Motor Industry (Hansard, 10 April 2000)

§ Mr. Byers

I have published the report and my response today. I have announced new proposals to bring more competition to the supply of new cars and so help reduce prices.

The Competition Commission found that prices in the UK have been between 10-12 per cent. higher than in similar countries in Europe. This is despite the fact that two-thirds of the cars sold in the UK are imported. They conclude that private car buyers are paying about 10 per cent. too much—or £1,100— for the average car, after taking account of discounts, trade-ins and finance deals.

The Director General of Fair Trading estimates that the annual cost to private car purchasers could be around £1 billion a year as a result of the present system.

In my view the findings of the Competition Commission report cannot be ignored. They represent a clear and unambiguous call for change which requires a positive response.

For many private buyers, a car is the second most expensive purchase of their lives. This report confirms what many people have thought was the case—that in Britain we are paying over the odds for new cars. The reason for this is that the market is not operating as competitively as it should.

I will be introducing measures to bring about greater competition in the supply and selling of new cars which should mean lower prices and increased sales. These measures should restore consumer confidence and bring certainty to the car market.

The Competition Commission has identified a number of ways in which this market fails to function properly. It recommends substantial changes to the distribution of new cars—particularly in the relationship between manufacturers and dealers.

To make the market more competitive, I am taking the immediate steps recommended by the Competition Commission and the Director General of Fair Trading. As the Consumers' Association said in its evidence to the Competition Commission, steps such as insisting dealers are offered the same bulk discounts as fleet customers should make this market function more fairly and put downward pressure on prices.

These immediate remedies will be imposed by Order under the Fair Trading Act 1973. I have published a notice of this order today. By law interested parties must have 40W an opportunity to comment on these proposals. Representations are invited by 19 May 2000, and I intend to make the Order within two months of today.

Among the measures are:

Requiring suppliers to offer dealers who buy cars outright equivalent terms, including volume discounts, to those offered to fleet buyers.
Requiring suppliers to provide their dealers with regular statements of terms they are prepared to offer which reflect the terms given to fleet customers.
Dealers who buy a large quantity of new cars outright will therefore be able to benefit from the sort of volume discounts currently enjoyed by fleet customers and pass on the benefits to customers.
Prohibiting suppliers from discriminating in their dealings with contract hire companies by giving less attractive discounts if the end-user is not a fleet customer.

This will allow contract hire companies to offer a better deal to their private customers and encourage more competitive pricing to private customers generally.

Prohibiting suppliers from imposing contract terms on dealers that prevent or inhibit dealers from advertising prices at which they are willing to sell.
Prohibiting suppliers from refusing to supply on the grounds of the price at which a dealer advertises it is willing to sell.

The current practices can mislead consumers about prices. These measures will ensure that dealers are free to advertise the price at which they are prepared to sell, without fear of penalty from suppliers. The Secretary of State has also not ruled out a ban on recommended retail prices if these two specific remedies need to be reinforced. Suppliers will be prohibited from imposing conditions or targets on dealers in respect of the number of cars a dealer registers during a certain period, or giving a dealer an advantage which is dependent on the number of cars the dealer registers during a certain period. Requiring suppliers to publish information on a regular basis concerning the number of cars they have pre-registered.

These should increase transparency and price competition by encouraging suppliers and dealers to set a market clearing price for new cars.

The Competition Commission also makes a number of recommendations for more fundamental change which relate to practices permitted by the European Union's Car Block Exemption rules. I believe these are important changes for the longer term in altering the structure of the market. We are discussing these issues with the European Commission now that the report is published.

Although the Block Exemption formally runs until September 2002, our discussions with the European Commission could bring about changes in the UK before then.

However, owing to the complicated legal and other factors that surround this issue, a point recognised by the Competition Commission, I expect it to take at least a year to resolve.

I will also be pressing the European Commission to enforce the existing Block Exemption rules vigorously to ensure that dealers are free to import new cars from dealers in the manufacturer's franchised network in other EC member states, and that they will not be disadvantaged if they do so and that private buyers are not obstructed if they wish to buy abroad for import into the UK.