HC Deb 30 July 1982 vol 28 cc1491-7 12.25 pm
Mr. Hal Miller (Bromsgrove and Redditch)

I hope that my hon. Friend the Minister will not think me churlish if I return to him on the motor trade after his generous—one might say sweeping—response to my earlier question about hire-purchase restrictions. I do not expect such a wholesale response today. The motor trade is grateful to him for what he has done so far and expects better things to come. My purpose in raising the subject springs from the announcement by my right hon. Friend the Secretary of State for Transport on 2 February in response to a question about the trade in so-called parallel imports of motor vehicles. These are imports from the Continent by individuals or non-accredited dealers.

My right hon. Friend's response demonstrated that there would be no change in the type approval regulations in Britain to restrict such trade until the type approval information was readily forthcoming to those who wished to take part in the trade. He said that discussions would be held with the industry to that end. My information is that it has not been possible for the Department and the trade to reach agreement on a code of practice to give effect to that aim. With the increase in the trade since his announcement, we might question whether it is still desirable to take those steps.

More recently, there has been much activity by DG IV, the directorate responsible for competition policy in the European Economic Commission. That directorate has subjected Continental motor manufacturers—people are often only too ready to decry our manufacturers—to the threat of action to remove the limitations on the supply of right-hand drive vehicles to Continental dealers even before the case has been decided. I must warn my hon. Friend that any such action would bring the EEC into further disrepute in Britain. I hope to demonstrate that a common market is not operating because of the difficulties in tax structures and licensing provisions.

I am conscious of the fact that in raising the subject and in taking the line that I intend to take I am taking on the wisdom of the Establishment, and no doubt I shall receive an unsatisfactory press. The Economist carried a headline "Carry on importing". The article stated: The British Government has, bravely, tried to encourage the trade". The Scotsman suggests: The British car buyer: taken for a ride? The Times opines that life is "too comfortable for cars." The Sunday Times sent the redoubtable Mr. Barrie Penrose to investigate the trade, which—this is near to the Minister's heart—issued 40,000 kits to would-be do-it-yourself importers.

We must examine carefully the facts and figures behind the trade and why I, a humble Back Bencher, should take on the might of the Establishment in this way. It is difficult to establish the exact size of the trade at present. The best estimate that I have been able to arrive at is about 50,000 units a year. That is about 3 per cent. of the British new car market. Coincidentally, it corresponds to the drop in forecasters' estimates of demand in the United Kingdom market this year, from 1Ċ5 million to 1Ċ45 million. However, much higher figures are being quoted in some quarters.

I am interested to see the hon. Member for Antrim, South (Mr. Molyneaux) here today, because of the rapid developments in the Ulster markets of imports across the land frontier from Eire, where the vehicles are not subject to the construction and use regulations. Therefore, there is no certainty that they comply with the safety requirements.

The right hon. Member for Down, South (Mr. Powell) raised the matter in the House a fortnight ago, but I do not think that he mentioned the scale of such imports. One quarter of new registrations in Ulster consist of uncertificated vehicles. That proportion is rising and the effects on the motor trade in the Province can well be imagined. I shall come later to the general effects on the motor trade throughout the United Kingdom.

What are the reasons for the sizeable trade? Let us admit at once that there is still a considerable disparity in price between cars available on the Continent and in Britain. I shall seek to go into the reasons for that. I would just issue a cautionary note, that the figures widely quoted in the press often give a discounted price that is available on the Continent but a list price for Britain, taking no account of the discount available here. Discounting is widely practised because of the oversupply of the British market. Indeed, it is estimated that 1Ċ5 million new units are sold, compared to a rate of supply of 2 million units. Therefore, considerable discounts are available.

None the less, if we take the example of a Volkswagen Golf or an Audi, the manufacturers tell me that there is a disparity of about £800. If one takes a more popular model, perhaps a 1600 four-door Cortina, the price would range from £4,300 in Britain, to £2,500 in Denmark, to £2,900 in Belgium. I should make it plain that those are the pre-tax prices—the manufacturer's price and the dealer's margin. I say "pre-tax" because here is one of the reasons why there is no common market. The tax on a 1600 four-door Cortina in Belgium is 200 per cent. That is twice the combined manufacturer's price and dealer's margin. That is one reason why the manufacturer's price in Denmark and the dealer's margin have both been depressed below profitable levels.

Another reason—apart from the Danish tax system—is that Denmark is not a manufacturing base for motor vehicles and all manufacturers use it as a marginal market. Car manufacture is a volume business, and if additional units can be sold on the basis of variable costs, taking no account of fixed costs, a contribution to profit can still be achieved. A high rate of tax also appertains in Eire and that has given an impetus to the trade into Ulster.

I deal next with Belgium. I have already mentioned the figure for the Cortina. It is low, because there is price control in Belgium to protect Belgium's devaluation. That is another significant factor. Despite the European monetary system, there have been recent devaluations in both France and Belgium, which have been protected by price controls. I shall return to that later in the context of the European Commission's attempts to ensure that prices between markets do not vary by more than 12 per cent. If they do, the Commission will not allow the distribution to continue.

The devaluations of 12 per cent. and the imposition of price controls in both Belgium and France mean that a price cut below a profitable level is being forced on manufacturers—not only British manufacturers—if the Commission insists on freedom of trade being based on French and Belgian prices.

There is a differential in manufacturing efficiency between many United Kingdom manufacturers and their Continental counterparts. The differential in manufacturing cost for a small to medium-sized family saloon works out at about £350. I doubt whether anyone would go to the Continent, pay the deposit in advance and go through all the bureaucracy to import a car for such a low saving. Nevertheless, that differential in manufacturing efficiency exists. Of course, our manufacturers are trying to reduce that differential and to bring our performance up to Continental levels. There has been great success with the Austin Metro, which already exceeds Continental levels.

The Metro is more efficiently produced than other British-made cars, but it has to be sold in Belgium at a lower price than in the United Kingdom because of devaluation and price controls. That is one important reason for the differential, which has apparently not been understood by The Economist, the Financial Times or any of the other pundits that I have cited. It is not a difficult concept to grasp.

We must bear in mind that there are not only manufacturing differentials, but differentials in the economies of the various member States. An index of competitiveness that is based on exchange and inflation rates shows that since 1977 all British manufacturers—not only car manufacturers—have been put at a competitive disadvantage during the past five years in relation to France and Germany. Germany is one and a half times more competitive than Britain, and Belgium is almost twice as competitive as Britain.

That has nothing to do with manufacturing efficiency, but everything to do with the movement in the exchange and inflation rates. I have excluded from the index the effect of interest rates. Therefore, despite what some of the financial pundits may say, it is not only our manufacturers that are to blame.

There are differences between member States of the Community. I have talked about manufacturing efficiency and the indexation of competitiveness with exchange and inflation rates. I have mentioned price controls, excise duties and devaluation, and there are also marketing differences. Manufacturers launch their new models into different national markets at different times, and obtain price increases in different markets at different times. I have pointed to the disparity in the Volkswagen Golf. A year ago that disparity was £1,800, because in Germany the manufacturers had not been able to obtain a price increase because of unrestricted Japanese competition. They put through three price increases this year after some understandings had been reached with the Japanese which reduced the differential, but then there were exchange rate problems.

There are still national as opposed to Community markets. How important is the question that I should seek to raise it again? I have attempted to show the size of the trade. What will be the effect of that trade on our manufacturers and traders? The motor trade is going through a depressed time. For example, 13 per cent. of all bankruptcies in the first six months of the year were in the motor trade. Apart from having to discount on new models, the motor trade has an obligation to keep spare parts, to provide services and to carry out warranty work on those so-called parallel imports, without having had the benefit of the original sale. The result of an unchecked growth in that trade would inevitably put several more of our dealers out of business.

It is not often appreciated that motor dealers employ over 400,000 people which is as many as are employed by motor manufacturers. They have a heavy investment in servicing, warranties and spare parts. They fear that if the trade is allowed to continue, fleet buyers will be tempted to participate. Fleet buying accounts for 70 per cent. of all new car sales.

There are arguments—although I do not wish to overstress them—about the safety of parallel imports, apart from the ones that are uncertificated in Ulster. There are dangers in converting left-hand drive to right-hand drive unless it is carried out in a proper manner with the appropriate parts. The bulk of the parallel trade is in factory-built models, and that is what I am discussing.

The trade does not affect only dealers near ports. Representations have been received from Mr. Rollings of North-East Motors, who fears that if the EEC Commission continues in that way there may be a forced withdrawal of certain marques from the market altogether in the same way as Red Label whisky has had to be withdrawn from the United Kingdom market, resulting in a restriction of the consumer's choice rather than an extension of it. I am sure that that would be of concern to the Minister.

Manufacturers would be seriously affected if the trade grew too much or if the Commission were allowed to impose uniform prices across the Community. That would inevitably result in a decrease in manufacture and assembly in this country, with further consequences for employment, particularly among the component makers.

The manufacturers realise and accept their responsibility to become as competitive in this country as in Europe, and great strides have been made by the Austin Metro. Enormous progress has also been made by Vauxhall at Luton, where the assembly of the Cavalier is nearly as efficient as the assembly in Germany and by the end of the year will be even more efficient. Good progress is also being made by Talbot at Ryton near Coventry.

Our manufacturers are not complacent or hanging on desperately to a cosy, protected and profitable market. The whole European market is not profitable because of overcapacity and the incursion of cheap imports from Japan, Korea, Spain, Australia and South Africa—all markets to which our manufacturers have no access. In addition, we should not forget the politically priced vehicles from Eastern Europe.

Manufacturers and traders are worried and I ask the Minister to think carefully before he and the Secretary of State for Transport go ahead with the proposals that they announced on 2 February. There is no common market while there is no fiscal harmony and no harmony in exchange rates or price structures.

A political dimension threatens further the acceptability of our membership of the EEC. It is noteworthy that we have not yet achieved a common type approval system for motor vehicles throughout the EEC. Some member States make no provision for personal imports through the parallel trade. They are not possible without individual inspection of vehicles and the consequent expense and delay.

I ask the Minister to hasten slowly on the proposed changes and strongly to resist attempts being made by DG IV of the Commission to impose findings without the matter having been brought to trial.

12.49 pm
The Minister for Consumer Affairs (Dr. Gerard Vaughan)

I wish straight away to congratulate my hon. Friend the Member for Bromsgrove and Redditch (Mr.

Miller) on securing this debate on a highly topical subject of great interest to British car buyers and of great importance to the British car industry generally. As he said, it is a complicated subject, but he explained it very clearly and his expert knowledge in these matters is greatly appreciated by all of us, as is the way in which he supports the car industry in this country—quite apart from the fact that he is chairman of the all-party motor industry group in the House.

I listened with interest to what my hon. Friend said. I also read with great interest the various articles that he publishes on this from time to time. I was, for example, extremely interested to see an article only last Tuesday, 27 July, in the Birmingham Post, in which my hon. Friend pointed out the needs and problems of the motor industry. This is very much appreciated.

Hon. Members will already be familiar with the controversy about parallel imports of cars from other parts of the EEC. I was glad that in this context my hon. Friend mentioned the recent lifting of hire purchase controls, which is highly relevant to the car industry. I was also glad that last Monday I was able to give him such an important answer on this subject. We hope that by lifting the hire purchase controls we have taken a further modest step to improve not only general trade but the British car industry in particular.

I know that my hon. Friend appreciates that the controversy and concern about parallel imports follow speculation that the Government might restrict the exemption that personal car imports enjoy from type approval regulations. We all appreciate the importance of those regulations, as they ensure the safety standards of cars coming into the British market.

I should say at once that we have no intention at all of restricting the exemption. It is possible, of course, to buy the same car at different prices in different parts of Europe. We take the firm view, however, that it is of benefit for us to have open competition. It is of benefit to the customers and also to the car industry. Wherever possible, we take the view that it is for the industry itself to manage its trading activities as efficiently and effectively as possible. I agree with my hon. Friend. We do not take the view that the car industry is in any way complacent about the situation, and it is making changes that it believes to be of benefit to customers generally. The statement made on 2 February by my right hon. Friend the Secretary of State for Transport made it clear that unless there were arrangements to ensure that type approval information was readily available to individuals and to independent dealers there would be no question of changing the present personal import arrangements. Therefore, on two fronts we are really saying the same thing.

It is well known that over the past few years substantial differences in car prices have arisen between the United Kingdom and the rest of the Community. This country is not alone in experiencing such problems. There are also difficulties, for example, between Denmark and Germany. The main cause has been the greater strength of sterling, although it is not the only cause. Higher production costs in this country are also an important factor. There are also the other aspects to which my hon. Friend has referred.

Price differences between the United Kingdom and the Continent have created great interest in personal car imports from other EEC countries. This in turn has been associated with a growth in complaints that manufacturers are seeking to obstruct imports outside the normal dealer network. I do not wish to give a view on individual cases, although we can investigate them if and when that is necessary. Anti-competitive practices, as defined in the Competition Act, are, in the first instance, for the Director General of Fair Trading to consider.

Most recent complaints have involved transnational trade and represent possible breaches of the competition rules of the European Community. These rules are administered by the European Commission which has, I understand, received a number of complaints alleging attempts by manufacturers, United Kingdom and non-United Kingdom, to restrict the parallel import of cars. My hon. Friend referred to allegations that it had not been possible to buy cars with the driving position on the correct side. We regard a strong, open European competition policy as an essential part of free trading provisions of the Common Market. We see this as a benefit in the long run to customers.

Although the Commission administers the competition rules, we are free to express our own opinion on individual cases without prejudice to such views as we might wish to express on particular cases coming before the advisory committee or the European Court. I assure my hon. Friend that I would not subscribe to the view that price differentials on cars are due solely to attempts by manufacturers to maintain market segmentation.

My hon. Friend referred briefly to the Commission's draft. I would emphasise that, at this stage, it is only a draft block exemption on motor vehicle distributor networks. The proposal is still at an early stage of discussion. There will be opportunities for those concerned to give their views before a definitive instrument is produced. We shall take all options into account, including those of the industry, before we come to any conclusions. I assure my hon. Friend that these are early days and that there is plenty of opportunity for views to be considered and dealt with.

Mr. James Molyneaux (Antrim, South)

Will the Minister take into account what his hon. Friend said about the impact already of imports on the United Kingdom market? Will he study especially the figures that his hon. Friend gave relating to Northern Ireland which show that 25 per cent. of new registrations are composed of vehicles imported across the land frontier of the United Kingdom? Although the Minister says that these are early days and that there is still time available, will he accept the warning that this situation will escalate in Northern Ireland and in Great Britain unless speedy action is taken?

Dr. Vaughan

I am glad that the hon. Gentleman has raised that matter. I listened carefully to the remarks of my hon. Friend. My hon. Friend also mentioned that type approval does not apply in Northern Ireland. This is a matter for the Northern Ireland Office. As my hon. Friend the Under-Secretary of State for Northern Ireland announced on 27 May, it is intended to introduce a type approval system in Northern Ireland as soon as possible. I mention that now as the hon. Gentleman has mentioned the Northern Ireland market.

I am conscious of the industry's view that any sudden reduction in price disparities would have a harmful effect on the profitability of car manufacture in this country. I shall strive to ensure that the Commission is made well aware of this. I feel, however, that these fears may be exaggerated, given the Commission's time scale on block exemption. I am sure my hon. Friend agrees that the interests of United Kingdom manufacturers, as much as United Kingdom consumers, lie in the establishment of genuine free competition throughout the Community. I have referred to this a number of times. It is important. This is an important subject for the United Kingdom car market. We are well aware of the problems. I congratulate my hon. Friend on having brought the matter before the House.