Anyone unschooled in the ways of the British motor industry may have been bewildered by the self-regulatory manoeuvres of its trade association, the Society of Motor Manufacturers and Traders, during the past week. At the weekend, the story broke that the SMMT was cutting loose from its 20-year tradition of sharing the sales-volumes projections of its members with its whole membership on a quarterly basis. An article in The Sunday Telegraph claimed this move meant that car manufacturers were confessing to systemic price collusion.
By Monday morning, the story was subtly, but significantly, different. The SMMT had had time to gather its thoughts and was saying that the decision did not reflect any “inappropriate” collusion, but instead reflected a prudent approach to new European regulations. The European Competition Commission, in the spirit of the much-vaunted subsidiarity principle, has delegated responsibility for such matters to member states and, while the industry has not been doing anything wrong in the distribution of such sales figures, the SMMT’s lawyers thought it was “prudent” to stop the practice. But it was important to realise that the figures were circulated anyway by means of the media.
So, the SMMT is cast in the role of, say, a government minister who has consistently played down her membership of a secretive, right-wing Roman Catholic organisation – but, when the membership is exposed, says that everyone knew anyway, the organisation’s practices are completely harmless and are of considerable benefit not just to its members but to society as a whole. Education secretary Ruth Kelly may hope that this tactic may quell questions about Opus Dei. But I have a few for the SMMT about its own secret organisation.
When exactly did it receive legal advice to stop its practice of circulating sales information? When did it decide to stop such practice – before or after The Sunday Telegraph got in touch? If it’s such a useful practice, there has been no inappropriate price collusion and the legal position isn’t clear, why didn’t it wait until the legal position was clear before terminating the practice? Furthermore, why does the SMMT think that its members should no longer receive this information from its own offices if they can receive it through the media? And, perhaps most importantly, was anything other than sales volumes discussed at its quarterly meetings – matters such as pricing, perhaps?
It was some 20 years ago that the building societies abandoned their interest-rates cartel, co-incidentally around the time that the motor industry was starting to circulate its sales information, which it claims as harmless but which it is now abandoning anyway. A free market for savings and mortgage rates has not had a noticeably deleterious effect on the housing market over the past two decades – rather the reverse actually. One might make a case that the market is somewhat over-lent and that there is an artificial price-bubble in the property market, but generally the market has benefited from free and vigorous competition.
That there is a cartel in the British motor industry remains unproven, but no one could pretend that it has been a model of free and vigorous competition over the past 20 years. During this period, manufacturers have fixed prices for new cars in the UK by allowing only strictly controlled franchised dealers to sell their vehicles. Such “selective and exclusive dealerships” attracted the attention of the UK Competition Commission five years ago, which ruled that British buyers were consequently paying on average a ten per cent premium for their cars over the continental European equivalents.
The exposure of what amounted to a scam did much to level the UK with other European markets, but it would be wildly over-optimistic to suppose that the motor industry has enjoyed the dawn of a new, competitive enlightenment. Old habits die hard in entrenched old industries and the latest revelations are symptomatic of that. The final irony is that it should have taken an initiative of European subsidiarity and the UK regulatory authorities (doubtless ably assisted by The Sunday Telegraph) to surface the issue.
It is surely the prospect of a greater centralisation of European regulatory authorities that will serve to force such restrictive practices from the markets, as borders become something through which to trade, rather than behind which to hide. Trade-tariff and price protectionism have, historically, been characteristics of the European motor industry – particularly in France – and have allowed local cartels to prosper. If our dithering Prime Minister could rouse himself on a referendum for a European constitution, which would bring fragmented legal and regulatory regimes under one treaty, then there would be no question that prices in local markets could be manipulated. And cosy, self-serving clubs such as the SMMT would be history.
George Pitcher is a partner at communications management consultancy Luther Pendragon