"Retail motor industry fear over reform to Block Exemption is coming to a head as European regulators get closer to a decision. It is one of the most controversial trade issues faced by any industry.

Complete deregulation is a non-starter. The way options are framed suggests the need for compromise between the differing interests of EU nations means the free-for-all scenario will be the first to be rejected.

Although the UK is hostile to Block Exemption, the view in many other EU nations is far less so. The notion that regulators would be happy to leave everything at the mercy of the market is also flawed. That would tend towards power being concentrated in the hands of a small number of big dealer groups. There is a recognition that changes to the regulations must be phased in to avoid the problems that the free market would cause.

It seems to be the fine-tuning of the other four main options which provides a clue to the eventual outcome. Briefly, those options are:

  • Exclusive distribution - an arrangement under which the manufacturer agrees to supply stock exclusively to one dealer on a territorial basis.
  • Qualitative selective distribution - a variation on that theme, but with manufacturers allowed to base agreements on qualitative criteria.
  • Qualitative and quantitative selective distribution - an amalgamation of the previous two, but without territorial elements.
  • Qualitative and quantitative selective distribution with limited territorial exclusivity - under which the manufacturer can establish limited exclusivity with no restriction for dealers wishing to sell in other territories.

    The concern is that Block Exemption is anti-competitive and this leaves a delicate balancing act to weigh increased competition with regulation which protects not only consumers but all parties. The differences between these proposals are so small that the likely adoption of one over another is a little close to call. But the latter two options may well be favoured by politicians and regulators alike.

    And it does appear to come down to a choice between options four and five. One gives some exclusivity to dealers while the other does not, and exclusivity does seem to be the key. Territorial exclusivity would give the best protection for dealers but I would suggest the only option you can certainly rule out is that of a free-for-all.

    From a grass-roots trade perspective we feel sceptical about the prospect of dealers' business seeing major change following the reforms. All the evidence from our day to day contact with the trade is that it is not losing sleep over the remaining options. Dealers haven't been raising the issue which suggests they might not fully understand the issues. Or, more likely, they believe whatever the decision, it will not mean major changes to their day to day lives. This is partly because some of the suggested reforms have been unofficially in action for some time.

    A dealer group with four or five sites in one area, following Block Exemption reform, might be able to supply each others cars to customers, but unofficially that already happens.

    A customer walks into a showroom, discusses their options with the salesperson and then decides they prefer a car on offer up the road. If the same car can be found within the first group, then there might well be an offer to supply the car instead. It's better to get a bit of profit, keep it within the group and add another satisfied customer to the future prospects database than lose a sale completely.

    The manufacturer may not appreciate it but this has been happening for years, especially in the case of multi-franchises. The apparent lack of dealer concern therefore probably comes down to the fact that rules can already be bent and that a free-for-all is unlikely. For example, if territorial exclusivity is ended you have to ask who would want to invest in premises, staffing and setting up a business when there were already dealers in the area."