New sales and service rules trouble many auto dealers

Munich. European dealers are increasingly critical of the contracts they signed with automakers prior to the Oct. 1 change in block exemption rules.

While the EU commission deals with complaints about the contracts drawn up by BMW, Citroen, Peugeot, Opel, VW and Audi, many dealers battle daily difficulties caused by the new regulations.

The mood within the Opel network is particularly bad.

One problem is that the automaker's new system for supplying components hasn't worked properly since it replaced the old system Oct. 1.

"We have to order everything by fax, like we used to do it in the old days. Our customers now have to cope with longer waiting times," says an Opel dealer in northern Germany.

Opel sales director Uhland Burkart confirms the "start-up problems," but he says the issues would be taken care of by the middle of November.

Another issue involves demonstration cars. Opel requires each dealer to have one Frontera model, which is being phased out, in every showroom. Burkhart says the requirement is "common within the industry and absolutely necessary." The dealers disagree: "If I had eight branches, I would have to show eight Fronteras," says one dealer. "I don't even sell that many in a year."

Opel's new corporate identity rules is also being questioned. Opel dealers face 5,000 euros in additional costs to meet the new requirements. Dealers who ignore the rules get a reduced margin.

Maik Dincher, an Opel dealer from southwestern Germany, is glad that the new block exemption rules let him have additional brands (he now provides service for Volkswagen) because he has suffered a 60 percent loss in Opel sales during the past few months.

"If 70 percent of our customers were not already Opel drivers," Dincher says, "we probaly would have called it quits by now."

Dincher, who has sold Opels for 35 years, relies on re-imports. He gets a 26 percent discount from a middleman who provides him with Opel Merivas from France or Spain. The basic margin in Germany for the Meriva is 9.5 percent.

Price stabilization within European Union countries was supposed to be a benefit of the new block exemption rules, but a German VW dealer based near Luxembourg says re-imports continue to be much cheaper. "VW sales boss (Detlef) Wittig promised that the price difference for the new Golf within the EU would be a maximum of 5 percent. When I cross the border to Luxemburg, I can get the Golf 12 percent cheaper than here."

The dealer also is upset about his new contract with VW. "The standards are far too high. If the EU commission doesn't act fast, many of my colleagues will go bankrupt."

VW subsidiary Audi also faces resistance from its dealers. Audi approached 700 of its dealers and so far 90 percent have signed their new contracts. But if the others don't sign, Audi will have to find 70 to 80 new partners very quickly.

Many dealers currently face a problem: they have to invest in new standards, which may not conform to block exemption rules and therefore could be ruled ineffective.

Peter Enders, spokesman for the BMW dealers, says that one OEM requirement that makes sense is that repair shops have a separate area where they can lift vehicles so they can provide more complete work estimates before starting. The problem is that meeting the standard is expensive.

He says the separate lift area isn't critical to maintain the showroom business, but it is needed to comply with the new standards. "It is generally difficult to make investments when you receive a reduced margin," Enders says. "We can't make a living with the new price system that takes effect Jan. 1." Bonuses and special payments don't change that, he adds.

Juergen Ensthaler, an antitrust law professor at the University of Kaiserslautern, recently said that the manufacturers' draft contracts are dealer hostile and asked the commission to not go through with the block exemption. He accuses manufacturers of trying to destroy the liberalization effect through over-regulation.

Ensthaler, who discussed some of the disputed passages in the new contracts with representatives of the EU competition commission on Sept. 9, believes that the committee led by commissioner Mario Monti will decide that some of the passages are ineffective. A workshop's obligation to supply service vehicles is one example, he says.

He also says he believes Monti will not allow any exaggerated corporate identity demands. "There won't be any 9-meter-long yellow Opel banners at any multi-brand repair shop."

He also believes that the commission will not allow the manufacturers to force their repair shops to obtain certain expensive tools. "Groups of service suppliers should be allowed to form tool-pools."

Opel continues to battle with its service partners because the repairers want Opel to allow access to information that they say they need to fix vehicles. Opel has refused to turn over this information; the German Federal Cartel Office has been asked to look into the dispute.

The status of the middleman is another controversial subject. Prior to Oct. 1, the middleman acted in the interest of the end user and didn't have to meet any of the manufacturer's demands. The one restriction a middleman faced was that he could buy no more than 10 percent of his cars from a dealer. The new rules wiped out this restriction. A middleman can now buy all his cars from the same dealer.

Carmakers have responded by introducing a new kind of middleman, the so-called permanent middleman. VW, for example, wants this middleman to comply with standards that are similar to those required of dealers. Ensthaler criticized this plan, saying that such middlemen have "costs similar to those of an authorized dealer, but only get half the profit."

In addition, only permanent middlemen will have access to a manufacturer's websites. Ensthaler says that is a clear act of discrimination.