I hope I will maintain a clean record. I am enormously grateful to Members of the Oireachtas for the Competition Act, 2002, which was passed earlier this year and in respect of which I had an involvement with several members of the committee. We are very grateful for that legislation which has improved competition law enforcement and advocacy.
I will speak briefly on a paper we have prepared which sets out the main features of the new block exemption regulation that applies to motor vehicles. The Chairman referred to the removal of the old seven year regulation which was in place from 1995 until 2002, to which I will refer with the new regulation which will last for eight years starting from September this year.
While Article 81 of the treaty prohibits agreements that restrict competition, Article 81(3) allows the European Commission to exempt certain types of agreements, either individually or as a group. In this case, it has issued a group, or block, exemption for motor vehicle agreements. It has done this since 1985. In 2000 it examined the regulation it brought forward in 1995 and concluded that one of the conditions in Article 81(3) had not been met, in other words, a fair share of the benefits had not been passed on to consumers. This was one of three factors that led it to propose a radical revision of the regulation.
The second factor was a rethinking of its philosophy towards vertical restraints generally, as reflected in a 1999 regulation covering vertical agreements generally. The third factor was that it had discovered serious breaches of European competition law in the distribution of motor vehicles in Europe. It had levied a total of €235 million in fines over a number of years concerning restrictions on parallel importing of motor vehicles in Europe.
These three factors led the Commission to compile a very detailed report in 2000 evaluating the block exemption regulation. This is not unlike the type of regulatory impact analysis about which we now hear a lot in terms of how the regulation had impacted on the various constituents or client groups. It then proposed in March this year a draft regulation. It initiated a consultancy process, not just with the interests in the industry, but also with consumer groups and the member states, through the advisory committee on which we sit jointly with the Department of Enterprise, Trade and Employment. Having concluded the process, it brought forward this new regulation in July.
The new regulation represents a radical departure. It is designed by the Commission to be less regulatory, increase competition among dealers, facilitate cross-border trade and increase competition in the repair and maintenance markets. It does this by the most radical changes and moves from what was previously a combination of selected and exclusive distribution to requiring manufacturers to choose between one of the two.
Selected distribution occurs where one chooses distributors and dealers on the basis that they meet certain criteria. It could be that one picks a particular number or that they meet qualitative criteria. Exclusive distribution is different. It means that one gives them, for example, a territory or a particular market to deal with on one's behalf and nobody else will be appointed to deal in the area concerned. They are two very different types of restriction that can be put in place to more efficiently distribute goods. The problem, as the Commission saw it, was that the combination of the two had led to adverse competitive effects in the market. The Commission wanted to allow manufacturers the freedom to organise their distribution in the most efficient way but not in a way that would be anti-competitive. It was of the view that the combination of the two would offer the potential to restrict competition unduly.
That is probably the main change, but there are a number of other factors. The Commission was very concerned to increase the ability of cross-border trade to operate in a way that would enhance competition. There are a number of measures, therefore, that will enable consumers and/or dealers to source cars across borders. The most important for Ireland is probably the requirement on dealers in continental Europe, for example, to supply right hand drive cars on an equivalent basis. Until now, if one had tried to buy a right hand drive car in Belgium, one might have found that it cost a lot more, dealers were not able to give the desired car or offer the right price, or the manufacturers restricted supply, which will now be freed.
Another change relates to multi-branding. It will now become easier for dealers to sell several brands of car at the same location. In principle, therefore, one could choose a Fiat, a Volkswagen or a Renault from the same dealer. This will enhance comparison shopping by consumers, enabling them to compare, not just prices, but also all the characteristics of a car at a single location, leading to more objective advice. If a dealer deals on behalf of several brands of car, he or she will be less inclined to push a particular brand but rather will be more interested in helping the consumer to find the right match for him or her.
In all these regards the regulation is very focused on empowering consumers by allowing them to search and comparison shop. In this regard, the combination of reduced search costs and the increased role of intermediaries, enabling the possibility of Internet sales of cars across Europe, will enhance rivalry and improve the ability of new entrants to the market generally. We see it as a pro-competition but balanced move which will allow manufacturers to distribute their cars in an efficient way. A total of 40% of the lifetime cost of a car - I am not talking about running costs in terms of petrol but the ownership of the car - is accounted for by the price of the car. Another 40% is accounted for by repair and maintenance costs, making them equally as important in terms of consumer spend.
The other main feature of the regulation is a freeing of the market for repair and maintenance. In this regard, the main factor is to allow the development of independent authorised repairers in order that manufacturers will not tie repairers to dealers. I am personally relieved about this because I have a problem with my own dealer from whom I cannot get a part for my car and I have nowhere else to go. The regulation will not come fast enough to solve my problem, but the development of an independent dealer market is one measure that will enhance consumer choice and also avoid lock-in, which is common in competition markets where somebody buys a durable good that requires parts and maintenance over time. It could be photocopiers, cars or even the common razor. If one is locked in to buying particular blades at high prices, we all know it is the blades, not the handle, which are often the most expensive. These are called "after markets," where one buys particular goods and then has to buy parts afterwards. These are markets where competition problems commonly arise. Allowing in independent service operators with sufficient safeguards for quality can enhance consumer choice. I dealt with this aspect in section 3.3 of the report we submitted to the committee.
There are benefits in the regulation, not just in terms of increased competition, but also in terms of driving the internal market, which is obviously something the Commission is keen to do. We are all interested in labour mobility and people moving from one country to another, of which one of the nice aspects is that if one buys a car in a member state, one will have the same rights in terms of repair and maintenance across all member states. It will generally be easier to move from one country to another in this sector.
In general, the benefits arise in terms of empowering consumers and driving price competition, while also enabling better matches between consumers and the products they purchase and reducing consumer lock-in. These aspects will enhance competition, not just among manufacturers, but also among dealers in terms of offering better deals to customers and in the repairs and distribution market. The authority will continue to take an active interest in the car market, both at an enforcement level and also in terms of our advocacy role. In that role we are always happy to meet people who have an interest in any market to discuss issues. We are very much in favour of this reform. It is less regulatory, focuses more on the consumer and is based on a very solid economic analysis of the problems that existed with the previous block exemption regulation.