Four years after it introduced sweeping changes to the way the European motor industry sells cars, the European Commission has published its first report detailing how far the industry has gone to meet its demands for increased competition.
The report reveals that, when inflation is taken into account, average new car prices across Europe are now cheaper than in the run up to the introduction of the new rules in October 2002. It also found that consumers now find it easier to buy cars from other countries.
While this is good news for car buyers, it is a different story for franchise car dealers who are now operating on a margin hovering around 1 per cent on each new car they sell.
When the automotive Block Exemption Regulation (BER) was introduced in 2002 it was heralded by the European Commission as the best way to force more competition into the industry and drive down new car prices, while also increasing choice for motorists in respect of where they buy their car, what car they buy and where they get it serviced and repaired.
"It is about giving Europe's motorists a better deal," said Neelie Kroes, the European Commissioner for Competition Policy. Not surprisingly, when the regulation, which is now halfway through its eight-year life, came into force it received a cold reception from most of the motor industry.
Franchise dealers have been hardest hit and, of those that remain, many now found themselves repaying multi-million euro loans taken to meet new contractual standards demanded by carmakers.
Some dealers have left the industry - according to the study the number of franchise dealers has fallen by 5.3 per cent since 1998, with practically all the decline occurring since 2002. And the dealers that remain in business earn very little from selling new cars.
Irish dealers are faring even worse, according to Grant Thornton's Tony O'Brien: "Profit before tax in the Irish motor retail industry is 0.79 per cent of sales," he said.
"When it comes to getting a return on their investment in the business, Irish dealers are not even making half of what they should make in a risk-free investment. They would be better off putting their money in the post office."
The dealers' difficulties arise not just because of their multi-million euro debts, but also because the price at which they sell new cars has risen at a slower rate than inflation since 2002. This has led to an increase in new car sales. Across the EU, new car registrations increased by 7.6 per cent between 1997 and 2004.
In Ireland, new car sales dropped by 11,000 immediately after the new rules came into force, but have risen steadily thereafter. This year, it is estimated that over 170,000 new cars will be sold in Ireland - some 18,000 more than the year the new rules came into force.
Essentially, the report says, there are now fewer dealers selling more cars built by the same few manufacturers at a lower profit margin. "At issue is whether this means more or less competition among dealers," says the report.
While car dealers are suffering, the European Commission is happy with progress. "Overall, consumers seem to have benefited from the reform," said Kroes. "As far as vehicle sales are concerned, one can conclude that competitive conditions have generally improved since 2002, retail prices have declined in real - even if not in absolute - terms, and there are some signs of more innovation, which enhances consumer choice."