Drive out this price-fixing in the motor industry

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The Independent Online

Even as the dust continues to swirl around the issue of the Rover sell-off, EU competition commissioner, Mario Monti, addresses leaders of the car-manufacturing industry at a meeting in Brussels today whose subject reminds us that some problems are of the manufacturers' own making. The block exemption - in effect, licensed price-fixing - is an insult to the end users without whom the manufacturers would no longer exist.

Car manufacturers are being forced to confront the absurdity of the rules that allow them, in effect, to set prices far in excess of what a competitive market would bear. The block exemption permits manufacturers to sidestep the usual European Union competition rules, giving them an enormous and unique degree of control over who can sell their cars and at what price.

The internet, by providing easy access to prices in different parts of Europe, has begun the process of smashing the cosy cartel that manufacturers have been so eager to sustain for many years. But more must still be done. Britain is changing the rules so that individual buyers will (theoretically) no longer be excluded from the huge discounts available to buyers of company fleets. But it is still locked into the block exemption rules. The Competition Commission recently calculated that cars in Britain are on average £1,100 more expensive than in continental Europe.

Manufacturers argue that prices in Britain are high because of the value of the pound. This argument defies the laws of economics - a strong pound surely makes imports cheaper. The car-makers suggest, too, that lower prices across the rest of Europe show that the block exemption is not, in itself, pernicious. But because Britain is an island of right-hand drive vehicles, it is difficult for dealers to buy cheaper cars abroad for fear of having their franchises terminated.

Most absurd, the makers invoke the safety of the consumer and argue that only their tied dealers can look after their cars properly. But there is no reason to think that independent specialists might not do the job just as well as franchised dealers. The consumer should be able to choose.

The block exemption runs until 2002. Now, though, there are suggestions that it may be renewed. It would be a travesty of Europe's own competition rules if that were to be allowed.