Are UK consumers still paying too much for new cars?

UK car market - still 'rip off Britain'

In the last three to four years it is estimated that most new car prices have fallen by up to 10%. This price drop has resulted from a combination of a number of factors, including high-profile press comparisons of UK prices versus prices in other European countries resulting in public pressure, the growing market in importing cars from abroad and the introduction of new legislation. So if we're all paying less for our cars why has the office of fair trading (OFT) been recommended to look at the car market once again?

The Trade and Industry Committee's report on the state of the UK automotive industry in 2004 was published on 9 September. The committee took evidence from a number of different parties involved in the automotive industry and has made recommendations as a result of hearing that evidence. Evidence on new car pricing in the UK was heard from representatives of the Retail Motor Industry Federation.

The committee heard that, despite the introduction of the Supply of New Cars Order 2000 four years ago, some car manufacturers still offer better deals on new cars direct to fleet operators than to dealers and private buyers. The committee's view was that if fleet buyers were obtaining substantial discounts from manufacturers, then those discounts would be paid for by increased car prices to dealers and consumers. The Association of Car Fleet Operators disagrees with the committee's findings. It cited, amongst other things, the operation of the Supply of New Cars Order 2000 as an effective tool for maintaining equivalent discounts from manufacturers to all car buyers.

The Order makes it unlawful for suppliers of new cars to discriminate unjustifiably between fleet customers and dealers in respect of discounts given for the supply of the same or similar number of new cars over the same or similar period of time. Further, it prevents discrimination between fleet customers and contract hire companies and generally prohibits suppliers from making any agreement which may restrict a dealer's determination of the price at which the dealer is prepared to sell a new car.

If a party believes that a supplier is favouring fleet buyers then he should notify the Director General of Fair Trading who can then investigate claims of discrimination. The Secretary of State for Trade and Industry also has powers to give directions in order to secure compliance with the Order.

In January 2001 the National Franchised Dealer Association wrote to the OFT alleging that certain suppliers were failing to comply with the order. This was supported by information from the Consumers' Association. Following an investigation, the OFT determined in January 2002 that, overall, the value of the terms and conditions offered to dealers had been broadly similar to the value of fleet supply agreements when all additional benefits had been taken into account. No action was taken.

If the OFT was unable to find evidence of discrimination just over two years ago and since then there has been a reduction in most new car prices, then it will be interesting to see whether the OFT believes another investigation will result in findings which are significantly different to those in 2002.

Servicing of cars

One related issue highlighted by the committee's report, which could see a greater degree of attention from the public at least, is the issue of the cost and availability of car servicing.

On the cost side, the Consumers' Association estimates that, once relative wages are taken into account, servicing of cars in the UK is 50% more expensive than in France and 40% more expensive than in Germany.

On the availability side, despite a revision in the block exemption designed to break the link between 'sale and service' by allowing approved independent garages to service cars without invalidating a manufacturer's warranty, the effect has been limited. The committee reported that the high cost of investment required in order for an independent garage to be designated by a manufacturer as an 'authorised repairer' is a barrier to entry and has recommended that the OFT investigate the conditions imposed on garages wishing to become 'authorised repairers'.

Going forward

The question now remains as to whether the OFT will commence investigations into new car prices and servicing as a result of the committee's recommendations. The issue of car servicing being tied to manufacturers' warranties was investigated by the OFT and reported on in May this year. That report acknowledged that all manufacturers had removed any such ties from new car warranties. The OFT also stated that it would consider taking formal action under Article 81 of the EC Treaty if it found any manufacturers not complying with the OFT's recommendations on servicing restrictions. Is there much more that the OFT can purposefully achieve?

As regards the continuing debate about new car prices, at present there appears to be little public or press concern about new car prices, and the number of businesses parallel importing new cars from Continental Europe has significantly decreased. At the same time sales of new cars have steadily increased, with fleet sales in August accounting for over 50% of new car sales. If the customer is happy should the OFT be concerned?