Fleet News

Block exemption changes fail to make fleet savings

BLOCK exemption was supposed to bring a free market of servicing and repair that would result in lower costs for fleets. This would be achieved by using independent – but authorised – centres with cheaper labour and parts rates than main dealers, yet with equal skills.

Since the changes to block exemption came into force last October, it has been possible for a dealer to choose whether to carry out repairs and servicing itself, or sub-contract them to an authorised third party.

There is also the option for a repair shop that meets the quality standards set down by the manufacturer to become an authorised repairer and quote for fleet repair work.

The car manufacturer cannot limit the number of repairers in any one area and the repairer can work with any number of carmakers. However, there has so far not been a rush of independent repairers clamouring to become authorised.

Part of the problem is that they would have to gamble on spending something in the region of £30,000 on upgrades to premises, equipment and training.

According to the Authorised Independent Repairers Organisation (AIRO), only 3% of garages had applied for approved repair status a month after new block exemption rules were introduced.

Spokesman Mark Taylor-Jones said: 'Many manufacturers are appointing ex-dealers who have lost sales contracts to become approved repairers. That means new players are not finding their way into the market, which is not in keeping with the spirit of the directive.

'Many of the standards are too high, with manufacturers concentrating on corporate image and identity rather than getting the right equipment. Independents want to remain independent and service multiple brands, rather than looking like a franchised garage.'

And most of the car manufacturers have not been actively looking for independents to supplement the dealer network, although Citroen, Ford and Vauxhall are starting to appoint some independents and Mazda has stated that it wants a network of 50 authorised repairers.

Toyota GB has also appointed a network of 17 Official Toyota Service Outlets, exploiting the authorised repairer provisions of block exemption.

But this is the proverbial tip of the iceberg and Alan Pulham, director of the RMI's franchised dealer division, believes that the status quo is likely to continue for some time with main servicing work under warranty carried out at franchised dealerships.

He said: 'They have the right technology and the right technological information to service new cars. In theory, approved and non-approved garages should be able to access this information as well – but no-one has explained how this might work.'

According to a report by the Office of Fair Trading (OFT), the disparity between warranty repair work carried out by franchised dealers and independents needs to be addressed and there will be significant savings for fleets if this imbalance is rectified.

In its New Car Warranties report, published last December, the OFT said: 'We estimate that franchised dealers currently undertake 90% of servicing of cars up to three years old. The available evidence also indicates that franchised dealers are significantly more expensive than independent garages, and that overall there is no clear difference in quality between the services offered by each.

'If the prices that franchised dealers charge for servicing were to approach the level of the independent garages, then savings could be up to £500 million.'

As a result, the OFT has called on the trade to drop conditions attached to warranties that require a car to be serviced at a garage in its manufacturer's network.

In May 2004, the OFT will take a decision on whether to launch a formal investigation under EC competition law, with a view to possible enforcement action against manufacturers still imposing these conditions.

There is also scope for massive savings in accident repair. According to market analyst MFBI, fleet accident repair bills are rising at almost twice the rate of inflation. MFBI found the average cost of repairing an accident- damaged car in 2003 was £1,420, indicating an increase of 56% over the last 10 years, while the retail price index has risen by 29%.

The largest proportion of repair costs, according to the Car Body Repair Market in the UK report, are replacement parts, which amount to 49%, with labour making up about 39%. Concerns fleets may have about taking a hammering on residual values by not using main dealers for servicing are unfounded once the calculation between possible cost savings at independents and disposal rates is done, CAP reckons.

Black Book senior editor Tony Styles said: 'Research confirms that there is indeed a difference in the used value of a car that has been serviced in the independent sector compared with one maintained by the original franchise dealer. On a typical three-year-old 'bread and butter' family car, the presence of an independent service specialist history can reduce its value by up to £300.

'But with labour rates often less than half those in the franchise sector, and parts prices significantly lower, it is possible to enjoy substantially reduced costs up-front that outweigh the reduction in used value on disposal.

'One example we have investigated is a major service cost of £90 per unit, compared with £270 from the main agent. This reduces the operating expenditure for a fleet of 5,000 cars by nearly seven figures annually.'

'Detractors argue that such savings do not pan out long term because of the used market's unquestioned desire for main agent paperwork. However, this entirely depends on how favourable the servicing costs are to the fleet customer. In the example cited, the cars would have to suffer a residual value penalty of more than £500 on disposal for the service savings to be wiped out, and research indicates that the true hit is significantly less.

'Under revised block exemption, manufacturers have a duty to supply the equipment and information necessary for the independent service sector to do the job. Clearly, it is possible – though not guaranteed – to buy quality service packages which do the job of properly maintaining cars with savings that carry all the way through their operating cycle.'

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