Official Legislation
by the DTI
Block Exemption for Cars Fact Sheet
URN No: 05/1703
Relevant or Related Legislation:
EC Competition Law (Articles 84 and 85) Enforcement Regulations 2001;
EC Regulation 1400/2002;
Regulation 17 of the 1998 Competition Act
Key Facts:
• The new exemption will increase competition in the domestic and continental
car market, including car servicing and repairs, which will give consumers more
choice and better value for money.
• The new EC Cars Block Exemption should help reduce UK prices by increasing
competition and providing greater freedom to import cars from other member states.
Giving consumers more choice and better value for money.
• Old Regime expired on 30 September 2002 (but see Q2 below)
• The Competition Commission found the operation of the selective and
exclusive distribution system permitted by the European Union's Car Block Exemption
rules to be the root cause of the increased cost of new cars in the UK, and
made a number of recommendations for fundamental changes to this system.
Frequently Asked Questions
(FAQs)
Q1. What is the Cars Block Exemption?
Q2. When do the new rules apply?
Q3. What effect will the new block exemption have on the car selling
market?
Q4. What effect will the new block exemption have on the car repair
and servicing market?
Q5. What will be the effect on car pricing in the UK?
Q6. Who do I complain to if I think the Block Exemption is being
exceeded?
Q7. Where can I get further information on cars block exemption?
--------------------------------------------
Q1. What is the Cars Block Exemption?
The EC cars block exemption is the European Commission
Regulation No. 1400/2002 (formerly Regulation No 1475/95), which exempts from
EC competition rules arrangements in the EU for the distribution of new cars
and their subsequent servicing.
The block exemption allows car manufacturers to create networks of selective
and exclusive dealerships.
The system of selective and exclusive distribution was strongly criticised by
the UK Competition Commission in its April 2000 report on the market for new
cars in the UK.
In November 2000, the European Commission published a review of the workings
of the block exemption, which concluded that the system had failed to meet important
objectives set for it when it was established in 1995. In particular, the review
concluded that:
• buyers were still facing difficulties when they tried to purchase new
vehicles from another Member State;
• the "natural link" between sales and after-sales service seemed
no longer to exist;
• the objective of increasing the commercial independence of dealers had
been achieved only to a limited extent; and
• independent repairers were being denied access to technical information.
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Q2. When do the new rules
apply?
European Commission rules (cars block exemption) became law on 1 October 2002.
However, the majority of the provisions did not come fully into effect until
October 2003 following the one year transition period.
The ban on "location clauses", which limit the geographical scope
of dealer operations, has raised major industry concerns. To reflect this, this
element will come into effect two years later than the rest of the reforms -
on 1 October 2005.
From October 2005, dealers will be free to set up secondary sales outlets in
other areas of the EU, as well as their own countries. This should significantly
strengthen competition between dealers across the Single Market and help to
ensure that consumers get a
fair deal.
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Q3. What effect will
the new block exemption have on the car selling market?
An EC review of the old Block Exemption rules on the sale of new cars in the
EU found that they were not working as intended. Buyers were still finding it
difficult to buy cars in another Member State.
The new rules will mean that:
• dealers are able to market their services and reach customers
in different areas or countries;
• dealers are able to sell more than one brand of car at the same site
(multi- franchising) with fewer restrictions;
• internet retailers will find it easier to co-operate with dealers and
with individual customers who wish to import cars themselves
The provisions will increase competition in the domestic and continental car
market, which will give consumers more choice and better value for money including
a reduction in car prices.
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Q4. What effect will
the new block exemption have on the car repair and servicing market?
These changes will mean more competition in the servicing and repair market
leading to lower costs and higher standards for consumers.
The after-sales market will be opened up, with a change to the rules linking
new car sales and servicing. Dealers will still have to ensure that customers'
cars are serviced and repaired to manufacturer-approved standards, but they
will no longer have to do it themselves; and, independent garages and roadside
assistance organisations will have much greater access to technical information,
including diagnostic equipment and software.
Dealers will be freer to determine how they run their businesses. The better
the service they offer, the more they will be rewarded. Poor performers will
find it harder to survive.
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Q5. What will be the
effect on car pricing in the UK?
The Supply of New Cars Order 2000 was introduced following the Competition Commission
(CC) monopoly inquiry into the supply of new cars. The CC found that private
car buyers in the UK were paying about 10% to much for the average car, taking
account of discounts, trade-ins and finance deals.
The CC found the operation of the selective and exclusive distribution system
permitted by the European Union's Car Block Exemption rules to be the root cause
of the increased cost of new cars in the UK, and made a number of recommendations
for fundamental changes to this system.
The CC also made a number of recommendations for immediate action, which resulted
in the introduction of the Order in September 2000. One of the main provisions
of the Order requires suppliers to offer dealers who purchase volumes of cars
outright equivalent discounts to those offered to fleet customers who purchase
similar volumes. The intention of this provision is to close the price gap between
cars offered to fleet customers and those offered through dealers to private
buyers.
The new EC Cars Block Exemption should help reduce UK prices, or at least lead
to a levelling out across Europe of pre-tax prices, by increasing competition
and providing greater freedom to import cars from other member states. There
is evidence that the process of levelling prices across the EU has been proceeding.
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Q6. Who do I complain
to if I think the Block Exemption is being exceeded?
The responsibility for enforcing UK competition law falls to the Office of Fair
Trading (OFT). The Regulation is therefore directly enforced in the UK by the
OFT under the new modernisation of enforcement of European Union Competition
rules.
Responsibility for enforcing across borders remains with the European Commission.
The Regulation places responsibility on the Commission to monitor its operation
on a regular basis and to report in May 2008. The Commission will take the lead
on UK cases which have a Community wide dimension. OFT assists the Commission
as necessary.
In general, the DTI takes the lead in the UK on competition policy issues and
on the development of new legislation including EC regulations such as the cars
block exemption.
Neither the DTI or the OFT can advise individuals on the merits of a specific
EC case or make representations on their behalf but the OFT can provide advice
on procedures for approaching the Commission.
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Q7. Where can I get further
information on cars block exemption?
The text of the new block exemption, explanatory brochure and other information
can be found on the EC Cars block exemption web pages.
The DTI published a press notice in 2002 which the Consumer and Competitions
Minister, said "I very much welcome the European Commission's new regulations,
which will mean more choice and fairer prices for consumers, and greater competition
and innovation in the retail sector. By making the European single market work
much better, they should bring UK prices closer to those in other EU countries."
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