EC rules set to aid spares

Components suppliers are to benefit from new European Commission proposals allowing them to sell spare parts directly to dealers, rather than through car makers.

European Union Commissioner Mario Monti this week unveiled proposals to change the car industry’s exemption from competition rules, allowing the manufacturers to select a closed network of dealers to sell their cars.

The proposals will grant car dealers much more freedom, including the ability to buy vehicles more cheaply in one country and then sell them on in another. This will make it more difficult for the manufacturers to charge large premiums. Dealers will also be able to sell more than one brand of car.

Despite fears of a threat to the automotive industry, the proposals should benefit suppliers by allowing dealers to buy their parts directly, rather than going through the car makers as at present, said Professor Garel Rhys, director of the Centre for Automotive Industries Research at Cardiff Business School.

‘The European Commission is going to be pretty draconian in trying to open up the market to direct sales from parts manufacturers,’ he said.

But while this could be good news for manufacturers its success will depend on the vigilance of EC officials in ensuring that car makers are not able to exert unfair pressure on their suppliers by threatening not to use their components in future models.

Rhys said, ‘The parts manufacturers might find that if they go down that route too far their business with the car maker will dry up. ‘That will not be too clever as far as competition rules go, but how can you prove it? It will be up to the EC to make sure it does not happen, and it will be easier said than done.’

Many component makers remain sceptical of the proposals. George Govan, chairman of Howle Holdings, said no matter what the EC does to open up the car industry, components firms will continue to be hit by downward pressure on prices from the car makers. ‘The biggest problem, particularly in Europe, is that we still have more car makers than we can afford, and the pressure on prices is simply a result of that,’ said Govan.

‘Every manufacturer worth its salt is knocking down costs on a regular basis. It has been like that for the past 20 years, and I don’t think it will ever change,’ he said.

The car industry’s exemption from competition rules is due to run out this autumn, and some believe it will lead to a huge drop in prices, particularly in the UK where cars still cost more than elsewhere in the EU.

But individual governments will each have to approve the proposals not to extend the exemption before they become law, and even then analysts believe the changes are unlikely to have an instant effect on car prices.

The proposals include no mechanism for governments and commercial organisations to bulk-buy cars from countries where prices are lower and sell them in more expensive regions, ensuring prices drop quickly.

While the main thrust of the proposals concerns the sale of cars, they are also likely to have wider consequences, such as affecting where car makers invest. Manufacturers may look to regions such as South America rather than the EU when they are building new plants in the future, said Macgowan.