VERONA, Italy - It was supposed to be a straightforward exercise in market regulation. The European Union's changes to the so-called block exemption rules were going to boost competition in the auto retailing business and this would lead to lower prices for the consumer.
The reality, so far, is somewhat different, says a study conducted by the International Car Distribution Programme.
As a direct result of block exemption, big dealer groups are gaining ground at the expense of smaller outlets. In addition, carmaker-owned dealerships are on the rise in key markets such as Germany, Italy and France (see story below).
According to the ICDP report called Super Dealers? Top 50 strategies:
The study shows that, in the past seven years, the number of dealer franchises and the total number of auto sales outlets decreased in Europe' five largest markets.
Luca Montagner, ICDP researcher for Italy, said that greater dealer concentration and the growth of "mega dealers" had been expected. What is surprising is the decline in dealer outlets. Originally automakers had said that fewer franchises would not necessarily mean fewer dealers.
Location clause fears
The strongest concentration of dealerships took place in Germany, which had the most fragmented dealer body. Franchises declined 45 percent between 1998 and 2004. The number of outlets dropped 16 percent.
In France, the number of franchise contracts declined 12 percent in the same period, while the number of outlets dropped by 23 percent. This means that on average every time a franchise was lost, two dealer outlets folded.
The number of franchises dropped 18 percent in Italy and 17 percent in the UK. Sales outlets declined by 20 percent in Italy and 12 percent in the UK. By contrast, in Spain, Europe's fastest-growing market, dealer franchises dropped a mere 4 percent, while outlets declined 2 percent.
Paolo Cesarini, who is in charge of regulating competition in the auto industry at the EU Commission, said that "some degree of consolidation" could actually make dealers more powerful, which would boost competition. He also noted that the number of stand-alone repairers has increased 'significantly."
But the drop in dealer outlets is bad news for the consumer, who now has to travel farther to get to a dealer.
The decline also has triggered calls for a delay in the next change in block exemption rules - the abolition of the "location clause" - due October 1. From that date dealers will be able to open sales outlets anywhere they want in the EU. Major dealer groups are expected to take advantage of the change to expand beyond their national territories.
"We think the location clause will accelerate the process of dealer contract reduction," said Jürgen Creutzig, president of CECRA, the European association of dealers and repairers.
CECRA fears the number of dealer contracts will be halved by 2010, when the block exemption regime expires and Europe's auto market is opened up to free competition.
England-based ICDP runs the world's largest research program into all aspects of car distribution.
The project is run by industry experts and academics and is funded jointly by carmakers, dealers, suppliers, representative bodies and governments.