New EU rules on car sales in effect

Much ado about nothing. That's one way of describing the changes to EU rules on car sales which come into force today.

Originally trumpeted as a consumer revolution bringing greater competition and lower prices, the results so far for Irish consumers seems to be entirely superficial and may soon become costly.

While industry spokesmen talk of customers experiencing an "improved retail environment", cynics suggest the end result may be limited to better quality showroom floor tiles than price savings.

Changes to the Block Exemption agreement are designed to make it easier for new and current dealers to open multi-franchise operations, along with removing the need to offer both sales and service. The EU dream was of large dealerships selling Porsches and Puntos and supermarkets selling Ferraris, while customers shop around from Tuam to Turin for a bargain car. However, claims that the changes will lead to cheaper cars seem at best optimistic.

As of today, dealers must meet, or be in the process of meeting, the quality criteria set out by manufacturers to retain their franchise. For Irish dealers this has meant an investment in many cases of between €1-2 million. The changes have also been seen as advantageous to distributors who can use the stringent EU rules to force previously recalcitrant dealers to invest.

Yet for new car buyers, the most significant changes will occur between now and the end of 2005. And not all will be for the good.

From then dealers will be allowed to open anywhere in the EU if they meet manufacturers' criteria. With pre-tax prices varying across the EU, manufacturers are likely to opt for a central pre-tax price for cars to prevent dealers simply opening in a low pre-tax area and exporting to their other dealerships in areas where pre-tax prices are higher.

The result for Irish consumers is going to mean higher prices, according to most industry analysts.

Irish pre-tax prices are lower than in many other EU States as car firms try to compensate for our higher tax rates. If pre-tax prices are harmonised in line with larger markets, then Irish motorists are set for a price rise in the coming 18 months.

Along with normal model change price increases of around 1.5 per cent, it's suggested that by the end of 2005, real prices here will have increased by a fifth.

The most noticeable change for consumers today may come in greater competition for servicing and repair.

According to competition lawyer Denise Casey of A&L Goodbody: "Over the lifetime of a car, the costs associated with spare parts and repair and maintenance services represent a large portion of the purchase price. The new rules will allow dealers to sub-contract these services so they can concentrate on sales."

However, dealers are unlikely to sub-contract what is for them a lucrative area of their business and point of contact with customers. And with such significant investment in new premises, dealers will undoubtedly be seeking to recoup this cost.

According to Casey: "In the end all we can hope is that increased competitive pressure may discourage dealers from passing on all the costs to consumers."

Car sales figures for last month are expected to be down 13 per cent on the same month last year, the fifth consecutive monthly decline. September often sees dealers concentrating on used car sales as thousands of ex-hire cars come on the market.