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Business

More Competition For The Auto Market

New regulations on car distribution in Europe have manufacturers up in arms and consumers clapping in delight.

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Will Germany's car industry fall apart from more competition?

The European Commission is presenting a draft regulation which will reshape the way cars are sold and repaired across the European Union. For a long time now, Competition Commissioner Mario Monti has criticized the business practices of European automobile manufacturers and now aims to change this.

According to Monti, producers have forced huge price differences between EU nations to their own benefit and hindered their dealers from competing against one another. The bill for this behavior gets stuck with Europe's consumers.

The new rules are intended to spur on competition between dealerships and repair shops beginning October 1st. The power of automobile manufacturers is to be cut. And the industry is horrified.

German opposition

Germany in particular is hard hit by Brussels' move. The country probably best-known worldwide for its high-quality cars is also among the most expensive for new automobiles. Until now, vehicles can only be sold via an exclusive dealership network tied to manufacturers.

The new regulations will allow car dealers to advertise all over the EU and also set up branch offices. It will most certainly intensify competition and help to lower car prices. It means, for example, that a Danish Volkswagen dealership can set up a subsidiary in Germany and sell cars at Danish levels, well below the prices demanded in Germany.

Chancellor Gerhard Schröder has sharply criticized the Commission plans. He said Berlin may resist the changes, which threatened Germany's already weak labor market. Schröder, who faces an election this year in which unemployment is a key issue, said the country could not afford to risk further troubles in the labor market as a result of the reforms.

Germany is home to Europe's largest auto market and biggest maker, Volkswagen.

Consumer backing

Monti's new rules are strongly backed by consumer groups, which have long complained about widely varying prices across the EU for the same model cars.

The German Retailers' Associaton HDE expects more competition to benefit consumers. "It will ensure that services improve and prices fall," said HDE's director Hubertus Pellengahr. "And if you're convinced of the quality of your products, there's no need to fear competition from other manufacturers."

Some of Monti's colleagues have objected to the new regulations. Yet there is no doubt that the Commission will approve the proposal late Tuesday. But it is expected to undergo further changes before taking effect in October, when the decade-old rules are set to expire.

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