The European auto industry – long the continent’s odd man out in terms of competition law – may have to face a new laissez-faire legal regime that would ban formal links between manufacturers, dealers and repairers.

This warning is clear in a European Commission report released this week detailing the impact of the European Union’s “block exemption” system that protects the auto industry from the full force of European competition law.

For auto industry managers preferring cozy relationships with dedicated sales and aftersales networks, the document does not make for comfortable reading, as the Commission notes reforms to partly liberalize the block exemption in 2002 have failed to lower prices and widen consumer choice.

That doesn’t mean sales and service competition hasn’t intensified. It has, the Commission says, but that has had little to do with the 2002 block-exemption changes.

“This evolution seems…to be mainly due to external factors,” the report concludes. “In particular, vigorous and increasing inter-brand competition has translated into falling real prices against a background of increased market integration at (the) EU level.”

But the Commission thinks consumers could benefit from still more competition, and it is prepared to legislate to achieve it, possibly using its power to make changes without formal approval from the European Parliament and the EU Council of Ministers.

The head of the Commission’s competition directorate general, Commissioner Neelie Kroes, wants responses to the report to be submitted by July 31.

“Buying and running a car are big expenses for consumers, so we need to make sure that the right rules are in place to help competition to work properly,” she says. “That’s why I am eager to receive comments on this report that will help us understand how best to design the competition rules for the sector in the future.”

Auto makers counting on Kroes to shy away from removing special rights that allow links with retailers and repairers had better read the report’s conclusion.

It indicates Brussels already is thinking about complete liberalization of the auto sales and service sector and promises only to grant the industry the right to complain should the Commission follow that path.