If the European Union agrees to withdraw a "block exemption" from competition law applying to the franchise system, that would pave the way for the establishment of massive car stores selling a wide range of new vehicles from different manufacturers.
The motor industry's critics believe competition would inevitably force down what are the highest prices in Europe.
A letter the commission wrote to car-makers, obtained by The Economist magazine, points out that the commission is advising Stephen Byers, Secretary of State for Trade and Industry, on the line he should take with the EU when the car dealership exemption comes up for review in 2002.
The commission warns that it is considering whether to advise Mr Byers to take earlier action.
Official data this year showed Britain is the most expensive country in Europe when buying 62 out of the 75 bestselling cars. A Ford Focus voted European car of the year was 38 per cent more expensive in Britain than in Spain and 56 per cent more expensive than in Denmark.
The Consumers' Association estimated that British motorists were being overcharged by an average of pounds 3,000 a vehicle. An association spokesman said that because manufacturers dictated who the consumer could buy from, in effect they fixed prices and "rigged" the market.
Vehicle manufacturers said abolition of the system, in which dealers are allowed to sell only one make of car, would lead to thousands of job losses in Britain and would not necessarily lead to lower prices.
Alan Pulham of the Retail Motor Industry Federation said exclusive dealership existed in Europe and all over the world. He said a recent European legal amendment to which the commission referred did not apply to the car dealership system in Britain.
He said exclusive franchise arrangements gave customers a dedicated group of retailers who were committed to looking after vehicles and providing after-sales services, finance and courtesy cars when the vehicle was being repaired.
The system also gave dealers the financial security to enable them to invest and gave manufacturers the confidence to support billions of pounds of research and development costs, he said. "A car is not like a tin of beans," the spokesman added. "When you bring a model like the Rover 75 to market it costs billions. Manufacturers have got to be confident that they have a team dedicated to selling it."
A spokeswoman for the Competition Commission said the letter to car manufacturers was an attempt to elicit views on the issue of the block exemption. "It was not an attempt to impose our views on anyone," she said.Reuse content