The European Commission has published the final report on the economic impact of a series of possible scenarios resulting from changes to Block Exemption, which expires in its current form in September 2002.

The study, carried out by consultants Andersen, is designed to allow the commission to make its judgement on the structure of new car retailing and aftersales support throughout Europe. Mario Monti, the European Competition Commissioner, stressed the report, entitled 'Study on the impact of possible future legislative scenarios for motor vehicle distribution on all parties concerned', was not a proposal for any future regime, but is published for the sake of 'transparency'.

In its conclusion, the Andersen report says: “If the legal framework were to remain unchanged over the next five years, the level of competition, the market structure and the extent to which consumer needs are satisfied would still undergo natural and progressive development.”

The report does, however, highlight five areas of improvement. These are

  • increased independence of official dealers and other distributors from manufacturers' marketing policies
  • access for additional new entrants to the distribution market and more innovation in distribution channels
  • greater market access and competition in aftersales servicing
  • increased price transparency and convergence within Europe.

    There would be risks in all of the above, such as the loss of control by manufacturers and other players, a decline in franchised dealers' profitability and a loss of service quality.

    Andersen says that in the long-term there can be only three market outcomes, a status quo, multi-channel or mass-selling. It says of each:

  • Status quo – Manufacturers and their franchised networks would continue to jointly invest in the brand, allowing 'progressive' developments, such as innovation in customer contact and a decrease in distribution costs. “This market is the less risky one,” says the report.
  • Multi-channel – Manufacturers would be forced to manage the co-existence of difference channels for car sales and servicing. A new equilibrium of market share among players would be reached. This market outcome would, says Andersen, “more rapidly address the variety of customer needs”
  • Mass-selling – Would include standardisation and concentration in distribution as more sales operations entered the market focussing on volume sales, creating a decrease in the level of product innovation, a standardisation of the sales process and a reduction in vehicle ranges.

    The report also goes on the outline the perceived outcome in breaking the link between sales and aftersales servicing. A total break, it says, would lead to “significant disruptions”.

    “It is not the existence of the link that should be questioned,” it says, “but the nature of its organisation.”

    Andersen identifies an alternative.

    “Instead of providing the service themselves, distributors would be allowed to offer aftersales servicing through partnership agreements with authorised repairers. Reorganisation of the link is an option that would encourage a progressive opening up of markets and specialisation of players in the sales or service market, while limiting instability and negative effects,” says the report.

    The commission will now analyse the findings of Andersen report and put together draft proposals which should be adopted by the beginning of 2002.

  • The Andersen report can be viewed in full by clicking here. (December 10, 2001)