New car prices still differ substantially across the European Union, July 2000

The European Commission's latest report on car prices shows that there are still substantial differences in the cost of new cars across the European Union (EU). The survey looked at the recommended retail prices of 73 best-selling models from 15 European and eight Japanese manufacturers. On 1 May 2000 nearly all the models examined cost more in the United Kingdom (UK) than in other Member States. When compared to previous surveys, the price differences have narrowed for some models, but have increased for others.

The BBC reported UK reactions to the Commission's report: The Consumers Association said the statistics showed that manufacturers had not cut prices enough. The Society of Motor Manufacturers and Traders (SMMT) blamed the strong pound, and were quoted as saying: 'No business on earth can square the fiscal circle of a euro plummeting a further 10&percent; since November 1999 and car taxation levels varying between 15&percent; and 218&percent; across a common trading zone.'

Table: Percentage differences between the lowest and highest prices for 15 models, as shown by the last three Commission reports

Background

In the European Union, manufacturers of motor vehicles distribute their products via networks of dealers - an arrangement which is subject to the EU's Competition policy. Under Article 81(1) of the EC Treaty (previously Article 85) certain activities are 'prohibited as incompatible with the common market'. However, Article 81(3) permits exemptions from these requirements if the economic benefits of an agreement are judged to outweigh its anti-competitive aspects. Motor vehicle manufacturers have been given such 'block exemptions' since 1985, under Regulation 123/85. When that Regulation expired in 1995, it was superseded by Commission Regulation (EC) No 1475/95 of 28 June 1995 on the application of Article 85 (3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements - which expires in September 2002. The block exemption arguably works against the free market, because franchised dealers effectively have to sell only one make of car, at a price set by the manufacturer.

The debate over car prices started in 1992, when the European Consumers Organisation (BEUC), complained that differences in car prices between Member States were excessive and that the block exemption allowed under Regulation 123/85 represented a significant barrier to trade. Following the complaint, the Commission adopted an action plan intended to ensure that the selective distribution system applied to car retailing was compatible with the Single Market.

Speaking at the time, Sir Leon Brittan, then EC Competition Commissioner, said:

'The jury is out. The selective distribution system for cars enjoys an exemption from the normal rules of competition which was agreed at the time because of a belief in the benefits that the system produces. If such a system is to be maintained after 1995, when the present exemption expires, then we need to be clear that the selective distribution of cars is in the interests of all Europe's citizens and fully compatible with a true Single Market. The large price differentials discovered in the price study which we publish today are not reassuring in this respect. The actions we are asking the car manufacturers to take are designed to give car manufacturers the opportunity of making the selective distribution system work in a way which does not deprive Europe's citizens of the right to buy the car they want at an undistorted price.'

In response to the Commission's demands, major car manufacturers agreed to inform their dealers about cross-border car sales, and to publish price data every May and November to enable consumers to compare prices between Member States. The Commission collates the manufacturers' data and produces a report, which is summarised in a press release:

13.7.2000: Car prices in the EU: price differentials remain high
7.2.2000: Car prices in the European Union: differentials between Member states of the euro zone narrow slightly
22.7.1999: Car prices in the European Union on 1 May 1999 in new presentation: differences remain high
1.2.1999: Car prices in the European Union on 1 November 1998 - differences decrease sharply
10.7.1998: Car prices in the European Union on 1 May 1998 - differences remain high
13.2.1998: Car prices in the European Union on 1 November 1997 - differences remain high
11.7.1997: Car prices in the European Union on 1 May 1997 - price differences reach record level due to revaluation of Pound Sterling
14.2.1997: Car prices in the European Union on 1 November 1996 : lowest in the Netherlands, dearest in Germany
29.7.1996: Car prices in the European Union on 1 May 1996: cheapest in Portugal
15.2.1996: Car price differentials in the European Union on 1 November 1995
24.7.1995: Car price differentials in the European Union on 1 May 1995
19.1.1995: Car price differentials in the European Union on 1 November 1994
26.7.1994: Car prices in the European Union on 1 May 1994
22.12.1993: Car prices in the EU on 1 November 1993
1.7.1993: Car prices in the EC on 1 May 1993

The latest report shows that the strength of the British Pound against the Euro is one factor which helps keep prices high in the UK. The additional cost of UK specification, notably right-hand drive, is also a factor. Prices in Sweden - which, like the UK, is outside the Euro zone - are also generally higher than in other Member States.

Buying cars from abroad

In response to price differentials, some consumers have opted to import their new cars from another Member State. Although the Single Market is supposed to permit the free movement of goods, and Article 6 of Regulation 1475/95 states that manufacturers must not hinder consumers from buying a car in another Member State, consumers' experiences of buying a new car abroad are not always straightforward. Manufacturers' supplements for right-hand drive cars can vary from 1&percent; to 10 &percent; of the pre-tax price. Although cars can be bought abroad, most of the complaints made to the Commission come from frustrated UK buyers. European Competition Commissioner Mario Monti has said that he will continue to investigate possible restrictive practices by car manufacturers which impede EU citizens from buying a car in another Member State. He has emphasised that manufacturers' behaviour will be considered when future legislation on vehicle distribution is drafted.

The UK has recently seen the appearance of a range of websites devoted to helping people import new cars from the continent. Totalise Eurekar claimed to have taken £7m of orders in two weeks via its website. Even some car makers have started selling direct to customers via the internet. In April 2000, UK Trade & Industry Secretary Stephen Byers announced plans to increase competition by making it easier for dealers to buy cars cheaply from authorised dealers elsewhere in Europe.

Further information within European Sources Online:

European Sources Online: Topic Guides
The Competition Policy of the European Union, December 1999The Consumer Policy of the European UnionThe Single Market, February 2000

European Sources Online: European Voice
- 2.12.1999: Ford calls for harmonised tax to level prices- 7.10.1999: Car industry's special regime under threat- 23.9.1999: Monti to unveil new rules for supply deals- 6.5.1999: Commission bids to put brake on dealer 'rigging'- 6.5.1999: Van Miert drives hard bargain on cars- 11.1.1996: Manufacturers jealously guard their EU free trade exemption

EU Law
Article 81 (ex 85): Cartels and Restrictive Practices
The scope and nature of Article 81 (ex 85)
Article 81(1) (ex 85(1)): the nature of the prohibition
Article 81(3) (ex 85(3)) exemption
Block exemption
Adjusting the law governing vertical restraints

European Access PlusWhite Paper on modernisation of the rules implementing Articles 85 and 86 of the EC Treaty (08/99)

Business Guide to EU Initiatives (EU Committee of the American Chamber of Commerce, 1999)
Horizontal Arrangements
Merger Regulation
Cartels
State Aids

Further information can be seen in these external links:
(long-term access cannot be guaranteed)

European Commission: DG Competition
- Car sector
- Commission Regulation (EC) No 1475/95 of 28 June 1995 on the application of Article 85(3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements - An Introductory Guide
Contents
Foreword
I. Clarification of the scope of exemption
1. Scope of the Regulation
2. "Black list" clauses and practices
3. Withdrawal of the benefit of the exemption
4. Duration of the Regulation
II. Strengthening the competitiveness of dealers
1. Multi-dealerships
2. Quantitative purchasing targets
3. Duration and termination of the agreement
4. Recourse to an expert third party or arbitrator
5. Direct sales
III. Improved market access for spare part producers/ distributors and for independent repairers
1. Spare parts
2. Technical information
IV. Increasing consumers choice in accordance with the principles of the single market
1. Parallel imports
2. Honouring of manufacturer's guarantee
3. Advertising outside the contract territory
4. Leasing
V. Interaction with other provisions of Community law
- Competition policy in Europe and the citizen
- Competition Policy Newsletter
Vol 1 No 6 1995: The New Regulation on Motor Vehicle Distribution
Vol 1 No 5 1995: Distribution of motor vehicles: the Commission adopts a new Regulation. . . [under Anti-Trust Rules - summary of the most important recent developments]
- Competition rules applying to undertakings in the EC and ECSC Treaties

European Commission, press releases
- 20.9.1999: The Commission assesses motor vehicle distribution within the EU
- 28.1.1998: Commission fines Volkswagen ECU 102 million following consumer complaints
- 4.8.1997: Monitoring of the group exemption Regulation on motor vehicle distribution
Commission Regulation (EC) No 1475/95 of 28 June 1995, OJ L 145, p25
- 26.9.1995: Car distribution - the Commission publishes a guide in question-and-answer format
- 21.6.1995: Distribution of motor vehicles: the Commission adopts a new Regulation which assures more independence for dealers
- 26.4.1995: The Commission adopts selective car distribution Regulation
- 5.10.1994: Commission adopts a preliminary draft block exemption Regulation for selective motor vehicle distribution agreements
- 7.6.1994: Honouring of manufacturer's guarantee on vehicles throughout their EU distribution network
- 26.9.1986: Commission acts to end restrictions on consumer purchases of cars in other Member States

European Parliament: Factsheets
- Concerted practices, 1999

BEUC
- 25.1.2000: Future of Car Distribution. European consumer groups demand an end to the Block
Exemption
- 25.1.2000: Car Industry forces car dealers to prevent European consumers from buying cars abroad
- 25.1.2000: Car Prices Differences. Figures provided by the European Commission. Car prices on 1 May 19991

United Kingdom: Competition Commission
- New cars: a report on the supply of new motor cars within the UK, April 2000
- New Cars Inquiry: Statement of possible remedies, October 1999
- Summary of the report on the supply of new motor cars within the United Kingdom, 1992
- New motor cars monopoly inquiry. Open hearing. Tuesday, 29 July 1999

United Kingdom: Department of Trade and Industry
12.6.2000: Byers announces further measure to increase competition in the new cars market

United Kingdom: Driver and Vehicle Licensing Agency
- Vehicles - Import & export

United Kingdom: Office of Fair Trading
- Fair Trading News, July 1999: New-car sales in the spotlight
- Fair Trading News, April 1999: New cars inquiry hits top gear
- Press release, 17.3.1999: Inquiry ordered into new car market
- Vertical restraints: a United Kingdom perspective

United Kingdom: House of Commons Trade and Industry Select Committee
- Investigation and report on vehicle pricing in 1998 [should be available via index to reports - but page unobtainable on 16.7.2000]

BBC News
- 11.11.98: 13.7.2000: Car price gap growing
- 12.6.2000: Car price shake-up unveiled
- 12.6.2000: Car prices 'to fall by a third'
- 10.4.2000: Is Britain being ripped off?
- 10.4.2000: UK car price cuts ordered
- 28.3.2000: Q&A: Car prices
- 1.3.2000: Car buyers move online
- 7.2.2000: EC threatens car makers
- 19.1.2000: Dealers drop car import plan
- 4.10.1999: Business: The Economy: Car buyers '£1.2bn rip-off'
- 9.7.1999: Business: The Economy: Car industry under the spotlight
 

The Guardian
- 14.7.2000: City briefing: Car prices 76&percent; higher in UK
- 13.6.2000: Byers stirs row over cheap car imports
- 13.4.2000: Car importer takes £7m in two weeks
- 11.4.2000: The car rip-off exposed
- 11.4.2000: Move to cut price of cars in UK
- 6.3.2000: Big deal ['where the bargains really are']
- 28.2.2000: Here's how we saved £5,000
- 27.2.2000: Net undercuts UK car sellers
- 3.2.2000: British car prices start to tumble
- 26.1.2000: EU car prices still at sixes and sevens

Daily Express, Micro Edition
- 29.3.2000: 35&percent; off new car prices on Internet

The Times
- 10.4.2000: No quick fix for car prices says Byers

Yahoo! News
- Car prices to be slashed

BBC Top Gear
- Importing from Europe

Alliance & Leicester Car Price Index

British V-reg Car Buyers Pay £1.2billion Too Much (MORI)

Carbusters.com (Consumers Association)

Carimporting.co.uk

Consumers Association

Consumers in Europe Group

Oneswoop

Rip-Off Britain

Totalise Eurekar

Vauxhall (buying online)

Virgin Cars

Further and subsequent information on the subject of this week's In Focus can be found by doing an advanced search in European Sources Online and inserting 'car prices', 'block exemption' or other appropriate terms in the keyword field.

Eric Davies
KnowEurope Researcher
Compiled: 16 July 2000

The European Commission's latest report on car prices shows that there are still substantial differences in the cost of new cars across the European Union.