European car market set for shake-up as EU finalises liberalization

Car dealers in the European Union will be free to set up shop anywhere in the bloc from Saturday, when new rules come into force preventing manufacturers from contractually restricting where they can operate.
The banning of so-called "location clauses" is a key part of major EU reforms aimed at liberalising car sales and repairs, improving competition and reducing the wide price discrepancies across the 25-state union, thereby giving a better deal to the consumer.
Currently, an Opel Astra costs 50 percent more in Germany than in neighbouring Denmark, handing a German motorist a potential saving of 3,700 euros (4,455 dollars) if he buys over the border.
The EU reforms began in October 2002, when dealers won the right to sell cars from different manufacturers. At the same time, carmakers were obliged to be more cooperative with independent repair shops.
The location clause ban was meant to come into force at the same time, but pressure from manufacturers, which are reluctant to see their dealership networks disrupted, led Brussels to delay the measure until September 30, 2005.
Thereafter, any dealer selling passenger cars and commercial vehicles will be able to set up secondary sales and delivery outlets anywhere within the EU, Norway, Iceland and Liechtenstein.
"If salerooms that are not planned by manufacturers are opened, things will become unpredictable and it will be harder for carmakers to manage their networks," warned Marc Greven of the European Association of Car Manufacturers.
Yet as the deadline looms, producers are not convinced that many dealers will risk opening new branches, added Greven, because "for the last four to five years the price differentials between various countries have narrowed considerably."
"If a manufacturer decides to adjust prices and reduce the difference between two countries from 20 to 10 percent, the dealer will lose all of his advantage," he predicted.
Manufacturers realise that the lifting of the location clause ban will only have indirect consequences for them, but for some dealers, especially in new EU member states, their very survival is at stake.
According to the European Auto Trade and Repair Council, only about 20 percent of dealers have the financial strength to open new branches.
"The practical impact on car dealers looks to be limited," PriceWaterhouseCoopers said in a recent report on the issue.
"Those with the most to gain will be large dealers and multinational fleet providers and there are already pronounced national variations," the report said.
"However it is dealers in the 10 new member states that acceded to the EU in May 2004 that will be most vulnerable. They have only been given a year to adjust their strategies so most are quite unprepared to fight off external competition," it added.