Auto Makers, Dealers at Odds Over European Block Exemption

MADRID – “We need Cerberus (Capital Management LP) to make a (quick) decision about the future of current European Chrysler dealers,” says Juergen Creutzig, president of the European Council for Motor Trades and Repairs (CECRA).

Creutzig thinks Cerberus is managing the future of European Chrysler dealers too slowly. He says the only thing that has been made clear is imported Chrysler vehicles in Europe are going to continue for three more years.

“But nobody knows what is going to happen after that date,” he says. “Dealers need to continuously invest big quantities of money in (their) business and can’t stay in uncertainty for a long time. “

If Cerberus cancels the contracts of its European importers, they in turn will be forced to end the contracts they have with their dealers and repair shops. And this could happen as soon as 2010, the same time frame in which the European Commission will establish a new legal framework for the motor vehicles trade.

CECRA has nearly 320,000 members from 22 European countries. Of those, 108,000 are authorized dealers and repairers that have a contractual relationship with an auto maker/importer, while 212,000 are independent.

CECRA is asking the EC to maintain the present Block Exemption Regulation (BER) on car distribution.

BER initially was intended to offer reduced new-car prices and vehicle repairs to consumers.

Although it is a strong tool to assure the best deals for consumers, the real benefits of BER are questionable, CECRA says.

Under BER, consumers can buy their preferred vehicle and have it repaired anywhere within the European Union, and brand dealers’ repair shops handle vehicle warranties.

But, despite CECRA’s proclamation that dealers and repairers can increase their independence from auto makers, in actuality, dealers – and repairers, in turn – still are controlled by the OEMs.

For example, Nissan Motor Co. Ltd. recently announced the cancellation of contracts with its European dealers, citing the excuse of restructuring its sales network.

But Faconauto, the Spanish Federation of Auto Dealers Assns., interprets this move as the Japanese auto maker trying to position itself in regards to the future motor trade regulation in 2010.

In a lawsuit between Volkswagen/Audi AG and one of their Danish dealers, the European Court of Justice decided in September 2006 an auto maker’s reorganization of its distribution network does not necessarily mean there is the need for such reorganization.

This is one of the arguments made by Spanish Nissan dealers to oppose the recent cancellation of their distribution contracts. Negotiations with the Spanish subsidiary are ongoing.

As 2010 approaches, other European car brands also are signaling to dealers their intention to cancel existing contracts, in order to meet the legal rule of warning dealers two years in advance.

So why is CECRA extolling a regulation that auto makers historically have been using to increase pressure on their dealers?

Part of the explanation can be found in a recently published survey of IBM Global Business Services and Roland Berger entitled “Automotive Sales Champions.”

The survey says auto makers that restructure their distribution networks can achieve sales growth of as much as 11% and cost reductions of about 12%.

Based on interviews with auto makers and dealers representing more than 80% of the automotive market in Western Europe, the survey concludes the only remaining area of profitability for the industry is in its car sales and distribution network.

Therefore, CECRA’s members, which have benefited from previous stages of deregulation, prefer to stay in the present BER stage and transition to total deregulation.