§ 5.3 p.m.
§ Lord Brimelow
rose to move, That this House takes note of the report of the European Communities Committee on the Distribution, Servicing and Pricing of Motor Vehicles (27th Report 1983–84, H.L. 302).
The noble Lord said: My Lords, I beg leave to move the Motion standing in my name on the Order Paper.
The subject of this debate is a proposed Commission regulation. If it comes into effect it will, subject to certain safeguards, apply Article 85(3) of the Treaty of Rome to certain categories of agreement which regulate the distribution and servicing of motor vehicles within the European Community. These agreements have side effects, two of which are of particular importance to the Commission. One is the partitioning of the Common Market in motor vehicles; the other is the maintenance of price differentials. 1015 The Commission has published three successive drafts of the proposed regulation, the third only a week ago today. Examining and reporting on these drafts has been rather like shooting at clay pigeons. No sooner have you fired at one target than another is projected into your sights. The Commission published its first draft on 24th June 1983. The Select Committee on the European Communities agreed that Sub-Committee B should examine it. Sub-Committee B having completed its hearings of oral evidence, and having drafted a report for submission to the Select Committee, found on 2nd July 1984 that it was confronted with a second draft. Ten of the organisations which submitted written evidence on the first draft hastened to submit written evidence on the second. Sub-Committee B revised its report and submitted it to the Select Committee. It was approved and sent to the printers. The report before your Lordships is therefore addressed to the second draft. But on 11th October the Department of Trade and Industry received from the Commission a third draft. My duty is to present the Select Committee's report addressed to the second draft, but in my remarks I shall draw attention to amendments incorporated in the third.
To go chasing after successive drafts is not an entirely satisfactory way of conducting the Select Committee's business, but in relation to Commission regulations, the terms of which lie within the sole discretion of the Commission once it has carried out the appropriate consultations, the alternative of waiting until it is too late to bring about change is even less satisfactory. As it is, the Commission's third draft is in several respects an improvement on its initial approach. The changes which have been made show the advantage of all interested parties making their views known at the earliest possible moment.
I turn from this story of the drafts to the substance of the Commission's proposals. The agreements which regulate the distribution and servicing of motor vehicles are widely known as selective distribution agreements. I shall use that term. In so far as these agreements prevent, restrict or distort competition, they contravene Articles 85(1) of the Treaty of Rome. Under Article 85(2) they are prohibited and void, but to declare all these agreements prohibited and void would be nonsense.
The system of selective distribution agreements was established in all countries not under Communist rule long before the European Community was established. For the sale and servicing of motor vehicles this system has served the industry well; and it can be argued that on balance it has also been beneficial to the buyers and users of motor vehicles. That case was well made by Mr. Dix, director general of the Motor Agents' Association in his reply to Question No. 93 on page 75 of the minutes of evidence. But within the European Community the system has been found capable of serving an additional purpose.
By impeding trade across national frontiers it has made possible the preservation of price differentials between member states. For the manufacturers, faced as they are with low demand, excessive capacity, fierce competition and many of them making losses, it has been advantageous to have some markets in which it 1016 is still possible to make a profit; but for the United Kingdom, where during the past seven years or so motor vehicle prices have been higher than the Community average, that aspect of the system has been disadvantageous. In this country high prices have been accompanied by high production costs. Production has been transferred abroad; domestic production has fallen; imports have increased; our balance of payments has suffered, and the individual car buyer has not been able to enjoy the benefits which should have flowed for him from the establishment of the Common Market. So far as motor vehicles are concerned, the Common Market simply does not exist.
The story is set out in a paper by the Specialist Adviser to Sub-Committee B which is reproduced as Annex III to the report at page xlii (Roman 42). It makes disturbing reading. For the Commission of the European Community, charged as it is by the Treaty of Rome with the enforcement of rules of competition appropriate to a common market, the way the system has been operating in recent years is a standing reproach.
The trouble has been that that part of the Commission which is charged with the enforcement of the Community's rules of competition has not been staffed on a scale commensurate with its obligations. If an agreement which restricts competition, and which therefore ought to be prohibited, is redeemed by certain saving graces, for example if it improves the production or distribution of goods, or if it promotes technical or economic progress while allowing consumers a fair share of the resulting benefit—that is a very important proviso—then the Commission, acting under Article 85(3) of the Treaty, may declare the provisions of Article 85(1) to be inapplicable, but always subject to the conditions that the restrictions of competition shall be kept to the minimum and that the effect will not be the elimination of competition in respect of a substantial part of the products in question.
Parties to agreements which appear to contravene the provisions of Article 85(1) and which are therefore apparently prohibited and void under Article 85(2) may notify these agreements to the Commission for individual scrutiny in the hope that by virtue of Article 85(3) they may be exempted from the rules of competition.
Very large numbers of such agreements—by no means confined to the motor industry —have been notified to the Commission. There have been so many that the limited staff of the Commission have not been able to consider them individually or to decide whether they do or do not qualify for exemption. By now there is a huge backlog of notifications on which no decision has been taken. The parties to these agreements are operating in a legal limbo. That is satisfactory to no one.
In an attempt to reduce the backlog, the Commission decided some twenty years ago to seek authorisation from the Council of Ministers to grant "block exemption" from the provisions of Article 85(1) to whole categories of agreements. In relation to exclusive agreements to which only two undertakings are parties, the Council of Ministers granted that authorisation. It is embodied in Council Regulation 1017 No. 19 of 1965. Using a somewhat broad and therefore challengeable interpretation of that regulation, the Commission now proposes, subject to a number of restrictive safeguards, to make a Commission regulation granting a "block exemption" from the rules of competition to the "selective distribution agreements" in the motor vehicle industry.
The Department of Trade and Industry, in its written evidence to Sub-Committee B, stated—I am quoting from paragraph 5 of the Memorandum reproduced at page 185 of the Minutes of Evidence—that,Her Majesty's Government believes that block exemption regulations are generally desirable because they can remove large groups of agreements from the state of uncertainty in which they have existed for many years and are otherwise likley to remain. Furthermore, the Department considers this particular class of agreements to be an appropriate one for exemption in this way".In paragraph 19 of the same Memorandum the department concludes that,the Commission is right to propose block exemption for motor vehicle distribution agreements, and right to attach conditions to that exemption".The Select Committee's report concurs. The motor vehicle manufacturers would welcome the "block exemption" of their "selective distribution agreements", but they dislike the safeguards which the Commission has proposed. The report regards the safeguards as essential.
The need for safeguards is particularly great in relation to private buyers of cars in the United Kingdom. To some extent United Kingdom buyers of fleets of cars and of commercial vehicles have been safeguarded by the intensity of competition. The individual private car buyer has not been so protected and the pre-tax price of the car he buys has, in recent years, been well above the community average.
Given the complexity of the market in motor vehicles, any index of pre-tax prices is open to criticism; but I think that the figures in paragraph 19 of the report, on page xi, give a fair general impression. The discrepancy between pre-tax prices in the United Kingdom and elsewhere in the Community was at its height in 1981. The differential has since been reduced, partly by the depreciation of sterling and partly by the increase in this country of discounts and trade-in prices. But a price differential persists and it could be perpetuated by the system of selective distribution agreements to which the Commission is now proposing to give block exemption from the rules of competition. Hence the importance of adequate safeguards.
In paragraph 18 of its report the Select Committee points out that although "selective distribution agreements" have made it possible to maintain price differentials, they have not been the prime cause of such differentials. The list of causes has included: differences in the cost of production; changes in exchange rates between the member states of the Community; differing rates of inflation when they have not been offset by compensating adjustments of exchange rates; differing rates of taxation on motor vehicles in that very high rates of taxation can depress pre-tax prices; differing governmental price controls; different gross margins for dealers; the manufacturers' 1018 policy of charging what the market will bear, and, finally, as regards the United Kingdom and the Republic of Ireland, the facts that we are islands and that we drive on the left. This has made it easy to isolate us as high-cost markets.
Personally, I find persuasive a contention in paragraph 8 of the written evidence of the Society of Motor Manufacturers and Traders (page 2 of the Minutes of Evidence) that,a common market in cars cannot be created for so long as differences exist in national Governments' fiscal and economic policies, nor for so long as exchange rates fluctuate between EEC member states".The implications of that contention go far beyond the limits of today's debate. But even if the establishment of a true common market in motor vehicles cannot at present be envisaged (and the three drafts of the Commission's regulation all tacitly accept this) that does not mean that the exploitation of the United Kingdom market on the scale practised in the past seven years should be allowed to continue.
The question is to what extent the third draft of the Commission's regulation promises to limit the compartmentalisation of the motor vehicle market within the Community and the price differentials which that compartmentalisation has helped to maintain. The Commission's approach tackles these two problems separately. Its attempt to limit the compartmentalisation of the market is based on the principle of availability. The evidence is full of references to the principle of full line availability. The Commission does not use that expression. And if the term "full line availability" is interpreted to mean that any purchaser anywhere in the Community should be able to purchase locally at the local price any car made by any manufacturer, it goes far beyond what the Commission has in view. So the report abstains from using the term "full line availabililty".
On the question of availability, the third draft is less obscure and ambiguous than its two predecessors. Under Article 5 2(d) it will be a condition for the grant of the block exemption that the supplier shall supply to the dealer for the execution of a contract of sale between the dealer and a final customer in the Common Market—anywhere in the Common Market, that is—any passenger vehicle that corresponds to a model in the sales programme that forms part of the contract between the supplier and the dealer and that is also marketed by the manufacturer, or with his consent, in the member state where the vehicle is to be registered.
The definition in the third draft of a model that corresponds to a model in the dealer's programme is that it shall be a passenger vehicle manufactured or assembled in volume by the manufacturer and that it should be identical in form, driveline, chassis and type of engine with a passenger vehicle in the dealer's sales programme. Since Sub-Committee B has not met since the third draft was received, I can only express a personal view on the revised provisions. My view is that they amount to much less than full line availability and that they do go some way towards meeting objections by the manufacturers to the supply to personal importers of models not normally sold in the country of the proposed purchase but that they do none the less make quite broad provision in favour of 1019 individuals who would like to make a personal import of a car across one of the internal frontiers of the Community.
In the past, such individuals have been frustrated by every hindrance that ingenuity could devise. Once the Commission's regulation has come into effect, willingness to supply personal importers with vehicles that fall within the defined range will be a condition for entitlement to the block exemption. If this requirement is respected, the effect should be to facilitate personal imports into the United Kingdom from other Community countries where car prices are lower. But the making of a personal import will remain a laborious and time-consuming undertaking. Only a very small minority of individuals have hitherto been prepared to go to the trouble involved. Personal imports of cars into the United Kingdom constitute so small a part of total sales that even a substantial percentage increase could hardly be regarded as disruptive. Those individuals who are prepared to make the effort should find that things have been made somewhat easier for them.
If the requirement not to frustrate personal imports is not met, then under the third draft Articles 6 3 and 10(1)2 come into play. The effect of those articles, which reinforce one another, would be to make possible, by the withholding or the withdrawal of the block exemption, not merely personal imports but also imports on a commercial scale by traders outside the distribution network which had lost its block exemption. If such imports, which are referred to in the report as parallel imports, were to attain substantial proportions, the present partitioning of the Common Market would be underlined as regards the make of the vehicles affected. The Commission has not made explicit the assumptions underlying these two articles. They appear to be, first, that parallel traders would, in fact, be able to obtain supplies on a scale large enough to constitute a serious deterrent to those who might be tempted to flout the requirement not to frustrate personal imports; and, secondly, that if this deterrent failed, the reality of parallel imports would prove effective as a measure directed against the partitioning of the Market. Whether these assumptions are valid, only experience will show. The evidence of the manufacturers of the first two drafts indicates that they are worried and that they would find any such provison unacceptable.
The second prong of the Commission's approach is directed against price differentials. Here, there is an important difference between the third draft and its two predecessors. Under the first draft, when a price differential exceeded 12 per cent. for a period exceeding six months, intervention by the Commission would have been mandatory. This provision was much criticised. In particular, the manufacturers pointed out that differentials in excess of 12 per cent. could arise from causes quite outside their control such as changes in exchange rates and that it would be wrong to penalise them for market distortions which they themselves had not caused. The second draft made intervention by the Commission optional. If the Commission was satisfied that a persistent differential in excess of 12 per cent. did not arise from an abuse of the block exemption, it could abstain from intervention. The third draft has 1020 eliminated all reference to a 12 per cent. price differential as a possible trigger point. The new provision leaves everything to the judgment of the Commission. Article 10(1)3 empowers the Commission to withdraw the benefit of the block exemption,where contract goods are sold at excessively high prices, or where, over a considerable period, prices or conditions of supply for contract goods are applied which differ substantially as between member States and such high prices or substantial differences are chiefly due to obligations exempted by this regulation".
That is to say, if the parties to a selective distribution agreement abuse their block exemption to impose special conditions of supply or unduly high prices in a given country, they may lose their block exemption, and parallel imports on a commercial scale become possible. The Department of Trade and Industry, the Office of Fair Trading and the Consumers' Association all thought that the proposals contained in the first two drafts of the Commission's regulation might reasonably be expected to operate to the advantage of consumers in the United Kingdom without disrupting the market in motor vehicles.
The opinion expressed in the Select Committee's report is qualified. The manufacturers would not welcome a marked increase in personal imports by individuals, and both the manufacturers and the franchise dealers dislike intensely the prospect of a flood of parallel imports following the withdrawal of a block exemption. The view expressed in the report is that the availability provision will not work well and personal imports will not be greatly facilitated unless franchise dealers are prepared to supply cars to personal importers despite their awareness that most manufacturers would not welcome any substantial development of this trade.
The sense of the proposed regulation is that a supplier who penalises a dealer for compliance with the regulation on this point may himself lose his block exemption. But a supplier could obscure the issue by claiming that a dealer who had been supplying cars to personal importers was inefficient or otherwise unsuitable to continue acting as his representative. The Motor Agents' Association welcomes those parts of the proposed regulation which will protect the dealer against the supplier. The Ford Motor Company complains that the proposed regulation would undermine a manufacturer's control over his dealers. The third draft has not removed the need for further discussions between the Commission, the manufacturers and the dealers on how these conflicting considerations can best be reconciled. One thing is clear: if dealers are not adequately safeguarded, the regulation may be frustrated.
A different consideration applies to the safeguarding of the independent traders known as factors, who supply components and spare parts to service and repair workshops and to the retail outlets which meet the needs of the do-it-yourself trade. For the factors, the successive drafts of the regulation are less satisfactory than the regime at present existing in this country. Under Statutory Instrument 1146 of 1982, manufacturers and importers in this country are required to exclude from their franchise agreements any clause having the effect of requiring franchisees to buy parts exclusively from them and to cease enforcing 1021 any such clauses in current franchise agreements. They may, however, insist that parts supplied or approved by the manufacturer be used by franchisees in warranty work or in work done on vehicles which have been recalled.
The report regards the Commission's drafts as weighted too heavily in favour of the suppliers of vehicles and it expresses a preference for the present United Kingdom practice. Sub-Committee B noted with satisfaction that the Department of Trade and Industry is pressing for this. In general, the interests of the manufacturers, the dealers, the factors and the consumers are so diverse that, after listening to their evidence, Sub-Committee B was left with the impression that there is no common ground. It seems unlikely that any Commission regulation will command willing and general assent. The most that can be expected is a variously discontented acquiescence, accompanied by complaints and probably by litigation in the European Court.
Because of the likelihood of litigation, the report regards it as essential that the Commission should be quite sure of the firmness of the legal foundations on which the proposed regulation will rest. These foundations have already been challenged. The dislike of the manufacturers for the safeguards which the Commission wishes to attach to the proposed block exemption is intense—so much so that their two organisations in Brussels have drawn up a joint paper, reproduced on pages 15 to 50 of the Minutes of Evidence, which argues that the whole approach of the Commission is ultra vires. The Department of Trade and Industry, in paragraph 23 of its memorandum, on page 189, expresses the opinion that there may be some strength in that contention. It goes on to say:The solution lies in the Commission seeking fresh enabling legislation from the Council which clearly allows the exemption of selective distribution agreements for motor vehicles.With that the report is in complete agreement.
The report expresses one major misgiving. Will that part of the Commission which will be charged with the implementation of the proposed regulation be adequately staffed? Just as shortage of staff made it impossible for the Commission to make all the individual decisions which it should have made under Article 85(3), so could any future shortage of staff make it impossible for the Commission adequately to investigate complaints, to maintain the surveillance which the regulation will require, and to take action when action is needed. When it does take action, its actions may be challenged in the European Court. The burden on the Commission could be heavy. If the Commission is unable, for lack of staff, to enforce the safeguards, they could become a dead letter. If that were to happen, the ability of the manufacturers and their franchised distributors to restrict competition might be enhanced by the block exemption, which in such circumstances could do more harm than good.
The succession of drafts placed quite a heavy burden on those who gave evidence, on our specialist adviser and on the clerk. I should like to thank them all most warmly. I should also like to thank your Lordships for listening so patiently to an exposition of a complicated and still evolving subject. Having thanked your Lordships, I beg to move.
1022 Moved, That this House takes note of the Report of the European Communities Committee on the Distribution, Servicing and Pricing of Motor Vehicles (27th Report 1983–84, H.L. 302).— (Lord Brimelow.)
§ 5.38 p.m.
§ Lord Mottistone
My Lords, I feel privileged to follow the opening speaker in this debate. I should like to congratulate the Select Committee and Sub-Committee B, particularly as I am a member of another sub-committee, on what I think is a very balanced and fair report. It is bad luck that the third version of the document they were commenting upon came out only last week. I should also like to congratulate the noble Lord, Lord Brimelow, on explaining so clearly the very complicated situation. I was very sorry that he had to explain it even more lengthily than he might have done, because he had the problem of explaining the third draft of the document which most of your Lordships would not have had a chance to see. It seems to me that he did this very well indeed.
I must tell your Lordships that I have been advised on what I have to say by the Consumers' Association, and so noble Lords can guess that that is where my remarks will mainly be directed. That association gave excellent, balanced oral evidence to the subcommittee, as reported on pages 167 to 184 of the report, as well as balanced written evidence.
The basic problem seems to me to be exemplified by the table in paragraph 19 of the report, to which the noble Lord, Lord Brimelow, made reference. Looking at it quite dispassionately, it must be wrong that in a common market of which Britain has been a member for 10 years the price differentials for any mass market product should be so great. It just does not make sense in a common market. To me, it would not make sense even if we were not in the Common Market. It seems quite at variance with all that the Common Market stands for. If there were evidence of notably greater quality in equivalent products or in after-sales service on the part of British manufacturers and dealers, one could understand it, but all the evidence, such as it refers to that type of matter, seems to be to the contrary.
It seems to me that the problem stems mainly from the fact that British car manufacture was, at any rate initially, excessively uncompetitive and had to be protected. Furthermore, notwithstanding substantial improvements in recent years, which are to be welcomed, British car manufacturing still seems to be uncompetitive even in the European market. If it were not, we would not get a table like the table which appears in paragraph 19. I suggest that The Times leader of yesterday—Tuesday—pointed these facts out very well and made rather sad reading.
To take an example out of the report, if I read it aright, Annex III of the report, which is highly critical of many of the multinational car manufacturing practices, tells us in paragraph 18 that:300,000 'avoidable' 'tied imports' plus the foreign content in the 150,000 'British' cars … could have cost us 64,000 jobs".The annex also tells us in paragraph 8 that the multinationals moved away from Britain in the 1970s because of low productivity and bad labour relations. Paragraph 11 tells us that this led to the "tied 1023 importing" which in its turn was the cause of the loss of 64,000 jobs—or at least it could have been, because I remind your Lordships that this is all an example.
I find therefore that it is tragic to read in The Times leader of yesterday, to which I have already referred, that Vauxhall workers are continuing a strike against the offer of a 7.5 per cent. pay rise and that Jaguars have had a 21 per cent. wage offer rejected. Indeed, in today's issue of The Times there are further figures of that nature relating to other companies. I suggest that with inflation running at less than 5 per cent. this reaction to a recently acquired improved share of the market by these manufacturers does not seem to be the way either towards becoming more competitive in the European market or towards convincing the multinationals that Britain is a good place in which to manufacture. The probable result will be more tied importing and less British jobs as well as putting off the day when the British car purchaser can expect fairer prices. It is sad.
Before I leave the The Times leader I should like to quote its concluding sentence which says:Only when the British industry can succeed in a free market will it earn the new image it covets".To that one might add, "And only then will the British car owner get a fair deal within the Common Market". Most of the people who are in this House and most of the people who work at all levels in the manufacturing industry are car owners and so they are doing themselves a disservice by not enabling the customer to pay a fair price.
I turn to the Community aspects of this problem. As I mentioned earlier, I have sat on another subcommittee for many years and I have perhaps, a feeling for some of the Community aspects. In dealing with those matters for nearly 10 years I have come strongly to the conclusion that change is always necessary, but that abrupt change is highly undesirable both because it makes agreement between member states more difficult, and even more importantly because it has a disastrous effect upon the persons and organisations in the community most affected. However, if it can be achieved, gradual change with a forecast timetable is infinitely preferable.
As your Lordships will know, for over five years or more your Select Committee has been recommending such a gradual change approach with a forecast timetable for modernising the common agricultural policy. That approach, though reflected in due course in some of the Commission's recommendations, has consistently met with resistance from the Council of Agricultural Ministers until this year when they made an abrupt change in relation to milk with the result of concentrated fury from farmers in all member states of the Community. I make that point as an example of how not to make the change.
However, as I am talking about agriculture it is perhaps worth drawing to your Lordships' attention the fact that what is happening to cars, as exemplified in the report that we have under discussion, is also happening to farm machinery. I refer your Lordships to the Observer of Sunday 23rd September when a British farmer—actually, he seems to have been a Scotsman—went to Belgium to buy a combine 1024 harvester. To cut it short, he would have saved £29,000 if he had succeeded in buying a New Holland combine in Belgium, the price back in England being £80,000. The article goes on to describe very much what the report we are debating says in relation to motor-cars. So the problem is wider.
I hope that my noble friend on the Front Bench—and as I am mentioning him for the first time let me congratulate him on his Ministerial position which it is a joy for me to see—will give thought to the fact that what we are talking about is not just motorcars, because the situation apparently applies to agricultural machinery as well, and I do not know what else. Having made that point and against that background, I should like to suggest that we may go a little further than clearly the Select Committee or the sub-committee thought was reasonable, or indeed further than the Department of Trade and Industry went.
In my view the change so far as it goes is all right. However, the Commission's object should be not only to go in the right direction with regard to the right to investigate car price differentials—albeit under the new terms which we have not seen in print but which are introduced by the third draft. which state that it is at their choice rather than with a 12 per cent. limit written in—but more importantly, there should be safeguards to protect the consumer. I should like to see them go further than that. But I note that in Article 14 of the new draft it says that it is to remain in force for 10 years, whereas its predecessor, to which reference was made in paragraph 85 of the report, had a life of 15 years. I believe this to be a good move in the right direction because it will give the Commission a chance to take the whole matter a step further, it is hoped by the end of that 10 year period.
In addition to the regulation I suggest that it would be most desirable for the Commission to add a timetable of further change with a view to phasing out all exemptions from Article 85(1), whether block or individual, in under the 10 year period. I truly believe—and this is where experience in the agricultural world is a help—that only by those type of means, by a phased change which forces people to pay attention but which does not alarm them by suddenly happening when they are not expecting it, can the British car manufacturers and their workforces be given the incentive to become truly competitive and the British consumers be fairly treated within the Common Market.
§ 5.50 p.m.
§ Lord Young of Dartington
My Lords, I should like to join with the noble Lord, Lord Mottistone, in thanking the noble Lord, Lord Brimelow, for his introduction of the debate this evening. I should also like to congratulate the Select Committee on its excellent report. The report was well summed up in the headline for the press release that was issued when the report was published at the end of July. It said:UK car buyers should have a better deal".As the noble Lord, Lord Mottistone, said, it is surely shocking that car prices should be so much higher in the United Kingdom, with British prices some 30 per cent. or so higher than those in Belgium, to take just 1025 one example of a country—shocking because it shows how little we have a common market even now. It is shocking because British consumers are certainly not the most affluent in Europe and are, in effect, subsidising the car industry not just of Europe but of the world. The manufacturers, in an unholy agreement, between them have partitioned markets in Europe, and through the control that they have exercised over their franchised dealers they have rigged the market—they have rigged the prices in different markets in a way that is quite contrary to the letter and the spirit of the treaty.
The noble Lord, Lord Mottistone, mentioned the Consumers' Association and I shall also lean on that body, of which I have the honour to be the president. It has been in the forefront of the campaign for reform on this particular issue since 1981, when it made a comparative survey of car prices in different European countries which brought to general attention the extent to which there were divergences in prices between different countries. At that time the association published an action kit which showed consumers how to handle personal imports and not get into too many difficulties with regulations and so forth. Since that time some 60,000 copies of this action kit have been distributed.
However, after that the car manufacturers—as I would think, true to form—have tried to prevent competition from working and have put obstacles in the way of ordinary consumers exercising their rights. So the Consumers' Association complained to the EEC and encouraged the Commission to take legal action against Ford, and that legal action is still being pursued. But obviously a voluntary body like the Consumers' Association cannot possibly go it alone. It can act as an alerting body, and I certainly greatly welcome the report that we are discussing this evening.
If the Commission, in the spirit of this report, acts on the new draft regulation—with the backing, I hope, of the British Government after they have digested the Select Committee's report—it will undoubtedly be a big advance. But, like many others, I am perturbed at the Commission's proposal to grant a block exemption from the competition provisions of the treaty. Why should the motor trade be treated differently from others?
One of the main arguments about which I want to say just a few words is that manufacturers are able to ensure that high standards are maintained in after-sales servicing because they have franchised dealers who get their chief profit from selling cars but who are required to look after their customers afterwards. In the third draft of the regulation some of these arguments are rehearsed. For instance, it says that:Motor vehicle manufacturers co-operate with the selected dealers and repairers, who may also carry out servicing, in order to provide specialized servicing for the product. On grounds of capacity and efficiency alone, such a form of co-operation cannot be extended to an unlimited number of dealers and repairers".It goes on in effect to support the existing system. But I would maintain that the facts do not support this argument at all.
Reverting to the Consumers' Association, over the years it has carried out survey after survey into garage servicing, all of which show how lamentable is the deal that consumers get from garages. On the whole, it has 1026 been shown that franchised garages are no more reliable than non-franchised garages. The French consumers' organisation carried out an inquiry which showed that franchised dealers in that country were more expensive and less reliable than the independents. In the light of this kind of evidence it is surely the independents who need fostering in this and other countries, and unfortunately the Commission's proposal will not do this unless as I hope (but probably in vain) garage servicing at least is excluded from the proposal.
In any event, franchised garages do nothing much for people who buy second-hand and for many new buyers as well who carry out their own repairs. In order to help them, five years ago I opened a purpose-built DIY garage in Milton Keynes which provides fully equipped bays where DIY owners can deal with their own repairs under the best conditions. The five-year trial has been successful and, with the co-operation of Total Oil, in a few weeks' time we are opening a second, larger DIY garage in Lambeth at a cost of some £½ million. I believe that this is an example of the type of competition that is needed in the motor trade—competition specially needed by franchised dealers.
I hope that the time will come when the motorist can buy a car from Sainsbury's or any other supermarket—or indeed from anyone else—and also get it serviced wherever he likes, or do the servicing himself in specially equipped garages for that purpose. Competition really could be helpful to consumers, especially in this field; and although I am extremely glad that the Commission and now the Select Committee have gone a long way to accepting the case as it could work out in practice, I am sorry that both of them have not gone even further than at present they are prepared to go.
§ 5.58 p.m.
§ Lord Harris of High Cross
My Lords, I am glad to follow the noble Lord, Lord Young of Dartington, whom I have long admired as the founder of the Consumers' Association, from which I have derived much illumination and encouragement, not least on the matter before us today. I also join others in congratulating the noble Lord, Lord Brimelow, on an outstanding report which I thought made complex legal and administrative questions accessible even to a layman such as myself.
On the morrow of the memorial service to Lord Vaizey, I hope that I may simply say how much we shall mourn his loss and miss his contribution to our debates. I believe that we could have expected a typically robust speech from him on a day such as this on the failure of the Common Market in the matter now before us.
The report is concerned with the arrangements for the sale of cars in the EEC, and the first point that emerges is the paradox that we do not have a common market for motor vehicles but what is variously called a partitioned or fragmented market. It seems to me perfectly clear as a general proposition that where free trade would operate so that the prices of identical products could differ significantly only by the amount of local taxes and transport costs, basic car prices in 1027 Britain in recent years have been as much as 10, 20 and even 30 per cent. higher—that is, between £1,000 and £2,000 more—than the same model on the Continent.
Instead of the consumer enjoying the benefits of buying in the cheapest market, British motorists have paid in total many hundreds of millions of pounds a year—the IFS estimated more than one billion pounds in 1980—more than the Belgian, German, or French motorists would pay for an equivalent supply of motor-cars. Apologists have said that these higher prices in Britain are good for high-cost British Leyland, but they are also beneficial to those who import foreign cars—which account for more than half of the domestic market—with a consequent additional cost to our balance of payments.
Any sane man coming to these mysteries for the first time could be forgiven for wondering how such large disparities could have persisted through 1980, 1981, into 1982. It might have been thought that there was a splendid opportunity for alert individuals, or enterprising tradesmen, to take a single ticket to the continent and come back with his cheap car. We find that any such effort has been systematically made difficult, where it has not been entirely frustrated, by restrictive practices which were the central concern of this Select Committee: principally the familiar distribution system which confines car retailing to selected dealers appointed by the manufacturers.
I thought that the noble Lord, Lord Brimelow, was altogether too mild in this matter. As a student of Adam Smith I am never surprised by the tricks and devices developed by producer interests including, I may say, trade unions, to fend off the uncomfortable rigours of competition. Not for the first time I shall remind your Lordships of the timeless warning from The Wealth of Nations as follows:People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices".It was precisely to prevent such natural lapses that the Treaty of Rome included Article 85 outlawing:all agreements … which have as their object or effect the prevention, restriction or distortion of competition within the Common Market".Although, as we have heard, a later section provides for exemption where an agreement improves production or distribution so long as there are substantial benefits to the consumer.
The manufacturers and dealers claim—and some of them evidently believe—that their "selective distribution and servicing agreements" are in the public interest, not least because they are supposed to provide motorists with a guarantee of after-sales service, repairs, and spare parts. Against these large claims, as the noble Lord, Lord Young, has advertised, the Consumers' Association has deployed, it seems to me, irresistible evidence from extensive surveys and researches to show that franchised garages are no more reliable, though they are always more expensive, than the independents. Equally sceptical on this matter were the Monopolies and Mergers Commission which reported in 1982 against cars being sold as part of what it called:a package, including the provision of parts and service.
1028 Rather than outlaw these exlusive dealerships as being in conflict with the Treaty of Rome, the European Commission, under strong pressure from the producers, has struck the compromise explained by the noble Lord, Lord Brimelow. These restrictions, as we have heard, are to be given block exemption from Article 85 subject to the two intended safeguards for the consumer. The first proviso under the earlier draft gave the Commission the power to review the exemption if recommended pre-tax price differentials exceeded 12 per cent. over six months. I personally regret very strongly that this condition has now been watered down to the criterion of a substantial differential in prices.
The second safeguard is that manufacturers and dealers are not to obstruct an individual from shopping around for his chosen model in the country where it is cheapest. Again the Consumers' Association has reported on the delays, surcharges and other obstacles that continental producers have put in the way of British customers seeking to exercise their present right to import a car for their own use. As I read those reports I was struck that the vigour and ingenuity with which these restrictions are imposed by continental suppliers would do credit to those trade union officials who work overtime defending their disreputable Chinese practices.
We have yet to see how effective the Commission's watered down safeguards will prove to be in preventing British motorists from being taken for an expensive ride in this matter by both British and foreign producers. I must admit that I am not very hopeful. The doubt we have heard is whether the Commission has the resources to monitor the outcome of its regulation without more staff. I must say that rather than contemplate a still larger Eureaucracy, I would follow the Financial Times in contemplating an outright ban on exclusive dealerships.
Indeed, the case for a much more rigorous assault on the manufacturers and dealers has been strengthened by the latest concession to the restrictionists' lobby. But if we may assume that the amended draft regulation has the firm and resolute backing of the Government, I would reluctantly support its early implementation. At the same time I would urge the Consumers' Association and similar watchdogs to maintain their vigilance to keep the European Commission up to scratch by standing ready to implement its safeguards against the continued exploitation of the British motorist.
§ 6.7 p.m.
My Lords, as I think I am the first member of the sub-committee to follow the noble Lord, Lord Brimelow, I should like to say how grateful I am sure all the members of the sub-committee were to him for the skilful way in which he steered us through an extremely complicated and difficult inquiry. I should also like to join with other noble Lords who have spoken in thanking him for the way in which he has introduced our report.
I have been privileged to be a member of quite a few inquiries undertaken by Sub-Committee B, but I cannot recall any inquiry where it seemed to be so much the case that we were trying to reconcile the 1029 irreconcilable. That to my mind was the measure of our problem. Here in the report that we are discussing we have first of all the manufacturers; we have the dealers and distributors; we have the factors; and we have the consumers. But in addition we have the interests of the country as a whole, where anyone examining the situation can hardly fail to see that wherever the cause, wherever the responsibility, may lie—and I am not personally casting any bricks in that context—the relatively high pre-tax cost of cars in the United Kingdom compared with that in other member states makes for a high cost market in cars to the extent even of affecting adversely our balance of payments. That is well brought out in paragraph 19 of our report.
Listening to the oral evidence we heard and reading the written evidence as well, I came to feel that if one were to take each of those separate interests in isolation it would not be too difficult to argue for any of their cases in a way which one would hope would be convincing, and which I believe would be convincing to myself. The manufacturers, in a highly competitive world field in which they operate with tremendous inroads from overseas, notably from Japan, must naturally do their utmost by every means at their disposal whether by investment, improved productivity, or their selective distribution service agreements, to safeguard their share of the markets concerned. Indeed, I believe that they would be failing in their duty, whether to their customers—I am talking particularly in the longer term—their employees, their shareholders or the national economy if they did not do so. Yet the fact remains that selective distribution agreements can hardly be said to be in accord with the competition rules of the Treaty of Rome. We know perfectly well that they are not.
Turning then to the dealers and distributors, if they are to fulfil their selective distribution agreement contracts, which can involve them in considerable investment in specialist equipment and stocks of spare parts, they will argue that they reasonably need their measure of local protection if they are to pay their way and provide the standard of service which is provided for in their contracts and reasonably to be expected by customers. I shall not say whether that standard of service is always received by customers—we have heard noble Lords pointing out today that it is not—yet that is their obligation under their contracts.
The factors, who independently manufacture spare parts, can reasonably demand at least what the competition rules of the Treaty of Rome provide: the opportunity to compete with the car manufacturers' own spare parts, which is clearly often to the advantage of car users, and I believe may at times be of important technological advance.
Then there are the consumers, the public who buy the cars whether as individuals or in fleets as firms. They can reasonably expect to be as free to be able to buy the car of their choice as favourably as anywhere in the Common Market or, as has been emphasised today, the so-called Common Market—which is not a common market at all—without it being partitioned and without the wide differentials that exist today. This is where the shoe rubs and where the whole subject can be of such importance to so many car purchasers in the United Kingdom. Yet it is a far more 1030 complex question than many such buyers would believe. It is a very difficult question and much more complex than might appear on the surface.
I realise that in trying to put the point of view of the different interests I have no doubt grossly oversimplified the various interests, but I have tried to present what to each individual interest could well seem to be sound arguments, but arguments which, taken together, provide in my view a really impossible conundrum for the Commission to deal with. Indeed, it is a situation certainly contrary to the Treaty of Rome and therefore, unless something is done, fraught with uncertainty and actual risk for those who are concerned.
To meet this situation, as the report points out, the Commission has been quite unequipped to deal promptly, adequately or indeed often at all with the spate of applications for exemption of individual selective agreements. Hence the ever-growing backlog which has also been referred to. As paragraph 24 of the report says, only two applications within the motor industry, neither involving the United Kingdom industry, have been dealt with by the Commission—only two. Considering the hundreds that must exist, that surely speaks for itself and highlights the need for some action.
The Commission's answer, as we know perfectly well, is by way of the block exemption under Article 85, but this implies conditions under which the block exemption would be granted. This is where all the arguments and disagreements start. To have expected the first draft regulation for such a complex and inscrutable issue to provide straight away for a generally acceptable solution would have been crying for the moon. The second draft, as has been mentioned, which appeared in the middle of our inquiry, is an improvement, but a great deal more thought and discussion is called for. The third draft, which the committee did not have time to consider, looks in some ways better, but there again I am sure it raises considerable doubts.
If the Commission is to proceed, how will it do so? In my view, it will be a case of balancing precision in drafting, on the one hand—precision aimed at reducing uncertainty which can be so inhibiting to investment and productive development—with flexibility, on the other hand. My own inclination is to err towards greater flexibility. Of course, there will have to be appropriate guidelines and safeguards. That in turn can only mean a greater degree of discretion being allowed to rest with the Commission. This is something which always engenders considerable apprehension as to how the Commission will use that discretion. It is perhaps one of the conditions that we have to accept in return for other advantages. I have a feeling that the more rigid the drafting, the more onerous it might prove in individual cases.
That seems to bring us back to where we started. Unless under any new regulation references to the Commission of unsatisfactory situations or procedures can be dealt with promptly and with necessary knowledge and relevant expertise, there will be still no confidence or sense of certainty. There will still be the damaging uncertainty and ambiguity to which the report refers. That, in the longer term, will prove as 1031 damaging to the customers as to the manufacturing industry itself.
Paragraph 86 at the end of the report seems to me to sum up the position. The noble Lord, Lord Brimelow, referred to it. Either the Commission must be given adequate resources to exercise its discretion or the block exemption may do more harm than good—perhaps I could go just a word further on my own; and I know this is impossible but it is worth mentioning—unless the block exemption were unconditional. To go one step further still, could it possibly be that with additional resources given to the Commission now to deal individually with the present backlog the status quo would actually be preferable to any regulation embodying a block exemption, at any rate for a further few years? I know I may be told in making that suggestion that it would be politically quite impractical but I feel it is worth mentioning and having on the record. It may be too naive but I certainly hope, if there is to be a new regulation, that it be regarded as an interim measure and that it is kept as short as possible. The third draft mentions June 1995. My Lords, I think that that is too long.
§ 6.20 p.m.
§ Lord Rhodes
My Lords, this House owes a debt of gratitude to the noble Lord, Lord Brimelow. He has had two very difficult subjects to chair in Sub-Committee B and his masterly explanation this afternoon again is putting the House in his debt. I want to ask one or two practical questions similar to those I have asked before on such occasions as this. First, how many copies of this report have been printed; where have they gone; and has there been any reaction from Brussels to the report? Because if we cannot expect a reaction from Brussels we shall soon be in the position of the petition procedure in the House of Commons where a Member of Parliament gets thousands of signatures in his constituency and brings piles of petitions down to the House of Commons and, after a brief statement, the custodians stuff them all into the great green bag behind the Speaker's chair. Honour is satisfied and nobody ever sees or hears anything of them any more. This is an occasion when we have to consider what value there is in a report of this sort.
Recently a fine was imposed on British Leyland and it highlighted one of the many ways in which car makers attempt to keep prices in the British market substantially higher than those in continental countries. The ruses that are employed such as surcharges, ridiculous delivery dates and refusals to meet specifications really stem from the basic exclusive dealer network at present in operation. It is fair to say at this juncture that British Leyland are appealing against that fine.
We heard it repeatedly said in evidence that prices in Belgium can be as much as one-third cheaper. Instances have been quoted to show that last year a British Leyland motor-car bought in Brussels could save a British purchaser as much as £1,000 after paying car duty, VAT and the ferry charge. This yields a handsome profit, even after paying for the conversion to right-hand drive. So we welcome the move that the EEC Commission has made towards a 1032 partial solution to the problem and we on the Committee are glad to note that it has the support of Her Majesty's Government—perhaps in principle rather than in fact; but we are pleased that it is recognised.
The first draft regulation largely provided the basis for this report. In the original draft regulation, dated 24th June 1983, the Commission suggested that when the price difference was greater than 12 per cent., a 12 per cent. block exemption would be allowed on the grounds either of variability of exchange rates or to keep up what is known as an after sales network. This aroused tremendous interest, naturally. In July this year, another draft appeared just as this report was going to press. It was a modified version of the 1983 report. I have heard it referred to as a watered-down version. Then again, only last week another draft regulation appeared, leaving out entirely any mention of a 12 per cent. block exemption. So where do we stand? Can the Minister tell us? We should like to know. We in this country are very high-cost manufacturers of motor-cars and this explains the attitude of British Leyland, who know that a cut in British prices will mean operating at a loss; so that it makes sense for British Leyland to discourage re-imports.
May I underline what I said about our being high-cost producers of motor-cars? Since the war I have been several times to Japan and the Far East. The first time I went was just after the war and one of the things that I was taken to see was the burnt-out shell—destroyed by incendiary bombs by the American Air Force—of a vehicle factory. In its twisted ironwork, children, old men and women were rubbing pieces of metal with the only abrasive they had available—a pumice stone—to start vehicles going again. There was not a single vehicle being made in that year. The next time I went was in 1958; and 200,000 cars were being made in Japan. I went again in 1962. and it was 500,000. I went again in 1972; it was 5 million. I did not go to Japan when I visited China in 1982. If I had, I should have got to know what I learnt since: that the number of cars they make in a year now is 8 million.
Our industry is like a pygmy to a giant. And where these computers and aerodynamics have done either their best or worst, according to how one thinks about it, one sees the similarity between the millions of motor-cars that we see on the roads today. There is hardly a pin to choose between them. It is part of the uniformity and the conformity which is settling down in the modern world. I have talked about the interest in what is going on. It is not confined to British Leyland alone. Every other car manufacturing country in the world is interested. But it is not in the interests of either the consumer in Britain or the country as a whole to continue this practice.
It may be said in the course of this debate that, having in mind the drift down of sterling, the massive discounts of between 10 per cent. and 15 per cent. which have made a nonsense of list prices, these recommendations by the Committee are no longer necessary. However, I can assure the House that they are necessary and I call in aid a report of the European Bureau of Consumer Unions, which found on investigation in July this year that car prices, net of tax, 1033 in Britain were about 30 per cent. higher than in Belgium and 20 per cent. higher than in Germany, where per capita incomes are much higher than they are here.
It also engaged the attention of a motor industry team at the university of East Anglia, who did a computer projection on what it would mean to the motor car trade in 1986. They found that harmonisation of prices could turn an expected profit by BL of £213 million into a lost of £123 million. Ford of Europe would go from a profit of £395 million to a £236 million loss, and so on throughout the large scale manufacturing firms of the world.
It also engaged the attention of the Institute of Fiscal Studies. They show that in 1981 the total loss to consumers was £1.3 billion, or 0.6 per cent. of national income. The market rigging to Ford was worth £455 million, £300 million to BL and £113 million to Vauxhall. That was in one year alone.
A modest estimate shows that the cost in foreign exchange was £650 million—a much larger sum than the possible loss that British Leyland could sustain if prices were aligned. So is it surprising that when considering figures of this magnitude there is a reluctance to grasp the nettle? But if all the talk of a Common Market, market force and efficiency through competition means anything at all, this nettle must be grasped. The British national interest is obvious. About 60 per cent. of cars sold here are made abroad, so artificially high prices swell the profits of foreign multinationals.
Motor manufacturers' profits or losses must not be the only criteria in assessing the benefits of competition in the EEC car market. Lower prices for cars would increase the real income of most households in this country, and the consequential increase in spending power would in turn mean more consumption and so lead on to more output and more jobs. It is obvious.
High prices have attracted importers to the British bonanza. Surely, whatever the exact size of British Leyland's loss, it is the height of folly to subsidise the company by rigging the whole of the British car market, and incidentally helping British Leyland's competitors more than British Leyland. What is happening is that practically every car the Japanese make and distribute in this country—one of the most lucrative markets in the world—is an extra subsidy to the Japanese so that they can modernise their factories and bring them up to the scale which—there is no doubt about it whatever—is needed in a competitive market of this sort. This should be known and recognised—and something should be done about it.
Would it not make more sense to pay the subsidy to British Leyland out of taxation and thus enable the British consumer to get his car at a fair price? This is what we have to consider and this is what we shall have to do sooner or later. As matters stand at the moment, we can excpect more and more cars to be imported. Our car industry is not big enough to cope with these great giants any more. There will have to be a subsidy for motor-cars. Why not make it a direct subsidy? This is my solution to it. There is no question but that it is one that should be adopted.
I have said enough. I have sat under the 1034 chairmanship of the noble Lord, Lord Brimelow. I have done my best to absorb all the intricacies of this problem. But I think that what I have said points the way to something that needs doing and I hope that when replying the Minister will not just give us a "hack" reply from the Ministry; I hope he will really try to answer some of the points that have been raised this afternoon, in the hope that more and more British cars can be sold to more and more British people cheaper than they have been before.
§ 6.36 p.m.
§ Lord Bethell
My Lords, I should like to join with all those noble Lords who have congratulated the noble Lord, Lord Brimelow, on his excellent report. I should like to join with those who say that if there is any fault in this document, it is that it does not go far enough; it is not vigorous enough in its criticism of the present system of motor-car pricing, because what, after all, is the situation that we are expected to approve and live with? A British automobile manufacturing industry, which is already the sick man of British manufacturing, is kept alive as if on a life-support machine, by a system which suits both sides—both the British manufacturers and the manufacturers on the continent and in Japan.
Prices are kept artificially high—25 per cent. to 30 per cent. higher than in other West European countries. The result is that the British balance of payments suffers to the tune of many hundreds of millions of pounds a year and the British manufacturers are enabled to keep going—just—very gently, in the face of often outrageous wage claims from their workforces and in the face of unwillingness or inability to modernise and use the equipment which is used by our German and Japanese competitors. They survive, and the rotten tooth is plugged instead of being drawn.
The person who pays for this, as usual, is the poor British citizen taxpayer. He pays for it twice or three times over. He pays for it in the subsidy of about £1,000 million a year which is paid to British Leyland; he pays for it by paying over the odds when he buys an automobile. This perpetuates the British weak automobile industry and makes it likely that the nettle will not be grasped. It provides a short-term solution, an opium to relieve the pain of Britain's automobile industry, and not a cure, because, let us face it, what we have been asked to examine is a cartel, like any other cartel. It is no different from the solicitors' monopoly of conveyancing, which happily has now been broken, the claim by the Milk Marketing Board to dominate, control and monopolise the distribution of milk in the face of competition from supermarkets, or, of course, the claim of the national airlines to dominate the airline market. All this, I submit, is not only pernicious and contrary to the national interest, but also illegal. I wish that there was more that could be done about it.
As a member of the European Parliament, I have here a batch of complaints of how car manufacturers have behaved towards attempts to buy automobiles on the continent on an individual basis. As the previous speaker pointed out, all sorts of subterfuges and tricks are used by British and continental manufacturers to prevent these purchases being made. There is a 1035 notorious letter sent by the sales manager of British Leyland in Brussels, which explains to British Leyland representatives there that they must put off a British purchaser, particularly a British purchaser who wants a right-hand drive vehicle. They must tell him that he will have to wait a year, that he will have to pay a surcharge, that he will have to make a deposit a year before he gets his car. Representatives are told that they may hint to the British purchaser that the car, once bought, may not be eligible for taxing in the United Kingdom because of type approval defects. All this is not only wrong; it is, I believe, also contrary to the law of Europe and of England.
I only wish that there were ways of testing this matter before the courts. British consumers have their political representatives. We have the Consumers' Association, which has done superb work in this field and which has provided kits enabling many people to import cars on an individual basis. But what British consumers do not have, unfortunately, is the money that would enable them to pay the very high cost of English justice. If only we had a Ralph Nader who could afford to take these matters to court and test whether or not the law is being observed, because I do not believe that these restrictive practices, these monopolistic devices, are in accordance either with Article 85 of the treaty, which has been mentioned, or with Article 86, which prohibits any undertaking from achieving and exploiting a dominant section of the market.
Unfortuntely, though, it would probably cost a six figure sum to take this matter through the courts, given that the automobile manufacturers would no doubt mobilise every single lawyer they could find to take it to the highest court in the land to protect their own vested interest. I therefore hope that my noble friend on the Front Bench will look very carefully at what is proposed and will think very carefully about the Commission's block exemption proposal. I can assure him that Members of the European Parliament will do the same and will supervise and try to control what the Commission are trying to do.
I agree with speakers who have said that, in any case, what is proposed by the Commission is too long. All right, my Lords; if we are to proceed slowly, let us go step by step, but a regulation such as that proposed, which would last 10 years, is far too long. A year or two at the most would be appropriate, and then we could take another step towards removing the privileged position of the distributors and the dealers who overcharge the British subject.
I share the doubts of those who wonder whether the Commission in Brussels will have either the physical resources or the will to act in the sense of the proposed regulation. I have seen them make so many promises over air fares in the past and then back away from their obligations, because they find it politically inexpedient or simply do not have the staff to do their duty. The Commission, I fear, may well become a spent force in this area, just as they have become over the cost of European air travel.
I would therefore invite my noble friend to look at this matter very carefully. I hope that he will be able to promise some sort of action in the first instance that 1036 will make it impossible for British manufacturers and dealers to block personal imports of automobiles from the continent and from the Republic of Ireland, because I understand that they have now started leaning on Irish distributors who, of course, can sell right-hand drive vehicles more easily than continental vehicles. This must be put a stop to and the little secret memoranda sent round by British manufacturers must be dealt with and revealed for the pernicious documents that they are.
As it is, the British citizen has been having the worst of both worlds with regard to the purchase of motor-cars. I very much hope that this Government, who stand for the consumer and believe in the protection of the consumer and the rights of the consumer, who believe in the long-term interest of the British automobile industry, who do not believe in short-term solutions, and who believe in planning for the future will seize this opportunity and grasp the nettle.
§ 6.47 p.m.
§ Lord Dean of Beswick
My Lords, may I commence by expressing my congratulations to my noble friend Lord Brimelow, and to the members of his committee on the very full and comprehensive report which they have submitted on this very delicate subject. Having said that, I think I part company with every preceding speaker, because I have to say from the start that I am totally opposed to the EEC becoming involved in this type of matter in this country. Various speakers have said—and it is, of course, true—that we have had a first draft report, a second draft report, and only this week a third draft report. Not being a member of this very distinguished committee, I have to say that my knowledge of the individual components and mass of detail in that report is not as great as that of other noble Lords, but I wonder whether this will be followed by a fourth draft, a fifth draft, and a sixth draft. I do not really know. I have made extensive inquiries as to what the changes really mean. All that comes back to me is that, in principle, the changes mean very little, that we are almost back to where we started, but that we will give the Commission the right to adjudicate without using percentages and they will be the referee on all occasions.
It is a sad fact that when your Lordships debate issues affecting any facet of our industry, or any part of our economy, certain noble Lords cannot resist the temptation instinctively to load some of the blame for what has happened onto the trade unions. If the noble Lord, Lord Mottistone, had spotted an article in the Sunday Times at the weekend, he would know that the so-called 20 per cent. increase which certain car workers have at this point rejected is in real terms no such figure. I have always believed that it is very dangerous for politicians and other trade unionists to start pontificating on an industrial offer when they themselves are not involved. The person who wrote the article in the Sunday Times (and nobody could accuse that paper of being a passionate defender of the trade unions) stated that 20 per cent.—most of it—was in fact consolidation of wages that were already being received in bonus payments. I put it to the noble Lord, Lord Mottistone, that he might like to think in terms of what the car industry could be doing if it was receiving subsidies at the same rate as the farming 1037 industry, which he was espousing as the acme of a wonderful business. We all know that there is no farmer in this country who would be successful if it were not for the tremendous subsidies paid by this Government.
I listened with some disbelief to the proposal made by the noble Lord, Lord Young, whom I suspect almost wanted the repair and maintenance of cars to become a do-it-yourself industry. As a trained engineer, though not a motor-car engineer, I can think of nothing more dangerous and misguided. I remind the noble Lord that two or three years ago (and this is not a joke but a fact) there were two Asian gentlemen in London who decided to build a do-it-yourself extension to their house. Next to their own house they dug a hole for the foundations so big that the house on the other side fell into it. I recount that only as an extreme example; but the motor-car of today is a lethal weapon if not properly looked after. Its maintenance is specialist work and is best left to the people who understand vehicles and who are trained to maintain them.
I was somewhat concerned to find myself in almost total disagreement with my old personal friend and colleague Lord Rhodes. He concluded his comments by complaining about the Japanese and the millions of cars they produce, and stating that we are not in the big league, that we produce only 500,000 cars a year. But in my opinion, the very measures which are proposed would make certain of an even larger Japanese incursion, with a bigger adverse effect on our balance of payments. I believe it would wipe out our motor-car industry overnight. Those of us who are engineers and who have observed what has happened have been absolutely appalled over the years at what the Japanese have been able to do—and not only in the motor-car industry—and how they have been able to get away scot-free. I still believe that the British suffer from one malaise that nobody else has; they still play cricket as it ought to be played.
Why do I say that I believe these proposals are totally misguided? I believe that they would devastate our car industry, which has probably bottomed out and which, despite what some people say, is becoming more of a success story. It has started to come off the floor. There is no doubt that the worst company to be hit if these proposals were to be put into effect would be our home-based British Leyland. Anybody who has observed the British car industry will know that British Leyland has just started to produce a range of cars which looks like being good and being a winner. I suspect that if the measures contained in the EEC proposals were to be implemented, then we might as well say goodbye to British Leyland.
However, I should not he prepared to defend some trade union practices in the car industry in the past. They were indefensible, when there was a captive market. I would not defend those practices at all but, as a trade unionist, I can say that many of them have learnt the lesson. The industry has started to work and in my opinion it ought to be given a chance to carry on with its successful recovery.
I must make it clear that opposition to these proposals is not confined to this country. There is deep concern felt in most of the car-producing countries in the EEC. So far as I am aware, there is almost total 1038 opposition to the proposals among trade unionists in the EEC. As recently as August, Terry Duffy, president of the Amalgamated Union of Engineering Workers—who nobody could accuse of being a militant and irresponsible trade union leader—talked in terms of convening the whole trade union movement employed in car production in Europe to oppose the proposals as they stand. I hope that if he does so, he is eminently successful.
Two noble Lords who have spoken declared an interest, in that they were speaking on behalf of the consumer. I make no secret of the fact that I sought some information from the SMMT. That organisation, in order to satisfy themselves as to the consequences of any action which the EEC may take in respect of the car industry, commissioned a report by Professor McKay, a former lecturer in economics at Aberdeen University and now a consultant of high repute. The report produced by Professor McKay is completely independent and has in no way been subjected to any influence or pressure from the Society of Motor Manufacturers and Traders.
The report gives certain details concerning the motor-car industry in this country. It shows that the number employed directly on motor vehicle manufacture is 175,000 and that backward linkage to the components industry provides an additional 250,000 jobs. Also, the multiplied effect, by the spending of vehicle industry income, generates employment for another 360,000 people. The additional employment generated by export sales totals approximately 260,000. Professor McKay reports that, in total, the motor vehicle industry is responsible for creating and maintaining more than 1 million jobs. Figures which have since been given to me by another source show that in the past 10 years the work force in the motor car industry in the general sense has been almost halved.
Another point that particularly worries me concerns the suggestion that the manufacture, distribution and supply of spare parts in this industruy could be liberalised and made more open. I suggest that this could lead to the undesirable situation whereby substandard parts could be manufactured and passed off as the real thing. Let it not be said that that does not happen now in independent garages, because it does. Anybody who wants evidence has only to examine the work done by some private garages; it is rather like having a watch repaired, where one very often pays for something that has not been done.
I believe it is accepted that in the western industrialised countries one of the major barometers of success is the state and condition of the country's vehicle industry. That industry is accepted as a barometer of the well being and prosperity of a country. I believe the same test can be applied in Great Britain. The Government are telling us that in industry generally the recession has bottomed out; and the car industry, with its own work force, and that of the related feeder industries, is probably the biggest single employer, with more than I million people involved. It is a very big slice of the cake which represents our industrial and economic base.
The point I want to put to your Lordships—and it is one that frightens me more than any other—is that only a week ago we were notified that unemployment 1039 had increased yet again, by another 176,000. If these proposals are brought in now, we would see a substantial reduction in employment levels in the motor-car industry in this country, with all the social consequences that that would bring about. There is no question but that at present certain things are happening that are keeping unemployment out of the headlines, but I must say to your Lordships that it is going on and on. In my maiden speech I warned that people would not sit back indefinitely and accept that the only future for themselves and their children was a visit to the dole queue. The situation is building up like waters against a dam that is cracking. We have a Secretary of State responsible for employment who is not pushing his little finger into the dyke to stop the flow of water, but is running around putting plasters all over the cracks in the concrete before the dam bursts. I say to noble Lords and to Members in another place that if these proposals are brought forward in the near future, or the not too distant future, they will make a substantial contribution to an increase in the unemployment figures which I and many of my colleagues are certainly not prepared to accept.
I notice that the noble Lord, Lord Bethell, spoke about high wages and restrictive practices in trade unions as though they were still going on, and he referred to the law of Europe. I still stand for Great Britain, and if I am to be judged by any law, I want it to be British, not European, law. If the noble Lord is even hinting that the restrictive practices which were applied in the motor industry some 10 or 15 years ago are still in being, I can only say to the noble Lord that he has not examined the situation and that he does not know what he is talking about. In the emerging car factories of this country which have been modernised with substantial Government help the performance is starting to move and is very close to the best of their competitors. It is ill-advised to speak as though we are looking backwards a decade.
§ Lord Bethell
My Lords, I am grateful to the noble Lord for giving way. I want to check whether he is aware that the law of Europe, whether he likes it or not, is part of English law.
§ Lord Dean of Beswick
My Lords, it may be so in that respect, but I said I had a preference. What I am pointing out is this. Is it the wish of the noble Lord, Lord Bethell, that we should hand over our future. lock, stock and barrel, to Europe for it to determine all our future policies on everything? There was today a Question on Spain and Portugal coming into Europe and on whether or not we should support that. Bearing in mind the additional cost that it would inflict on us yet again, I should be totally opposed to that, too. I may possibly be the only speaker, apart from the main Opposition speaker, who will speak against this Motion, but I hope that if and when these proposals come forward, Members in another place and noble Lords will for a change, in European terms, think of Britain first and vote them down with an adamant "no".
§ 7.3 p.m.
§ Lord Rodney
My Lords, I also express my appreciation to the noble Lord, Lord Brimelow, for 1040 the expert way he chaired Sub- Committee B and for the very concise way he summed up the report.
My concern, initially, is that possibly a great number of your Lordships have not had the time, or dare I say the inclination, to delve into this report by Sub-Committee B. If that is so it is sad, because the report covers matters which concern nearly everyone in this country and not only those who are already directly connected with the motor industry. As we have heard. the committee received a large volume of evidence both written and verbal, from many different organisations all of which had vested interests in the outcome of the European Community's decision to grant a block exemption to the selective distribution agreements which operate between motor vehicle manufacturers and their dealers and which, in effect, are exclusive selling contracts.
There have been some arguments that with the reliability of the present-day motor-car and the long periods now prescribed between services these exclusive agreements are no longer necessary and, in fact, operate against the interests of the consumer. The manufacturers contend that in order to ensure efficient distribution of their products, and effective after-sales service, including the availability of spare parts, and to satisfy purchasers' claims during the warranty period, these exclusive agreements are absolutely necessary. I have to say that, on balance, having been in the motor-car industry myself, I must concur with that. However, in saying that, I do feel that, as many other noble Lords have said, we need considerable safeguards incorporated into these agreements.
It is also said that some of these accredited dealers give very poor service and that in some cases they are not very much better than the ordinary garage. But if the manufacturers' control over their dealers' servicing is reduced or eliminated surely this servicing will get even worse. If they are not able to insist on their dealers having factory-trained mechanics we shall have a very serious situation in regard to obtaining good servicing for our motor-cars. I am in no way seeking to make the point that servicing by accredited dealers is perfect; but, if any of your Lordships have seen the amount of literature and control that, for example, the Ford Motor Company puts out to their dealers, you will know that the company spends a considerable amount of time and effort in endeavouring to ensure good servicing, although it can perhaps be argued that it is still not as good as it should be.
My personal experience, therefore, is that these exclusive agreements between manufacturer and dealer are, on balance, of benefit to the motor vehicle industry as a whole and are also in the interests of the consumer. Happily, the European Commission is of the same opinion and is proposing to allow these selective distribution agreements within the terms of the block exemption, with certain safeguards.
It has been argued, however, and with some truth, that these agreements in certain aspects have been restrictive and against the interests of the consumer. The two main areas of complaint are in the maintenance of price differentials between one EC country and another and in the difficulties experienced by buyers wishing to purchase a vehicle in one country for import into another. On the first point the 1041 manufacturers argue that the price differentials are not of their making but are attributable to inflation, exchange rates, local taxes and governmental price controls.
Many of your Lordships may have received through the post this morning a brochure from the SMMT putting forward just these arguments. Certainly there is some truth in them, but it is noticeable that for some time prices in the United Kingdom have been higher than in most other European countries, although certainly in recent years these differentials have been diminishing somewhat. However, the differences are still there. In spite of what manufacturers say, our market is easier to manipulate than any other. We have right-hand drive cars, different from any other European country. Price levels are based very much on those of our largest indigenous manufacturer, the Ford Motor Company. Dealers have higher margins than in most other European countries.
The counter argument that is put forward is that whatever the recommended prices, competition is so keen in the United Kingdom that dealers give large discounts. One is tempted to ask: if it is possible to give such large discounts, why not reduce the prices in the first place? Another interesting point is that 40 per cent. of cars sold in this country are company cars, and it is the fleet owners for the most part who get these large discounts.
There is no doubt that in the past manufacturers have discouraged personal imports—that is to say, the purchase of a car in one country for importation into another. The other type of business of this sort is what is known as parallel imports, which is where an unauthorised dealer takes advantage of a price differential to import a number of cars for resale in his own home market. In my opinion that type of business can only undermine the whole position of accredited dealers who are committed to considerable capital outlays. These cowboy organisations with virtually no overheads are just looking for a quick profit and have no intention of looking after their customers' interests after the sale. I believe that the Commission should do everything that it can to safeguard the interests of the individual who wants to undertake a personal import and should do everything within its power to discourage parallel imports which will benefit only the quick-turn trader.
It is apparent that the introduction of the block exemption for these selective distribution agreements is essential if for no other reason than that the Commission cannot handle the volume of work involved in scrutinising each individual agreement—and all these are just hanging in limbo—but it is essential that sufficient safeguards are written into the regulations to protect the customers' interests without stifling the industry. The concern is that any such regulations cannot cater for all eventualities and must incorporate a number of discretionary powers which if they are to be effective must be exercised; and these in turn will involve the Commission in a considerable workload which may equally be beyond its present capacity to handle. Thus we may virtually be back to square one. This is clearly a problem for the Commission; but none the less discretionary powers which are not exercised may defeat the whole design to protect consumer interests.
§ 7.12 p.m.
§ Lord Kearton
My Lords, it was a privilege to sit on Sub-Committee B, under the chairmanship of the noble Lord, Lord Brimelow, to deal with the distribution, servicing and pricing of motor vehicles. In my view, Lord Brimelow got to the heart of the matter, and I warmly endorse the report, its summary and conclusions.
The sub-committee found that the selective distribution system had over a long period been of considerable benefit to the consumer. These benefits had outweighed the competitive disadvantages, but the situation has changed. There was evidence that in recent years the system had been used to price cars in the United Kingdom market well above the levels appertaining in other Common Market countries; and it appeared that manufacturers had taken active steps to protect those differentials.
It had been argued that high prices in the United Kingdom were necessary to ensure the survival of what was then British Leyland. There was undoubtedly benefit to British Leyland, but the chief beneficiaries were the importers, with adverse consequences to the balance of payments. Billions of pounds were lost across foreign exchanges. A representative of the Office of Fair Trading said in evidence (at page 210 of the report, answering question No. 628 put by the chairman) that if the motor industry in the United Kingdom still needed to be subsidised,then subsidising it by levying a tax on every consumer who buys a car—whether it is British-made or not—is about the least economic and most wasteful way of subsidising the UK industry that can be devised".The "tax" referred to is of course the importer's over-pricing and not a Government receipt. It is true that the discrepancy between United Kingdom and continental prices is now less than it was due to the falling value of the pound, but that situation could change, and the car buyer needs assurance that the situation of the early 1980s will not occur again.
The Commission's proposed regulation recognises that the exclusive motor vehicle distribution arrangements are not in line with the competition articles of the treaty establishing the Common Market. The block exemption rests on escape clauses in which the benefits of exemption are fairly shared between manufacturer and customer. The Commission in its various drafts starts from the position that the benefits of exclusive dealing are virtually self-evident. It does not attempt to argue a detailed case. But with the greatly increased reliability, the longer and longer service intervals for modern cars, the improved rust-proofing, and so much else, the arguments for exclusivity are, to my mind, a good deal less compelling than they were.
The modern car is a robust work-horse and not a delicate creation of fragility and uncertain temperament. Developments in the next few years should make a car more reliable still. I doubt whether there will be any case for an extension of the system beyond 1995—which is the Commission's present proposal—and even 1995, as has already been said, seems too far ahead.
The Commission attempts to be fair and just in its proposed regulation—fair and just to manufacturers, 1043 dealers and the final customer. In the evidence to the sub-committee the interests of manufacturers and dealers were vigorously expressed. They were presented to the sub-committee with eloquence and force and with a high degree of professionalism. The interests of the consumer were less tightly drawn together, but the evidence of the Consumers' Association cast doubt on many of the trade assertions. It highlighted the defects and temptations of a captive distribution system. The association has been constructive to a degree in helping the determined customer to escape the rigours of a tightly controlled United Kingdom market, and its activities stand out as a beacon of common sense and cool realism.
As has been said, a third draft of the proposed regulation has very recently come to hand. It is less precise than the second draft in some important particulars. The intentions of this third draft are, like those of the first two, excellent, but the trigger points for disapproving action by the Commission are made much less precise, and obstructive action against the interests of the consumer has to be deliberate, continuous and systematic to attract sanctions.
Nevertheless, in spite of all one's misgivings and natural scepticism, the Commission deserves praise for its attempts to remedy what has been a wrong adversely affecting the interests of the United Kingdom customer for the motor-car. The sub-committee's thorough ventilation of the working of the pricing system in recent years to the disadvantage of the British consumer is a healthy development. The system should be more open to scrutiny and checking than formerly. If it continues to be necessary to find ways to help the indigenous British car industry to be fully competitive in price as well as in looks, performance and reliability—areas where such strides have been made in recent years—the measures should be specific to the home manufacturer. That will take ingenuity; but such ingenuity would not be beyond the competence of our Common Market partners, and nor should it be beyond ours.
As everyone knows, the country has moved into a net deficit in its overall balance of payments. The deficit on the motor-car is well over £2 billion. The progressive re-establishment of a domestic car industry which is vigorous, dynamic and up to the best world standards—a domestic industry which takes a far bigger share of the home market and which achieves a good export performance—must be one of our highest national priorities.
But I repeat that we must find ways of doing this which do not in the interim make the United Kingdom market the golden apple for overseas manufacturers. I feel we must call for a specific national objective: the restoration of the British car industry to, at the very least, its size of 10 years ago. This is something where manufacturers, unions and government must work constructively and realistically together. I hope the Minister in replying to the debate will re-affirm the Government's determination to see a larger domestic car and vehicle industry.
§ 7.21 p.m.
Lord Bruce of Donington
My Lords, we on this side of the House would like to join in the tributes that have 1044 been paid to my noble friend Lord Brimelow for the very comprehensive way in which he introduced this very important report. For myself, I should like to pay tribute, as I am sure would many of your Lordships, to the committee itself and its members, who devoted such time and interest to, to use one of the words used by a noble Lord, "trying to reconcile the irre-concileables".
I have a slight interest to declare in the matter. I am a motor-car owner and have been for the last 45 years. I would not wish in any way to claim any particular credit or polish any particular halo but I am bound to tell your Lordships that during this period I have consistently owned and driven cars of entirely British manufacture. I do not claim any particular credit for that. I can quite understand and indeed would defend the right of any consumer—which, by the way, does not comprise the at least 17 million members of the population who are living on the breadline—to take advantage of the best competitive circumstances he can in the United Kingdom and, if he wishes, buy a Toyota, a Honda or a Datsun as distinct from an Austin Princess, a Rover or any one of the BL cars. I do not resent that in the slightest.
What does, however, stick in my craw a little is when a terrific hoo-ha is made about a very, very small proportion of the population who, although they have complete freedom in the United Kingdom to buy whichever car they like that is imported into the United Kingdom, wish to add to that competitive privilege the right to buy a British car in a foreign market and bring it back. This is undoubtedly their right. However I find it a little difficult to understand that a positive hoo-ha should be made about the fact that they find it difficult to do this.
It is true enough that we are consumers. A limited number of our population are consumers of motorcars and a very large proportion of the population own them, although quite a sizeable proportion do not. However we are not only car owners and/or drivers, we are British citizens with rather larger responsibilities towards our society as a whole. In our role as British citizens we not only have to consider our position as possible buyers of cars, we have to consider ourselves also as tax-paying members of society. The amount of tax that we pay depends upon the state of employment in the country and upon a whole series of factors, so we have to balance one position against the other. Therefore I am not greatly impressed by the fact that those who wish to contort themselves by going overseas to buy a British car that they could buy in this country—although they have rights to buy other cars at competitive prices—are made a matter of national interest. I do not intend to waste much time with it.
However, what I am concerned about is of course the establishment of competitive conditions within the United Kingdom itself. It occurs to me that there is a proper way of doing that. If, for example, within the United Kingdom it is considered that the Restrictive Trade Practices Act has been infringed, or the rules or laws governing fair trading are being infringed, then of course the remedies lie with the Restrictive Trade Practices Act and the Office of Fair Trading. The advantage of that, to which I shall return presently, is that it makes it possible that those who are accused of breaking competition rules, or of unfair trading, or of 1045 restrictive practices, are brought under British law with British rights of defence and with the objective use of British courts. This regulation will fortify the position of the European Commission in administering the law, which, as the noble Lord, Lord Bethell—who appears to be no longer with us—reminded us, was the law of the United Kingdom.
I want, if I may, to examine the principle that there should be a universal, competitive law promoting competition in the European Community as a whole within the provisions of Article 85(1), (2) and (3), etc., of the treaty at a time when there are widely divergent conditions within each of the countries concerned. Were the European Community subject to one universal law, were the conditions throughout Europe subject to what would then be overall state legislation, the question would be different. But the fact of the matter is that before any endeavour can be made really and justly to enforce Article 85(1) of the treaty, the Commission's task and that of the members of the Council of Ministers is surely first to establish that the conditions in each of the countries are such as to make fair competition a feasible possiblity.
We already know quite well that part of the divergence of price as between ourselves and the Continent has been due to fluctuations in the exchange rate. The noble Lord, Lord Mottistone, was kind enough to quote from The Times, so perhaps I can reinforce his quotation by one of my own which he did not see fit to quote. Said the same Times leader:Despite relatively low wages and improved efficiency, British costs are rarely competitive with those of continental plants let alone Japan. And whilst the relative strength of the pound against continental currencies may in part be blamed, this was a necessary consequence of Britain's North Sea oil finds".
In other words, part of the disparate exchange rate between ourselves and Europe relates to the fact that, so far as Europe is concerned, we are a petro-currency. There are other differences, too. There are differences that have been brought out in the report itself. There are conflicting taxation policies in all the states concerned. In some, there are even government price controls. The size of the domestic market has a profound effect upon unit costs bearing in mind the volumes that are involved. And, of course, there are varying model specifications. As the noble Lord, Lord Rodney, pointed out, there are dealers' discounting practices that vary from country to country.
Were it possible to stabilise those conditions, it might be feasible to impose a fair competition policy within the Community. But even if it was possible, we are engaged in the ordinary practical intercourse of commerce. We have to face harsh realities. Who is going to enforce? Who, indeed, is enforcing now? It is, of course, Directorate 4B of the Commission that is concerned with enforcement. It is a law unto itself. It can reach its own decisions. It conducts its own investigations in circumstances which make an examination of the European sub-committee's report on the Commission's powers of investigation and inspection and the way in which the Commission's representatives actually behave in this country (which has, I believe, been put down by the noble and learned Lord, Lord Scarman, for early discussion), a very important consideration.
In fact, the powers of the Commission under 1046 Regulation 17 and under the overall umbrella of Article 85 of the treaty are in my view exercised without due responsibility, capriciously, unfairly and oppressively. I do not feel it wise that your Lordships should give approval to any regulation under the administration of Directorate 4B until Directorate 4B has been considerably purged and improved and its whole activities subject to public scrutiny not only in Europe as a whole but more particularly in the United Kingdom. I say this with good reason.
Your Lordships will have observed in the Financial Times of 12th October an FT commercial law report on the case of Hasselblad GB and the Commission. I have taken the trouble of investigating the circumstances of that particular case which shows that the Directorate 4B investigators who came over here behaved partially, came without notice, sought out and obtained evidence that supported their case, virtually ignored evidence to the contrary and imposed a fine on a small British company greater than its entire capital resources—some £99,000 for alleged breach involving the sale of perhaps 30 or 40 Hasselblad cameras.
On the case going to the European Court, the court, which conducted its proceedings very shortly, reduced the fine to some £45,000. At the same time, the same Commission, for what was an almost identical breach, let off Fordwerke, a colossal multinational functioning in Europe, with an admonition on an undertaking not to repeat the offence. These are things to which we have to pay attention. The noble Lord, Lord Bethell, said that we were subject to European law. Let us examine this proposed regulation. Indeed, it has been touched upon before. The noble Lord, Lord Brimelow, was kind enough to report it. I take Article 10(1):The Commission may withdraw the benefit of the application of this Regulation.".This is the regulation which grants the derogation in respect to certain block agreements. Listen to this! I appeal to those of your Lordships who have even some rudimentary knowledge of the law: that includes a large number of your Lordships. Listen to this wording:where contract goods are sold at excessively high prices"—Mark that! Who is to determine excessively high prices? Can you imagine a phrase of that kind finding a place anywhere on the British statute book for interpretation by lawyers? This is loose thinking. It gives discretion to a Commission that has neither the intellectual quality nor the moral force to be capable of interpreting words of this kind save as a matter of caprice. It goes on.or, where over a considerable period"—Who is going to determine what is a considerable period? A British judge, or a member of the Commission, with a right of appeal only to the European Court. Such words as these, put into a document which, on the say-so of the noble Lord, Lord Bethell, has the force of law in this country, have no business to be agreed to by your Lordships' House, or indeed another place. The regulation continues:prices or conditions of supply for contract goods or for corresponding goods are applied which differ substantially"—who is to define "differ substantially"? Where do you find words like that in a legally binding statute or even 1047 at common law in the United Kingdom? It continues:as between Member States, and such high prices or substantial differences"—High prices and substantial differences! That is a flexibility of interpretation to be given to a body, the Commission, which is charged not only with the drafting of this but also with its interpretation and its enforcement. It is investigator, judge and jury combined. Are these powers that we ought to give to the Commission of the European Economic Communities?
I would submit that regulations of this kind serve no useful purpose. It is far better that this Government or any succeeding government completely wash their hands of it. A number of observations have been made this evening, and have been calculated to be made, against British Leyland, however veiled the illusions may have been. I have been a member of your Lordships' House for nigh on 10 years. One of the first documents I had the opportunity of reading was the Ryder Committee report on the state of British Leyland. In order to save it from complete collapse, it was taken over by the Government. I was appalled. And if any Members of your Lordships' House still wish to go on knocking British Leyland, I suggest that they refresh their minds and read the Ryder report again. It is one of the most damning pieces of evidence of managerial and proprietorial neglect of an industry, which everyone since has been trying to take out on its workforce.
My hope is that many of your Lordships who have not had the opportunity of reading this report will do so. I hope the Government have studied it. It contains a number of lessons for us. Certainly it means that we have to be forever vigilant to keep the right of competition within our country. It means also that although we should not indulge our motor industry, either manufacturing or distributing, we should not cosset it and we should not tolerate inefficiencies within it. There is one thing that most certainly we should not do. In our whole attitude and in our position taken up in the Council of Ministers we should not allow the European Commission, and particularly Directorate-General 4, any say in the future of the motor-car industry.
§ 7.41 p.m.
§ Lord Lucas of Chilworth
My Lords, the noble Lord, Lord Bruce of Donington, opened his remarks this evening by saying that he had a declaration to make. It might be fair if I took a leaf out of that notebook and said that perhaps I should remind your Lordships that for many years I was engaged in the motor industry. It is some years since I was practising in the industry but it is only fair to remind your Lordships of that fact.
I join with other noble Lords in thanking the noble Lord, Lord Brimelow, for bringing this report to the attention of your Lordships and for having chaired that very important committee dealing with an extraordinarily complex and difficult subject area. Not surprisingly, the debate has ranged very widely. It has ranged from the United Kingdom servicing of motor cars through used car purchasing and selling to new car buying and how it is looked after, and to its guarantees; 1048 agricultural machinery has also been mentioned. In the time that I have available I will do my very best to put to your Lordships the Government's views on these matters.
Every noble Lord who has spoken has accentuated the fact that the issue of car prices and the block exemption is not only complex and controversial but also has a very emotive content. In the years when I was in the industry it always surprised me that motor-cars can evoke such emotion not only in the breasts but also in the purses and the pockets of those who seek to own them. A car is a very important thing to own. But there it is; that is what it does. It is very valuable, therefore, to have such a thorough analysis of the Commission's proposals and of the many views that have been expressed and so adequately put together by your Lordships' committee.
Like the committee, the Government have been presented with a number of views. There has been an extraordinarily difficult task in trying to balance the various interests that are affected by the Commission's proposal to exempt the agreements between manufacturers and their franchise dealers. Naturally we are concerned about car prices. In the last five years or so, the prices of cars in the United Kingdom, if we ignore tax, have been higher than those in other member states.
There is argument about the cause of the price differences. I do not want to spend too much time on that because a number of noble Lords have advanced various reasons for it. However, I think I should say that the Government recognise that the selective distribution scheme is not the reason why price differentials have arisen in the first place. In a market which was completely free of restrictive agreements or Government controls, where perhaps market forces operated totally unhindered, one would not expect such differentials once they had arisen, to be able to persist. Their persistence in the case of motor cars is due in part to the operation of the selective distribution system. Nevertheless, that system brings benefit to consumers. My noble friend Lord Rodney acknowledged this in his speech, from his own personal experience.
I suggest to your Lordships that it is very important at this stage of the industry that there is close co-operation between a manufacturer and his dealers to enable an appropriate level of after-sales service to be available. That is all I would want to say about that relationship with regard to servicing. The noble Lord, Lord Young of Dartington, suggested that car servicing should be excluded from the block exemption. It would be fair if I explained that the exemption will not prevent independent garages from carrying out servicing—I think the noble Lord knows that—but it will certainly enable manufacturers to ensure that those garages which sell their motor cars, their products, are also equipped with spare parts, trained staff and suitable equipment to be able to carry out servicing and repair. If that is not happening now, the manufacturers need to pay proper regard to it. Perhaps some of the criticisms that have been made in that area, while not being misplaced, are just a little exaggerated.
Equally I do not think that we should exaggerate the problems of price differences. I noted very carefully 1049 how the noble Lord, Lord Rhodes, spoke on this matter. Since prices reached their peak some two or three years ago, they have approximately halved, partly due to exchange rates and partly from competition in the market place—both the European market place and our own domestic market. The pressure that has been brought about by parallel imports, which I confess the Government made easier when they negotiated a code of practice with the industry for the provision of type approval information, had some effect.
I think it was the noble Lord, Lord Kearton—if it was another noble Lord perhaps he will forgive me—who drew attention to the numbers of parallel imports that were part of the whole of the United Kingdom market. There were between 1.4 million and 1.7 million or 1.8 million new registrations in this current year, and parallel imports of some 30,000 to 50,000 cannot make too heavy a dent in either the manufacturers' or the dealers' network, although I accept that there is a marked effect in certain areas, particularly where the parallel imports are landed speculatively.
Competition in the domestic market is keen when one takes account of the special offers. Some noble Lords have called them discounts. I would suggest that perhaps that is a wrong description; I would call them special offers because there is nothing so stable as some of the offers that are currently about. Those offers include finance charges and special insurance arrangements. The value element of those two services has to be taken into account, at least when one is making a first purchase, even if it is not so important in a repeat purchase, One has to remember that the real price differences are very often a good deal less than the simple comparison of listed prices whether they appear in magazines, newspapers or in some of what one might call the official listings.
Furthermore, if one excludes the smaller countries, where prices are kept artificially low by government action, and Belgium, where there are price controls, the comparison is somewhat different. I wish to pause at this point because a number of noble Lords referred to a 30 per cent. differential at least between United Kingdom and Belgium prices. The real reason for that is that the Belgian Government exercise strict controls on prices, and prices are kept artificially low by those controls. So such a comparison is not reasonable or fair to make. One has to have a rather more balanced view of the situation. I should also mention that in Denmark there is a heavy tax at around 200 per cent. on motor-cars. If one takes that into account the comparison is somewhat different.
Effective prices—what I used to call the showroom asking price or the windscreen price—in the United Kingdom are by and large very much closer to those in Germany and Italy. There is little doubt that some of the credit for this must go to the United Kingdom manufacturers who have made considerable progress in reducing the costs of building cars. The information is available to your Lordships, and with the motor show opening in about a week or so there will be plenty of publicity.
§ Lord Lucas of Chilworth
My Lords, I understand that it will be open to the public on Saturday. There will be plenty of publicity about the number of cars per worker, productivity, and so on. Nevertheless, may I remind your Lordships that car production in the United Kingdom across all the United Kingdom manufacturers increased considerably by something approaching 18 per cent. last year and was at its highest level since 1977. Those motor-cars designed and built in this country and those designed elsewhere and built in this country have received a far wider and greater acceptance than for many years. Given this improving performance, it would be a very serious matter if the block exemption were to impose rigid price controls which created difficulties for British manufacturers.
I am most grateful to my noble friend Lord Mottistone for the very kind personal remarks that he made. But perhaps he will forgive me if I say that I thought that his remarks about the car industry generally were perhaps a little too sweeping. I felt that he was a little unkind. My noble friend and the noble Lord, Lord Dean of Beswick, had something of a short exchange with regard to wages and profitability. There are two matters that I should like to raise in that connection. I understand what the noble Lord, Lord Dean of Beswick, said. Of course the trade unions have learned a number of lessons as indeed have the employers, and all to the good—and thank goodness for that. However, it really is a sad reflection to find that companies such as Jaguar, which has been brought from almost the brink of disaster to huge success in a very few years, Vauxhall Motors, which has come back into profit in only four years, and British Leyland, which has come back into profit after only a year or two, should experience wage demands which vastly exceed, for example, inflation. There may be demands for a share of the profitability, and of course there should be a share, but it should be a reasonable share; the losses still have to be paid for. I am tempted to remind those who demand excessive wages, as they have been reminded many times previously, that excessive wages to one person are another man's job. One swallow does not make a summer. Profitability in British Leyland will be a very tenuous thing to hold on to over the next year or two in this fiercely competitive market.
The Government are very much aware of the fears expressed by manufacturers about the consequences of the block exemption. We have taken their representations quite seriously. But we have had to weigh them against the benefits the regulation offers for the consumer and the economy generally. It is not our aim to undermine the United Kingdom motor industry. The noble Lord, Lord Kearton, asked me if I could give an assurance of our intention. I willingly and confidently give him the assurance which he seeks, as I do to the noble Lord, Lord Dean of Beswick, who said that if we take on board this regulation, then goodbye to BL. No; it is the Government's aim to have an efficient home-based industry, which is competitive and one which can hold its own internationally. It has done so in the past and it will do so in the future. It is an extraordinarily resilient industry and I have very great faith in it. 1051 The manufacturers of motor vehicles are not the only part of the industry affected by this regulation. Their dealers too are parties to the selective distribution agreements and we need to consider their interests. They are also affected by price differences since at such times they stand to lose much business to parallel imports, to which I have briefly referred. I think that they would probably prefer there to be no price differentials. They might very well welcome exemption for their agreements under the competition rules. If they did so I do not think that they would want this to be on terms which put their special position as authorised dealers at risk, particularly whenever there were sudden changes in price differentials which were beyond their control. We can see no advantage—no advantage whatever—to the Commission in operating the regulation in such a way, since their purpose in putting it forward is to recognise the benefits of selective distribution, not to destroy the system.
The other important group which is affected by the proposed block exemption is the consumers. We have heard my noble friend Lord Mottistone speak for the Consumers' Association and we have also heard in particular from the noble Lord, Lord Young of Dartington, and the noble Lord, Lord Bethell, each supporting very much the claim of the consumer. In their evidence to your Lordships' Committee the Consumers' Association said that the Common Market exists for the benefit of consumers as well as manufacturers. The Government agree fundamentally with that view. We believe that it is fundamental to the treaty that consumers should be free to buy wherever in the Community they wish, just as manufacturers have the right to sell in the Community.
Finally, in enumerating the factors which the Government need to consider, there are the broader economic consequences. Time is against me, but I should like to remind your Lordships that the noble Lords, Lord Rhodes, Lord Harris of High Cross, Lord Kearton, and Lord Dean of Beswick, all spoke of these broader consequences: the effect on prices to the consumer, the benefits which would accrue if consumers were able to spend on other United Kingdom manufactured goods and services the money which they currently spend buying their cars, and the sheer fact that, as the Select Committee points out, high prices in the United Kingdom transfer very large amounts of profit to the foreign manufacturer who takes his profit away. That was really what the noble Lord, Lord Dean of Beswick, was saying when he said: "Think of Britain first". The noble Lord, Lord Bruce of Donington, underlined that point in his exciting and typically robust speech towards the end of our debate.
The Government have faced the same difficulty as your Lordships' committee in trying to draw a balance between the various interests to determine where the overall national interest lies. Therefore, noble Lords will not be surprised to hear that the Government have come to broadly the same conclusion as the committee. We support the principle of the regulation: that the selective distribution system should be exempted under the competition rules but only provide—and I underline this—that there are adequate safeguards to ensure that the Common Market is not partitioned and that consumers have the 1052 right to buy where they wish. The Government support a regulation broadly in the form now proposed. We believe that the time has come to redress the balance in favour of competition in particular.
The Government agree generally with the more detailed conclusions of your Lordships' committee; but perhaps I should say a few words about the safeguards which the committee considered and which have continued to generate such controversy: availability, the price clauses and the power to withdraw exemption.
First, I deal with the availability point. We have accepted the principle that consumers should be free to buy wherever they wish in the Common Market, but we need to recognise that there are special factors which make this difficult in the case of cars. One is the different national type approval requirements. Another factor is that we drive on the left—or perhaps we should say that they drive on the right. But because of these two particular differences the block exemption includes a requirement that a manufacturer must be willing to supply a dealer with a car to the specification of another member state. In this way the regulation makes a reality of the consumer's right to buy abroad. But it has been argued that this will mean that every dealer will have to stock every variation of every motor-car. Of course, patently that is impossible; it would run into hundreds. The manufacturer's obligation under the regulation is limited to supplying a car for which his dealer has a customer, and perhaps I should underline here that it must be a genuine customer and not a Green, Brown or Smith Esq., speculatively buying to satisfy a market.
§ Lord Lucas of Chilworth
My Lords, I am inclined to say in reply to my noble friend Lord Bethell: because there is honour among thieves. Why not? Seriously, it is because the obligation of a manufacturer to his dealer—and the Commission recognises the value of the dealer-manufacturer relationship—is to supply a motor-car to the order of a customer, and not some spurious, conjured-up customer who might become a customer. That is "why not?" in more serious terms. As I say, that is the manufacturer's obligation.
We have heard a lot about the 12 per cent. clause and about the regulation being a price control or price harmonisation measure. The noble Lord, Lord Brimelow, has related the history of this provision, and perhaps I should congratulate him on a very expert summary of that very long and complex report. The original version of the regulation had a clause which automatically affected an agreement's exemption whenever prices differed by more than 12 per cent. for a six-month period. The Government then had some doubts as to the workability of this. Since then the proposal has changed.
In the second version the 12 per cent. clause became a statement. The Government believed that this was an improvement and we thought it was probably quite a workable arrangement. Then of course we had a new development in a third version. The noble Lord, Lord Rhodes, said that he wanted to ask a number of pertinent questions and that he wanted some answers. 1053 One of his questions was: where do we now stand? The third version has been produced only in the past few days. We are still studying the full details and the full effects of it. But certainly one change is that the 12 per cent. clause has been deleted from the regulation. If this had the effect of preventing the Commission from investigating cases where they had grounds to suspect anti-competitive practices, the Government would be concerned. But the Commission will retain their general power to act when the circumstances warrant, and they propose to issue a statement when the regulation is published making clear that they will still regard 12 per cent. as a trigger point for carrying out an investigation. It seems therefore that this change will not result in any weakening of the safeguards.
The noble Lord, Lord Harris of High Cross, suggested that the third version watered down the safeguards. I think not. Rather, it will give the Commission the flexibility to act in cases where it is justified but not where price differences arise from some other cause, such as price controls in one member state. The noble Lord, Lord Brimelow, in speaking about this third version, asked about the position on spare parts. I am glad to be able to tell him—and indeed your Lordships—that the third draft makes it quite clear that the United Kingdom may continue with the stricter safeguards it has for independent suppliers of spare parts.
The Government are sensitive to the objections to bureaucratic Brussels price controls, but I cannot accept that the arrangements which I have just described amount to "price control from Brussels" or indeed "price harmonisation". These arrangements simply recognise that persistent large price differentials can be a sign that some anti-competitive practice may be interfering with the operation of the market, and that the circumstances ought to be investigated. The Commission will have the flexibility to make allowance for the effect of domestic government actions in other Community countries—for example, price controls, tax rates, and so on.
Nevertheless, the Commission's power to investigate and, if necessary, to withdraw the benefit of the block exemption from a particular agreement is necessary. We believe it to be so. However, I want to emphasise to your Lordships that it is not an arbitrary power; there can be no sudden loss of exemption overnight. Exemption can only be withdrawn after a proper investigation, and there are other safeguards there.
I have to turn quite briefly but no less importantly to the further safeguard in the regulation: those clauses relating to the contractual relationship between a dealer and his supplier. We agree with your Lordships' committee that it is necessary to ensure that a dealer feels secure under his contract if he is to take advantage of some of the freedoms that the regulation will allow him. Although this is intended as a safeguard for competition, it will also act as a safeguard for dealers. Thus, for the retail side of the industry the regulation will not only bring legal certainty to their dealership agreements, but it will give them new opportunities to compete and here they can of course compete on equal, even terms as the speculative parallel importer. The dealer can take on board that opportunity to compete with an added degree of security.
1054 I referred earlier to the third version of the regulation. The Government are studying this closely. The answer to my noble friend Lord Rochdale is that we are consulting quite fully with both manufacturers and dealers. A number of noble Lords have asked about the Commission having the staffing ability to deal with notified agreements and complaints. We probably share some part of the view expressed by the noble Lord, Lord Bruce of Donington. The Government have consistently urged the Commission to take effective action to speed up their procedures. The present position is not satisfactory, but I am not sure that the answer lies in more staff as present procedures for taking decisions are equally responsible for delays. We shall have to keep up the pressure for a solution to that problem because it certainly leads to extraordinary and damaging uncertainty.
I think that I have answered most of the questions that have arisen during the course of the debate. The noble Lord, Lord Bruce of Donington, drew attention to the necessity to get our differing financial and other policies onto a common plane before we started trying to get the price of motor-cars onto a more common plane. The convergence of member states' monetary and economic policies is an important objective of the treaty. We of course have to use our endeavours to ensure that that comes about in the fullness of time. But in the meantime the differences in these policies of member states still have some effect on all the intra-Community business.
The trade in other goods seems to run along more or less satisfactorily despite there being some imperfections. There is no intrinsic reason, in our view, why trade in cars should be different. Nevertheless, the Government will look at the block exemption regulation to ensure that it pays adequate regard to these different regimes or the existence of price controls.
Might I move quickly to another subject. It is an important subject. My noble friend Lord Mottistone asked me particularly about the agricultural machinery market. I cannot tell him very much about that. I would suggest that he addresses that question to my noble friend Lord Brabazon of Tara—and I am sure that my noble friend would like to join me in congratulating Lord Brabazon on coming on to our Front Bench. I think he could probably best deal with that in a Question in a week or two.
I thought that the noble Lord, Lord Bethell, spoke very unkindly of the weakness of the British motor industry. The noble Lord has completely ignored the greatly improved performance that has occurred in these last few years. There have been the spectacular rises to which we have referred. I do not think that what he said was totally fair. I am not going to be drawn, and I do not think he expects me to be drawn and follow him down the air route that he proposed. I know that that is dear to his heart, but I do not think I could follow him down there this evening. He spoke about the Government's subsidy to British Leyland. Neither the British Government nor the taxpayer has subsidised British Leyland for just over a year. They are on their own, and they knew it when they took their last tranche of money. They have made good, and I wish them great success. 1055 There are many rather smaller issues that have emerged. I think I have covered most of the major ones. If there are further issues on which I could be helpful in responding later, noble Lords may be assured that I shall do that. I should finally like to summarise the Government's view. In doing that I should like to refer to the statement in the Select Committee's report that the block exemption needs to strike,an even-handed balance between the interests of the manufacturers, the dealers, the factors and the consumers".We believe that the Commission have gone a long way towards achieving this, and that the regulation will result in a greater degree of competition in the European Community market for motor-cars. We believe that this will bring benefits to consumers and to the United Kingdom economy, and it should do so without undermining the manufacturing industry or the dealers, or indeed the relationship that they have one with another.
Lord Bruce of Donington
My Lords, before the noble Lord sits down, he will recall that during the course of the observations I ventured to deliver to your Lordships I made some serious allegations against the Commission. The noble Lord, possibly quite properly, did not find it convenient to pass any comment on it. I should like his assurance that the Government will pursue the allegations that I repeat of partiality by the Commission in the interpretation of the regulations. Will the noble Lord give a further assurance that before any assent is given to the regulation at least British lawyers will have the opportunity of studying it to see whether it can be enforced, anyway?
§ Lord Lucas of Chilworth
My Lords, I did not comment. I took note. Indeed, all noble Lords in the House tonight would have taken note of what the noble Lord, Lord Bruce of Donington, said. I did not feel that I could add anything to the Motion before us in commenting upon that. Since the noble Lord asks me specifically, I certainly give him an undertaking and an assurance with regard to the first part of his twofold question, that we shall take note of what he said and to see what should, or could, be done.
I do not give him the assurance with regard to his second question because he knows that the Commission can work quite independently. They have the authority from the Council. Therefore, it is not a question of delaying acquiescence, or perhaps I should say acceptance, of the regulation pending scrutiny by British lawyers. If I gave an assurance it would be an empty assurance because it could not be implemented; but I do so willingly on the first point.
§ Lord Brimelow
My Lords, it is my duty and my pleasure to thank all those who have taken part in this debate. I am particularly grateful to the noble Lord the Minister for the care and courtesy with which he has answered so many points. It would be quite wrong for me to deal with individual points which have been put forward by individual speakers, but I should like to say that this draft regulation in its third form is not a charter for the "cowboy" parallel importer. I hope that it will make possible personal imports by those people 1056 who wish to make them. The scale is not likely to be disruptive, and the committee's report emphasised the need to avoid disruptions.
I agree with the Minister that the role of the distributors and the role of the factors are important, and I think that it is intended to give them the guarantees of which they may stand in need once the regulation comes into force. It was my duty as chairman of the commission to represent the tone of its deliberations and on the whole the committee sided with the consumer.
But I agree with everything the Minister said about the improved performance of the British industry and the need to build on it and enhance its success in the market in the future. I agreed with his general emphasis. I thank him greatly, and I thank everybody else. The Motion before the House is simply that we take note of the report that we have been debating.
On Question, Motion agreed to.