does not think the Order is working.

Melanie Johnson MP, DTI minister for competition, consumers and markets, said last week: "The Government has been concerned for some time by the prices of most models of car sold in the UK. One can argue about the exact price levels, whether we are talking about list or transaction prices, what else is thrown into the deal and so on, but the general point is that UK prices have remained uncomfortably high compared to those on the continent."

She claimed the New Cars Order was never meant to solve the problem of discrepancies in European new car prices, when it came into force in September 2000. Instead, Ms Johnson attributed the blame for "persistent high prices in the UK" to a European market that is not functioning as it should under the terms of the car distribution block exemption, because consumers cannot buy where they like without discrimination.

"It is not right to have to wait significantly longer or pay more than consumers who live in the dealer's home country,' she said. 'I can also see no reason why the same freedom to buy or sell abroad without penalty should not apply to authorised dealers trading with one another."

Confirming that the UK Government opposed the block exemption, Ms Johnson said the DTI viewed competition as a better safeguard of the consumer than the "bureaucratic regulation of a complex regime".

But competition appears to be lacking, according to the RMI, which described as 'unresolved' the issue of fleet equivalent prices - the opportunity for dealers to access the same purchasing terms as fleets.

Alan Pulham, RMI franchised dealer director, said manufacturers had found ways to avoid offering fleet equivalent prices to dealers by factoring into dealer terms the cost of central marketing and sales support, and sales bonuses.

"I appreciate that people who buy a lot of cars should get a large discount, but the gap has got too wide. I would like to see a lowering of fleet discounts, and that money used to fund lower retail prices. Then the Government would feel it has achieved something," he said. (November 1, 2001)