Fleet News

Euro move set to drive values down

NEW block exemption rules for car distribution in the European Union could unsettle new car prices and drive down residual values, a leading expert has warned.

John Whiteman, project director of the International Car Distribution Programme, has cautioned fleets that the European Commission wants to see pre-tax car prices harmonise across the EU, a move that would undermine UK car prices as the highest in Europe.

And in a troubling game of falling dominoes, when new car prices tumble, the values of nearly new cars decline, with a consequent knock-on effect on used vehicle values. 'So residual values will probably decline again,' said Whiteman.

While car makers insist price differentials between EU countries are due mainly to local tax regimes, the EC has no power to insist that member states harmonise tax policies.

The Commission can, however, put pressure on manufacturers to align their pre-tax prices, and to police the EU-wide market to ensure there are no anti-competitive practices that block cross-border trade.

'The reasons for price differentials are not the EC's problem. The EC simply wants to create a genuine single market,' said Whiteman.

The new block exemption proposals include opening new channels for car sales and giving car dealers greater independence operationally and commercially from manufacturers.

The draft document also gives much greater discretion for the EC to intervene and write new rules if it does not achieve its aims.

'There will not be an overnight free-for-all in new car sales, but if pre-tax prices do not converge the situation could become chaotic - so prices will probably converge,' said Whiteman.

He added that the franchised dealer system can compete, buoyed by the investment made in showrooms and by buyer inertia in preferring to deal with established sales routes rather than via the internet.

The EC also aims to strengthen the hand of independent repairers to carry out service and maintenance work, and in a key plank of its new platform the EC proposes to end the automatic link between new car sales and servicing.

Consequently, manufacturers will not be able to oblige dealers to provide a service workshop, and dealers can instead subcontract service and maintenance work to independent networks, opening the way for fleets to have their vehicles serviced at multi-franchise sites.

Nor will manufacturers be able to control either the number or location of service workshops, although they will be able to impose quality standards.

The new rules will come into effect from October 1. National governments may oppose them - the German Chancellor Gerhard Schroeder has already voiced his opposition - but will not have powers to obstruct their implementation.

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