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Monday, 1 June 2015

Trip down memory lane: The Supply of New Cars Order 2000

The Supply of New Cars Order 2000 came up in conversation over lunch the other day. We lawyers know how to enjoy ourselves. It actually impinged on my consciousness as recently as April this year albeit in the form of a story which by then was rather old.

The Order, I remind you, was the legislative response to the Competition Commission's report on New Cars, which had found that prices to private consumers were some 10 per cent higher than they would be in a competitive market (a finding which the manufacturers, unsurprisingly, disputed) and came into effect on 1 September 2000: it remains in force today, as I noted in April.

Aimed at some of the abuses identified in the New Cars report, it sought to prevent unjustified discrimination by suppliers between dealers and fleet purchasers in the discounts offered for the outright purchase of cars. It also prohibited suppliers from discriminating against dealers because of their (the dealers') advertised resale prices, and from preferring dealers who did not supply new cars obtained from dealers elsewhere in the EU.

The block exemption got most of the blame for the problems identified by the Competition Commission, of course. Back then it was Regulation 1474/95, block exemption v2 (or perhaps v1.2 would be more accurate: it bore a strong resemblance to Regulation 123/85, and radical changes only appeared with Regulation 1400/2002). The Competition Commission took the view that virtually all the restrictive features of selective distribution systems (e.g. showroom brand exclusivity, standards of presentation, the requirement to provide servicing and repair facilities, and the prevention of sales to resellers) worked against the public interest. It was only in 2002 that the new block exemption introduced multifranchising and broke the sales-service tie that had underpinned the first two iterations of the regulation. The Competition Commission, reckoning that these practices were partly responsible for increased prices to consumers, recommended they be outlawed - though it couldn't actually do that itself, so it had to talk to the European Commission about that because the block exemption actually permitted them.

The Order was directed at the issues that the government was able to deal with, while vague threats were heard about removing the benefit of the block exemption in the UK under Article 8 of the regulation, something that the government hoped to persuade the European Commission to do: or, more controversially, for the UK government itself to seek unilaterally to disapply the block exemption. Neither of these ideas ever bore fruit, although the 2002 changes to the regulation had a very similar effect.

The Competition Commission had found that there was a substantial discrepancy in the way the fleet market and the dealer market operated, with fleet buyers able to negotiate competitive discounts for bulk purchasers and dealers only being able to get supplies at a single basic prices regardless of volume, but on sale or return terms. Hence the remedy in the order of allowing dealers to buy supplies outright on terms similar to those offered for comparable volumes to fleet buyers. It used the power of the competitive fleet market to drive down prices in the uncompetitive dealer market - or so the government hoped.

It would not, of course, be as simple as it looked. Nothing in the car market ever is. Dealers are intermediaries and fleet customers end-users, though they also had an important role (especially the daily hire companies) as manufacturers of 6-month old used cars, the supply of which was a huge distorting factor with a major impact on the new car market. Dealers had other benefits from their relationship with the manufacturer, too, and the Order allowed the value of benefits offered to dealers but not to fleet customers to be taken into account when comparing prices.

Manufacturers would also have been aware that when they negotiated in future with fleet purchasers, any discounts they gave them would have an effect on the discounts they would have to offer to dealers. The more competitive fleet market might have become less competitive as a result of the Competition Commission's activities, which would be ironic to say the least.

The Order also contained an information remedy, without which it is hard to see how it might ever have worked. Suppliers had to notify dealers, at regular intervals, of the discount terms on which they were prepared to supply various volumes of cars: and those terms had to reflect those offered to fleets in line with the non-discrimination remedy. The Competition Commission had rejected the idea of recommending that wholesale prices be published because that might well have restricted competition in the fleet sector.

Suppliers also had to publish information about the number of pre-registered cars supplied, and the gross income received by the supplier from those sales. Pre-registrations were seen as another major distorting factor, and of course were never very popular with dealers. As recently as 2012, KPMG were reporting that car sales seemed to be holding up very well and attributing this to pre-registrations, which it suggested were not being reported as candidly as the legislation required. (Perhaps the manufacturers had forgotten the Order existed?) In 2011, AM reported an employment tribunal case in which allegations about unlawful pre-registrations played a part. And only last autumn, Fleet News revealed that leasing companies were being offered different terms according to whether the car would go to an individual or business customer. So we forget this obscure little piece of legislation at our peril!

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