European Commission proposals to be published at the end of this month will warn that allowing supermarkets and internet dealers to sell cars would reduce consumer choice and, in the long term, increase prices.
Last week, Tesco - Britain's biggest supermarket group - and France's giant Carrefour store chain both said they would consider selling new cars if allowed by Brussels.
Albert Heijn, the biggest Dutch supermarket group (owned by Unilever) has revealed that supply agreements are already in place with several manufacturers.
David Evans, Retail Motor Industry Federation chief executive, urged caution. “We are looking in detail at the draft outlining the Commission's thoughts on the future regulation,” he said.
“First impressions look favourable for dealers particularly on the views held on supermarkets and web sales. However, it is extremely important to note that this is only a first draft for consultation and the overall picture could change dramatically over the coming months following responses from interested parties and reappraisal by the Commission.”
Christopher Macgowan, Society of Motor Manufacturers and Traders chief executive, said: 'We will make no comment until we have seen the complete document. Our position remains unchanged – manufacturers believe the franchised dealer system is the best way to sell new cars.'
Ian Lancaster, Virgin Cars chief executive, said: 'There is a lot of speculation at the moment. Virgin Cars has established its brand in 18 months and we are optimistic. “Virgin Cars does not sell over the internet, but from a call centre as some franchised dealers do. We are close to having our own dealership, too.'
The EC is likely to propose that manufacturers lose much of their control over motor retailing in changes to Block Exemption coming into force in October.
Dealers throughout Europe will probably gain far greater freedom to sell cars wherever they wish and will no longer be obliged to provide service facilities.
The new rules will probably remove the geographical restrictions on where franchised dealers are allowed to advertise and sell cars. At present, dealers face hostility from manufacturers if they promote their products outside their franchise area. This pressure will be outlawed by new rules which will operate until 2010.
Sources within the European Commission suggest this will give far greater freedom for dealers from lower priced markets such as Denmark, Finland and Greece to export to higher priced markets such as the UK.
This is expected to accelerate growth in the number of UK dealers buying new cars from counterparts in mainland Europe. Authoritative sources suggest that approximately 20% of UK dealers already get some of their stock in this way, but until now such supplies have been highly confidential.
The changes to existing Block Exemption laws will also cut the link between sales and service. Dealers will no longer be forced to offer service facilities. This will enable dealers to operate smaller retail outlets in prime high street locations without any need for adjoining workshops.
Many dealers in the UK are expected to change their operating structures, subcontracting service and repair activities to authorised garages. Such moves may be essential, because the best independent service centres could meet appropriate standards. Among the strongest competitors in this new sector is expected to be Ford's Kwik-Fit and the AA's Halfords.