1 CAR OWNERSHIP ACROSS THE EUROPEAN UNION

EXHIBIT 16.1 CAR OWNERSHIP ACROSS THE EUROPEAN UNION

TYPICAL

GDP

CARS PER

% OF .SENIOR

MANAGERS WITH REGISTRATIONS

ANNUAL CAR

PER HEAD

1,000 OF

COMPANY CARS (MILLION'S)

IN 1992 POPULATION" IN'

United Kingdom

Belgium/ Luxembourg

n.a.

Portugal

n.a.

Greece

n.a.

SOURCES: Panortniui of RU hidiistry (New York: World Bank, 1941/2), pp. 1.1­21; various OK01) Sfatistios, Paris; and Aldersgate Consultancy estimates.

Germany and Spain in the finished model. Other companies essentially produced one model in one location. For example, Germany's Volkswagen always produced its medium­sized Polo at Wolt'sburg, Germany. The care were

then shipped across the EU. The RU car market is not truly pan­European in the sense that any model can be readily sold in any other country. There are detailed car and legal regulations in each EU country ­ yellow headlights in France and car

emission standards in Germany, for instance ­ that effectively stopped this happening. However, it was for precisely this reason that the Single Market

Act 1986 was enacted: over time, it was envisaged that, apart from some obvious differences such as the British and Irish driving on the left, car

market standards would become the same. At this time, if not before, prices could also surely become the same across Europe.

Car Prices twross Europe As champions of the European car customer, the Bureau Europeenne des Unions des Consommateurs (BEUC) has been campaigning for many years

to bring down car prices in the expensive countries in Europe. BEUC is made up of the national consumer associations of most EU member coun­ tries. It produces surveys of car prices such as that shown in Exhibit 16.2. From that survey there would appear to be large differences between prices in different countries. BEUC reported that average new car prices varied by

70 per cent between the lowest and highest countries net of tax. The differ­ ence including taxes was as much as 128 per cent. Since EU rules lay down that the maximum difference should only be 18 per cent, some concern was expressed. It should be noted that the EU rules specifically exclude those countries with exceptionally high national taxes, such as Denmark and Greece. The price differences stimulated parallel imports, despite the process being complicated and risky. Two hundred thousand cars had been bought by UK residents between 1980 and 1985 from outside the United Kingdom, mainly from Belgium. The car manufacturers complained that this undermined their profitability.

712 • Chapter 16 Pricing Considerations mid Approaches

EXHIBIT 16.2 NEW CAR PRICES ACROSS EUROPE (ECU) CAR

FRANCE UNITED KINGDOM BMW 316i

DENMARK

GERMANY

11,071 13,218 Citroen CX 22TRS

12,361 14,282' Fiat Tipo 1400

9,143 Ford Orion 1400

"With catalytic converter. NOTE: All prices per model, per country, net of taxes at June 1989.

SOURCE: BEUC.

According to BEUC, the main reason for these price differences was that the manufacturers were taking advantage of a system of exclusive dealer­ ships in EU countries. These meant that manufacturers could stop shipping cars to any dealer who sold the cars to anyone resident in a country different from the dealer's own. The manufacturers argued a number of other essen­ tial reasons for the differences in price between EU countries: different tax systems, exchange rate variations, different car specifications, different dealer discounts. They said it was not a question of 'what the market would bear'.

In 1984 the European Commission agreed a Block Exemption Regulation to exempt the passenger car industry from the Treaty of Rome rules on competition. It allowed the motor trade to operate a system of exclusive distributor franchises so that the manufacturer controlled the market supply in an area. The reason the Commission gave for allowing the exemp­

tion was that motor vehicles are complex products and require a high level of after­sales service, which would be best served by allowing dealers to have exclusive rights in a geographical area.

With the exemption coming up for review in 1994 and the single European market becoming more established, the manufacturers had to decide whether to seek a continuation of this policy. They said they would like to keep the special arrangement and, to the chagrin of many consumer

movements, the European Commission agreed.

Reasons for Differing Car Prices Across Europe

The real question is whether the reasons for the differences across Europe were sufficient to justify the absence of a pan­European pricing policy. The evidence comes under four headings: customers, tax variations, dealer arrangements and other areas.

Customers As Exhibit 16.1 shows, car ownership across the EU follows wealth to a

limited extent. It is distorted by the availability of public service transport, the level of car sales taxes and the likelihood of obtaining a car as part of a

work pay and remuneration package. The provision of company cars has distorted car prices. Company fleet buyers purchase in large quantities, and they are therefore able to get price discounts not available to private buyers. To maintain their profits, car companies charge private buyers high prices.

Tax Variations

Exhibit 16.3 shows substantial variations across the EU in the tax on cars. When car manufacturers complained about price comparisons made by the consumer groups, their responses often concerned this area.

Case 16: Proton MPi • 713