The European Commission announced on Tuesday a draft regulation governing the purchase and repair of vehicles which could result in falling car prices.

At present, the auto industry enjoys a ‘block exemption’ across the European Union, allowing it to bypass standard competition law. This expires on September 30, but the Commission is unwilling to leave the sector at the mercy of general competition rules, hence the new proposals.

Under the proposed legislation, which would run until May 2010, dealers would be able to sell a range of auto brands and not restricted geographically in advertising and selling. They would also no longer be forced by manufacturers to provide after-sales service.

“The regulation will open the way to greater use of new distribution techniques such as internet sales,” said an EC press release. “It will lead to more competition between dealers, make cross-border purchases of new vehicles significantly easier, and lead to greater price competition.”

Following heavy lobbying both at governmental and auto-industry level, the latest proposals have been diluted from last year’s plans to open the market to all-comers. Nevertheless, prices are expected to fall – possibly by 5% over eighteen months, according to Professor Garel Rhys of Cardiff University Business School. “The retreat from last April’s position has been quite profound,” observed the Prof.

The new regulation is due to come into force on October 1, but must first be ratified by the European Parliament and the Advisory Committee on Restrictive Practices and Dominant Positions, plus a period of consultation with interested parties.

News sources: The Times (London); European Commission