British dealers best placed to face up to abolition of B.E.R. location clause

As the final piece of legislation of the European Union’s new block exemption regulation to reform the sale and servicing of cars comes into force, the practical impact on car dealers looks to be limited, according to the latest in a series of reports by PricewaterhouseCoopers. ‘Block exemption, bar room brawl spills onto the streets’, looks at the likely effects of the abolition of the location clause from 1 October 2005 and finds it is likely to be business as usual.

The block exemption regulation is intended to give dealers greater independence from carmakers, promote inter-brand competition, encourage harmonisation of prices across the European Union and thus ensure consumers get a much better deal. The location clause essentially prevents dealers from expanding outside their territories but from October any dealer selling passenger cars and commercial vehicles and who meet the manufacturers standards will be able to set up secondary sales and delivery outlets anywhere within the EU, Norway, Iceland and Liechtenstein.

When first mooted the idea provoked a furore but unlike the first set of changes when there was only a mere 18 months to respond, carmakers have had three years to adjust. Most of the key players have now accepted the situation and used the time to good effect to prepare.

Those with the most to gain will be large dealers and multinational fleet providers and there are already pronounced national variations. British dealers sold an average of 444 new cars last year reflecting the fact the market has already consolidated. In Europe’s biggest markets the figures were much lower: 330 in Italy, 236 in Spain, 173 in Germany and 158 in France. It was lower still in most of the other countries to which the regulation applies, suggesting that British dealers are in a better position than continental counterparts to exploit the scrapping of the clause.

Fleet management providers will also benefit as they will be able to supply their international clients on a pan-European basis more easily. A growing number of multinationals want European contracts because of the savings they can secure so fleet managers in countries where use of company cars is entrenched will benefit most of all.

However, it is dealers in the 10 new member states that acceded to the EU in May 2004 that will be most vulnerable, according to PwC. They have only been given a year to adjust their strategies, so most are quite unprepared to fight off external competition. In addition, their markets are more dependent on strong manufacturer-importer networks and most of the dealers are economically weaker than their Western European peers.

Stephen Eames, director, PricewaterhouseCoopers, said: “Only large companies already operating on an international basis have the resources to expand across borders. The fact they have already gone abroad suggests the abolition of the location clause will make very little difference.”

It has been argued that the ending of the abolition clause could lead to a bloodbath that would see numerous dealers go out of business leaving a few large groups to dominate each national market. However the effect natural market conditions have on limiting this is evidenced in authorised repairs. The vast majority of dealers are also authorised repairers and have been free to set up secondary repair outlets since the start of the new regime in October 2003.

Yet with no sign that numerous dealers have set up new repair outlets it is questionable whether they would behave differently once free to establish new retail operations wherever they want.

Copies of part 1 and 2 of ‘Block exemption - bar room brawl spills out on the street’ can be downloaded at www.pwc.com/auto