(Adds consumer comment, background)
By David Lawsky
BRUSSELS, June 21 (Reuters) - Bowing to pressure from Germany and France, European Competition Commissioner Mario Monti will delay to 2004 a controversial proposal to allow car dealers to compete across Europe, an EU source said on Friday.
The decision is a nod by Monti to the big countries and to the European Parliament, which last month recommended a delay until 2005 in ending the so-called "location clause", which restricts sales franchises to one geographic area.
Monti's plan is to abolish the current exemption from the principle of EU free trade which allows the car industry to impose the restriction on dealers.
Monti entirely rejected another suggestion by Parliament. The legislature had demanded that the Commission review the location clause yet one more time before it was abolished, to make certain its abolition was really necessary.
But with differences in car prices of up to 40 percent between countries, Monti has drafted rules aimed at opening the market to more competition. He has said abolishing the location clause is at the heart of his proposal.
"The abolition of the location clause has to take place," Monti told a Parliament committee last month.
Without the current restrictions by automobile manufacturers, an auto dealer in Athens could open branches from London to Berlin.
But in Germany and France national governments listened closely to their car makers, who do not like the changes.
SCHROEDER SAYS NO
Early this year, German Chancellor Gerhard Schroeder told workers in a speech at a General Motors works making Opels that the new rules "would bring huge competitive disadvantages to the German car industry".
Schroeder, who faces a tough re-election campaign, needs the votes of workers at GM, Volkswagen and other major suppliers. In France, Renault and Peugeot Citroen have opposed the rules.
Current rules on auto sales expire in September after 10 years, making it necessary to write new ones. The new rules are to take effect on October 1 and last until May, 2010.
Most of the new rules will be phased in over a one-year transition period.
But Monti's decision means the disputed location clause will not be abolished until 2004, the EU source told Reuters.
"It's not unexpected," said Phil Evans, principal policy adviser at the Consumers Association in London. "They've received a phenomenal amount of ludicrous pressure from the industry and a couple of their captive politicians."
The rules also liberalise car repairs, with the aim of increasing competition in that area, and are supposed to encourage supermarket and Internet sales.
The rules are to be voted on by the European Commission on July 17, where Monti faces resistance to some of his ideas.
Monti acknowledged during an appearance last month before a Parliament committee that there had been heavy lobbying by the auto industry and he knew that was affecting parliament members' votes.
Monti appeared in Parliament on the day of the advisory vote and spoke on the floor to make his case. But that was not enough to dissuade Parliament from voting against his wishes.
Monti's backers in Parliament blamed "a powerful German car industry" for pushing through the advisory vote on delay.