Outlook: Car prices

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FOR THE last 14 years Europe's car industry has been propped up by a nifty little model designed in Brussels and marketed under the catchy name of the Block Exemption. Over the same period, the car buying public has been the poorer, particularly in Britain, where the private motorist also has to subsidise the hefty price reductions given to the big company fleets.

The Block Exemption was due to get a facelift in 2002, but now there are signs that the end of the road may be in sight rather sooner. Yesterday's report from the Commons Trade and Industry Select Committee is another signpost in that direction.

Extraordinary as it may seem in these days of open markets and all- powerful anti-trust authorities, the Block Exemption entitles car makers to fix the market by deciding which dealers are allowed to sell their cars, where, in what quantities and under what terms.

In return for these exclusive rights, the dealers invest in expensive showrooms, highly-trained sales staff and well equipped service centres. The cars are maintained to a high degree, and everyone is happy (and safe).

Except they are not. The Block Exemption is only supposed to keep running provided prices do not vary by more than 18 per cent between member states. Yet since 1984 the car firms have been driving a coach and horses through this rule with price variations, before local taxes, of as much as 60 per cent.

Surprise, surprise, the member state that usually comes out worst in these price comparisons is Britain. This may not be unconnected to the fact that sales taxes on cars here are some of the lowest in Europe, which makes the difference in actual purchase price much smaller.

The car makers shrug and explain the price differentials away on exchange rates, all the while making it as hard as possible for anyone to take advantage of the strong pound by driving back over the Channel with a right-hand drive car bought in Europe. The exchange rate argument also fails the test because if it were the dominant factor, then the price of imports would have fallen much more sharply than they have.

The launch of the euro will expose price differences and thus help eliminate them, though not here of course. There is one action Brussels can take immediately, however, and that is to send the Block Exemption to the crusher.