The Anglo File: Consumer Watchdog Carjacks London Motor Show

Protesting artificially high prices in the U.K., the group is pushing auto buyers to take their money elsewhere.
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LONDON -- Entering the

London Motor Show

, your correspondent walks straight past the Golfs and Passats, turns left at the Sevilles and the Camaros, hangs a right at the Espaces and Meganes, lingers for a moment by

Claudia Schiffer

and the Rovers, and moves up the escalator to the most popular stand at this year's exhibition: the one belonging to the U.K.

Consumers' Association

.

Sitting in front of a huge panel on which is emblazoned, "THE GREAT BRITISH CAR RIP OFF," is Nick Stace, senior public affairs officer for the consumer watchdog and a man with a serious axle to grind with the car industry.

"This is the first year we've set up here in the lion's den, as it were," says Stace. "Of course, the car makers and dealers don't want us here and have tried to stop us getting our message across, but on the first day we had so many people and journalists here that they couldn't close us down."

It isn't hard to see why the car manufacturers are so displeased to have these poopers carjacking their party. On another wall of the stand is a list proclaiming, "You can buy a new car cheaper elsewhere in Europe" and underneath is a list comparing the prices of various car models in the European Union and the U.K. If you're a British consumer, it doesn't make for pretty reading.

Estimates vary as to exactly how much more expensive cars are in the U.K. compared with the rest of the EU: The Consumers' Association says British cars are on average 30-40% higher, while

Salomon Smith Barney

, the U.S. brokerage, reckons they're about 20% higher. Regardless, there is no arguing that cars are more expensive in the U.K.

Why? Principally because the

European Commission

grants the motor industry a block exemption from European competition law, which allows car manufacturers to sell cars exclusively to their captive dealers and thus set artificially high prices.

The car industry justifies the higher prices because of changes in the value of sterling. This would be fine if the pound is falling. For some time, however, sterling has been relatively strong against other European currencies and the euro. Another argument concerns the levels of taxation, but this too is spurious because the U.K.'s value-added tax of 17.5% is lower than that in Holland and Denmark.

With the full backing of the government, the newly formed

Competition Commission

began investigating the car industry and released a list of proposals on Oct. 5 aimed at opening up the car retailing business to competition and normalizing car retail prices in the U.K. The proposals include the abolition of recommendations for car prices.

This is no mere academic debate. There are signs that the drive by the Consumers' Association for consumers to hold off buying a new car until the competition watchdog's full report in December, or else buy a car on the continent, is having an effect. On Tuesday, the Office of

National Statistics

showed that U.K. car sales for the first nine months of 1999 were down 1.3% on the year.

Salomon Smith Barney believes that this price resistance could hit carmakers' bottom lines. "September

data and rising stock levels all suggest that a lurch downwards in U.K. prices is increasingly likely ... we recently assessed a 10% U.K. price decline for consumer purchases as an 11% EPS risk to

Peugeot

(PEUGY)

, 8% risk to

BMW Group

and 5% risk to

Renault

," the investment bank says in a report this month.

This is music to the ears of the Consumers' Association, as were recent comments made by the chairman of the governmental trade and industry select committee, who characterized carmakers and dealers as "demons and villains." It seems in the U.K. it's not only second-hand car dealers who have a bad image now.