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. . By McKinsey & Company There is a big debate currently raging in the automotive industry. Why? The inescapable expiry of the block exemption on motor vehicle distribution and servicing, of course! But many questions are yet to be resolved – should the block exemption be totally abolished to create free market conditions? Or should it be modified, or just renewed in its current format? What is the best way forward? This is how Mario Monti, EU Commissioner for Competition Policy, describes the current implementation of the block exemption: "The manufacturer is in the back seat of the car and gives instructions to his chauffeur, the dealer, on how to drive down the distribution highway to the consumer, who buys the car … but not always in the fastest, most economic way. All too often the manufacturer appears to instruct the dealer, who should really be the one responsible for driving the car, to do things which are outside the "highway code"." This EC block exemption code was originally introduced in 1985, and re-newed in 1995 after making some changes. The current exemption will expire at the end of September 2002. Even though not compulsory from a legal point of view, all vehicle manufacturers use it as a de facto binding agreement for their distribution system. The future of the block exemption code will be decided after the Commission has formally received the Report by the Directorate General for Competition, which is due to be published at the end of the year. The report will focus on the current regime for motor vehicle distribution and will not contain proposals for the future. When the regulation was introduced, it was based on three main assumptions. These are:
In the view of the Mario Monti, reflected in the interim results of the report which have recently been published, there is some doubt as to whether any of these assumptions still hold true. Similarly, he queries whether the four key objectives of the Regulation are being met in a meaningful way. In a recent conference the commissioner spent some time demonstrating how the objectives of strengthening dealer independence, giving better access for spare part producers to dealers, putting independent repairers in a better position to compete in the after-sales market and of materializing the internal market objective in favor of consumers were not successfully translated onto a practical level. The interim results of the report have also highlighted two other key areas. The regulation has not been applied properly by the car industry – apart from the well-known case against Volkswagen, there have been similar allegations against a number of other manufacturers. The other major point is the sudden and significant proliferation of new marketing and distribution methods, including the Internet. The Commission asks, can these be developed smoothly under existing regulations? To summarize the interim report: it questions the assumptions on which this "highway code" is based, regards the objectives as having been broadly not achieved and in particular, suggests that the main driver of the distribution process is still the manufacturer. It also finds that the code has not contributed to integrate the national markets and that many manufacturers have not properly implemented it. The question remains is the way ahead a foregone conclusion and is it the right way? To give you the opportunity to share your views and to hear what others think, McKinsey has teamed up with Vogel Auto Medien to set up an open discussion forum. Anyone can take part by simply logging onto http://autoforum.mckinsey.com The forum goes from October 12 until November 12, so make sure you are part of the action.
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