Appendices
Appendix 1: Background of Ford company and Sietsma B.V.
Appendix 2: Changing European Legislation on Car Distribution Appendix 3: Interviews
Appendix 4A: Measuring Table Chapter 5 Appendix 4B: Calculations Chapter 5 Appendix 5: Parallel Import
Appendix 6A: Fiesta Price Difference 1999-2001 Appendix 6B: Focus Price Difference 1999-2002 Appendix 6C: Mondeo Price Difference 1998-2002 Appendix 7: Different Car Segments
Appendix 8: Control Point for Export Process Appendix 9: Export Glossary
Appendix 10: Chapter 6 (Adapted)
Appendix 11: Perceptions for Country Selection
Appendix 1: Background of Ford company and Sietsma B.V.
Ford company
Ford Company is the second largest car manufacturer in the world selling vehicles in 200 geographic markets and with approximately 350.000 employees on six continents. Ford specializes in the production of vehicles. It also offers other services such as auto-loans and leases through subsidiaries. Ford's business is segregated in four primary operating segments:
Automotive (design, production, sales and maintenance of cars and trucks); Visteon Automotive Systems; Ford Motor Credit (Financing and leasing of cars); and The Hertz Corporation (Car and Truck rental as well as industrial and construction equipment rental). Its brands include Aston Martin, Ford, Jaguar, Lincoln, Mercury, and Volvo.
Ford has sold vehicles in Europe since 1903 and had a manufacturing presence in the region since 1911. With the creation of the first moving assembly line in these early 1900s, Henry Ford introduced automobiles to the middle class. The highly innovative industrialist went on to change the nature of employee relations and human resources. For this, Business magazine Fortune, recently called him the Business man of the century. In 1914, he shocked the industrial world by paying his workers
$5 a day-an astonishing wage at the time. In exchange, Henry expected employees to work regularly clock in on time, and maintain a serious and sober private life. He was a student of the ideas of Frederick Winslow Taylor and the principles of scientific management. He sought ways to standardise the behaviour of workers to increase efficiency and production, and was among the first to design factories around the way people worked. Although many of his business methods were controversial and would now be considered unacceptable, Ford’s legacy includes treating workers with dignity and respect.
Nowadays, of all regions in which Ford is represented, Europe is the largest in terms of sales (around two million vehicles, a market share of minimal 10 percent for each member country), thirty-four facilities and revenues (approximately $28 billion each year). Analysts say that developing cars that consumer’s want will still be the biggest reason for any reversal of ford’s fortunes in Europe.
(www.media.ford.com/article). In 1994, Ford
held 12.1 % of the market.
Figure 2: Henry Ford’s first car
That share dropped for six years as market trends were badly misread. Ford, for instance, failed to produce a compact mini-van. That is now the hottest segment in Europe (Workforce, 2002). Ford’s contender in subcompacts, the Fiesta, is now 12 years old, nearly twice the age of rivals. Mr. Scheele, the man that made his mark in Europe by turning around the moribund jaguar line, hopes that, like the Ford Mondeo and Focus, the Fiësta and Fusion will bring Ford a higher market share. Ford Focus was the world's best selling car in 2000 and 2001 and lead to an increase of the European market share for Ford (http://media.ford.com). With this, Ford Europe ended a reputation for dull cars and lacklustre engines. For its beleaguered parent, a turnaround won’t come a moment too soon. (Source: Business Week, 2001). Ford-Europe manufactures cars in Belgium, France, Germany, The Netherlands, Norway, Spain, Sweden, Turkey and in the UK. Ford-Europe, located in Cologne, pursues a vigorous policy for its country-divisions (importers) and their dealers, implying strict rules on the field of business activities, distribution, environmental prescriptions and more.
Ford dealer Sietsma B.V.
In 1920, Mr. Sietsma founded the company as a bike repair shop and a hoof-smithy in Zwolle.
At that time, cars were a rare, exclusive and therefore expensive good that was only owned by a small amount of people. Sietsma B.V. developed itself more in the car-business starting with a car garage, storehouse and sales department. In that time, cars like Bedford, Vauxhall and Chevrolet were sold and repaired. Forty years later, the company was taken over by Mr.
Bockers. The company became an official Ford-dealer then. In the year 1971, the company was replaced to the current location in the same city. A year later, Mr. Smelt became the new managing director.
In 1972, the “Nederlandse Ford Dealers Associatie” (NFDA) was founded for all official Dutch Ford-dealers with the goal to serve company- and professionalism stakes of all members in the most complete sense, with all justified and owned means, including taking strong action and representing members within and without law” (regulations of the NFDA, 1998). In 1983 the company became a B.V. The number of employees had increased from around twenty to over fifty people. In 1998 the current managing director L.P. van der Molen started working at Sietsma B.V. After a year of joint management with Mr. Smelt, L.P. van der Molen manages the company by himself.
Sietsma B.V. has expanded in 1998 with a service establishment in Kampen for the places Elburg and IJsselmuiden. Here, rapid repair service is provided. A few autonomous satellite companies link Sietsma B.V. This “hub and spoke/satellite” organization includes four other independent, local service dealers in Genemuiden, Dalfsen, Heino and Wezep. They have a contract for exclusive sale in their area. The advantage if this network for Sietsma B.V. is the possibility for an economy of scale for services and local promotion. These dealers are under direct supervision of Sietsma B.V., and are autonomous.
Sietsma Zwolle B.V. has been a profitable dealer with an excellent reputation for years with a main focus on continuity. The number of different departments shows the diversity of services that Sietsma B.V. provides. This corresponds with the mission of the company that is, according to the abstract of the Chamber of Commerce:
“Being a retail shop in automotive, motors and parts of these and of related products, as well as exploiting a garage company and a repair department, all in the broadest-minded sense, in which included taking part in other firms that have a comparable objective”.
Appendix 2: Changing European legislation on car distribution
Competition Policy and former Regulations
Starting in 1985 with a first regulation (EC No 123/85), many regulations for the car sector have been developed in order to facilitate harmonization of trade and lead to a more competitive European market that rewards innovation and good customer service in the European Union. The European car market structure depends largely on the future framework of sales regulations in the EU, according to the automobile clubs (Lademann, 2001). With its fifteen Member States, eleven languages and three hundred fifty million inhabitants it's a challenge to integrate all Member States into a single market. This applies especially for the car market, which was protected for a long time.
Until recently, based on the so-called BER1, car manufacturers had exclusivity of control over their distribution networks. In reality, this meant that new cars were only distributed through authorized dealers. The Selective and Exclusive Distribution (SED) systems used by vehicle manufacturers in Europe would be illegal without the Block Exemption, since complete control over distribution networks is usually considered as anti-competitive. The dealers under the BER, authorized by the carmakers themselves, were restricted to their contract territory and the cars were sold at pre-determined prices. Moreover, the dealers were obliged to provide after-sales services. In this way, the car industry was the only business sector in the EU not facing traditional anti-trust regulations. For the issue is to create consumer freedom of choice, it is still car price-differences being the thorn in the EC’s side. The EC's intention is to stimulate cross-border trade to facilitate consumers to buy the cheapest car in the European Union. Dealers should be given more opportunities to supply new motor vehicles to these consumers, whether these are local, national or from another Member State. The regulation EC No 1475/95, from 1995, included an instrument to decrease price-differences between cars in the European Union, which enables parallel trade (EU facts, 2002). About 20% of European car price differences can be explained by different taxation levels. This increases the share of car market arbitrage between different countries. The arbitrage markets (parallel import markets) are basically functioning, and arbitrage would also take place without tax differentials, due to different willingness to pay in the different countries (www.europa.eu.int/comm/taxation).
(New) Commission Regulation EC NO 1400/2002
The latest regulation on the car market, which entered into force on 1 October 2002, not only makes shopping abroad for European consumers easier, but also contains measures to allow those dealers
who wish to sell to consumers outside their normal contract territory. Source: www.euro.cause.org
It's designed to increase competition and brings tangible benefits to European
consumers. It opens the way to greater use of new distribution techniques, such as Internet sales and multi-brand dealerships. It will lead to more (price) competition between dealers and enable significantly easier cross-border purchases of new vehicles. Concerning after- sales, car owners will be able to select where they have repair and maintenance carried out and what spare parts are used (Philip Lowe, Director−General for Competition, website of EC). This stricter regulation than the previous one, introduces many substantial changes as regards the exemption of distribution agreements for new motor vehicles and spare parts. It is more based on the principle that it is for the economic operators, manufacturers and dealers to organize distribution according to their own needs. A list of serious restrictions: ´black clauses´ has been drawn up to remedy the drawbacks of the former regulation 1475/95.
1 Block Exemption Regulation (BER).
The new regulation will "free" dealers from the "shackles" of the car manufacturers. Not only the method of selling cars will be liberalized, in the new regulation, service and maintenance are disconnected from sales. This means more space for independent (multi-brand) garages.
They must be allowed full access to specific technical product information, original parts, and other information they need. Since car manufacturers gain approximately a third of their profits from services and parts, competition in the service field will be stimulated. Further, it enables new entrants, like multi-brand sellers, to enter the car market. Price-competition will increase too. A large extent of international price dispersion and a low degree of parallel imports a few years ago shows obstacles to cross-border trade but too indicates a large unexploited arbitrage opportunity (F. Verboven, 2000). This is a perfect opportunity for Sietsma B.V. to exploit. First, though, it's important to know more about the new regulations that cause this change.
The Regulation is built around the following principles:
-Banning the combination of selective and exclusive distribution permitted by Regulation 1475/95. To benefit from the new regulation, manufacturers have to choose between selective and exclusive distribution systems, when appointing their distributors.
-Reinforcing competition between dealers in different Member States, intra-brand competition and improving market integration in particular by not exempting distribution agreements which restrict passive sales, by not exempting distribution agreements in selective distribution systems which restrict active sales, and by not exempting clauses (location clauses) prohibiting dealers in selective distribution systems from establishing additional outlets elsewhere in the European Market.
-Removing the obligation for the same firm to carry out both sales and after-sales by not exempting agreements that do not allow dealers to subcontract servicing and repair to authorised repairers who belong to the authorised repair network of the brand in question and who therefore meet the manufacturer’s quality standards.
-Facilitating multi-branding by not exempting restrictions on the sale of motor vehicles of different brands by one dealer. Suppliers may however impose an obligation for motor vehicles of different brands to be exhibited in different areas of the same showroom.
-Maintaining the "availability clause" by not exempting agreements that limit a dealer’s ability to sell cars with different specifications to the equivalent models within the dealer’s contract range. This should make it possible for a consumer to obtain vehicles from a dealer in another Member State with the specifications current in the consumer’s home Member State, for example allowing UK consumers to buy new right-hand-drive cars in any given EU country. This clause is for Sietsma B.V. very relevant because it gives the company all freedom for parallel import.
-Supporting the use of intermediaries or purchasing-agents by consumers. These operators form an important tool for helping consumers to buy a vehicle in another part of Europe.
-Strengthening dealers´ independence from manufacturers, both by stimulating multi-brand sales and by strengthening minimum standards of contractual protection including retaining the existing minimum notice periods provided for in Regulation 1475/95 and by allowing them to realise the value that they have built up by giving them the freedom to sell their businesses to other dealers authorised to sell the same brand.
Dealers in a selective distribution system may sell actively and passively to any end consumer and after 1st October 2005 may open additional sales or delivery outlets for distributing new passenger cars wherever selective distribution is used. Dealers within an exclusive distribution
system are entirely free to sell actively within their territory and in territories, which are not subject to exclusive distribution and passively into other distributors exclusive territories.
The new Regulation contains measures to help European consumers to take advantage of price differentials between the various Member States. Use of intermediaries and agents by consumers is now allowed. Further the regulations makes promoting active sales and opening additional outlets easier for dealers to sell to consumers across the EU. “ The availability clause” of 1995, that allowed consumers to buy a car with their home country specification (i.e. UK right-hand drive cars) in another Member State, stays in the new regulation. This Regulation expires in 31 May 2010.
Indirect restrictions on sales
As is stated in the Regulation, a manufacturer, importer, or area distributor may never restrict a dealer from selling to any consumer who contacts him directly, through an intermediary, or via the Internet. Dealers may not be penalized financially or with a quota imposed for this.
Some authorized distributors advertise to "educate" consumers that the price for parallel imports is lower because they say there is a difference in the products self. They sometimes stress their after- sales service or "warranty" to explain price differences with cars offered by parallel importers. If a supplier instructs a dealer not to sell to foreign EU consumers or imposed any restrictions on sales to such consumers, this would be a serious restriction of competition according to article 16 (see below) and can be punished. The Regulation knows no direct restrictions on sales, active or passive at all. All categories of consumers are therefore allowed to purchase cars, and dealers can't be restricted in numbers of cars it takes, like was sometimes the case. Vertical contracts that contain "hardcore restrictions" don't fall under individual exemptions for car manufacturers. The following article 16 of Regulation 1400/2002 shows examples of indirect sales restrictions:
The manufacturer should treat consumers from other EU markets the same as local consumers, in particular as regards pricing and delivery times. Under the new Regulation, manufacturers will therefore have to put in place ordering and delivery systems that meet this requirement. They may for example put in place an ordering system based on the ´first come first served´ principle. A distribution system, which is based on supply quotas relating to a sales territory smaller than the European Market amounts to an indirect restriction on sales and is not exempted by the Regulation. Bonus systems or other kinds of financial or non/financial incentives may not be based on the buyers place or residence or establishment, or on the place where the vehicle is to be registered. Ford Netherlands has proved to act the opposite. Exporting cars to Switzerland, for example, leads momentarily to a lower bonus from the Importer for the car dealer.
Article 16 Considering the following:
Restrictions levied by suppliers on sales of their distributors to end-users in other Member States by means of making the bonus of a distributor or the purchase price dependable of the destination of cars, or country where the client lives, are examples of indirect sales restrictions. Other examples of indirect sales restrictions are quotas based on the sales area, whether the quota is combined with sales goals. Also bonus systems based on the destination or the car or every other form of discriminating supply of products to distributors, like with product shortages like in other cases, are examples of indirect sales restrictions.
Internet
With the new regulation a dealer is free to sell cars through the Internet. A dealership web site is a passive selling tool and the dealer may use it for advertising and for carrying out transactions, and this use may not be restricted under the Regulation. Nor may the dealer be restricted in his use of the Internet or of personalized e-mails to consumers located anywhere in the EU, instead of traditional methods, such as mail or fax, to conclude sales contracts.
Sales outlet in EU
Another important element of the new Regulation is the right for new personal car dealers to open extra sales outlets across Europe (prohibition of ´location clause´) after 1 October 2005.
This freedom will strengthen intra-brand competition throughout Europe to the benefit of consumers, and will more over allow dealers to expand their businesses and to become more independent from their suppliers. It will also allow such dealers to become pan-European distributors of new cars. The outlet right isn't valid for dealers under the exclusive distribution systems. However, since such dealers, like unauthorized resellers, are allowed to sell cars to customers across the EU, like, resellers are assumed to organize cross-country arbitrage and seize additional business opportunities that arise in other areas of the EU. Therefore, manufacturers might cut their own fingers when selecting the exclusive distribution system.
In the last years the EC has detected several infringements of all these EC competition rules, which involved restrictions on sales to foreign consumers and has fined the undertakings involved. Many studies prove these violations, for example BEUC 1992, proves larger delivery lags for foreign consumers. Examples of Commission decisions imposing fines here are on Volkswagen (1998 and 2001), Daimler Chrysler (2001) and Opel (2000).
Brussels, 10 October 2001
Commission imposes fine of nearly € 72 million on Daimler Chrysler for infringing the EC competition rules in the area of car distribution
The European Commission has decided to impose a fine of € 71.825 million on Daimler Chrysler AG, one of the world's leading car manufacturers, for three infringements against Article 81 of the EC Treaty. The Commission decision concerns measures adopted by Daimler Chrysler AG in order to impede parallel trade in cars and limit competition in the leasing and sale of motor vehicles. This is the fourth Commission decision imposing a fine against a car manufacturer that does not respect EC competition rules. (Source: http://europa.eu.int)
Opel for example was fined for 43 million euros. This importer of the German car manufacturer restricted export of new cars between September 1996 and January 1998 severely. Especially Germans who wanted to buy a car in the Netherlands were refused to do so by the Importer. The highest fine ever was for Volkswagen in 2001: 90.000.000 euros (Export en Ondernemen, April/May 2000,p. 4).
Dealers play a key role as regards the development of the Single Market for new motor vehicles. A strong and independent dealer sector is more likely to engage in pro-competitive behavior and to be more innovative, to the benefit of consumers. Regulation 1400/2002 therefore gives dealers more freedom to run their businesses as they see fit. In the new
regulation the by manufacturers preferred block exemption is only covered if they give their dealers freedom in the following aspects:
-Allow dealers to take on additional brands (multi-branding)
-Not limit supplies of new vehicles to their dealers, because such behavior restricts their dealer’s ability to sell vehicles to particular consumers within the EU.
Taxes
Car buyers can’t hope for a fair and transparent system of car prices across Europe with cross- country tax differences. It is virtually impossible for manufacturers to harmonize prices, even under a single currency, when taxation varies from 7.5% to over 200% across Europe. "One of the keys to the price harmonization issue is not in the hands of the manufacturers, but is in the hands of the EU and national governments regulating taxes. The car is one of the few goods where tax is payable where it is used as opposed to where it is purchased". Tax harmonisation is a highly political issue - as a broad generalization, taxes tends to be low in large markets with a home manufacturer and it is high in smaller markets with concern for revenue generation and environmental issues. There are no real pressures on local governments to change this. Low taxation countries could see this as a short-term opportunity to increase tax revenue through increased exports to other countries (called parallel trade in this research), but, in reality, manufacturers would move to harmonize list prices to restrict cross border movements. These governments would therefore take the opportunity to increase taxation to maximize revenue2.
Many car price reports of the EC demonstrate that EU car prices are heavily distorted by the existence of high taxes in countries like Denmark and the Netherlands. There, car taxes are 3 to 10 times higher than in most other Member States. This can lead to significant parallel- market streams (ACEA, 2000). These disparities are caused in particular by the existence in nine of fifteen Member States of specific and sometimes very high registration taxes as can be seen in the following figure where VAT is the base tax and others like for example BPM in The Netherlands which counts for 33 percent of the net catalog price, that Dutch customers see as unacceptable and unreasonably high according to Rai Automonitor 2002. At a time when they are discussing how to combat harmful tax competition, ACEA urges the EC and national governments to finally create a true level playing field for motor vehicle manufacturers and dealers throughout the EU. The current lack of tax harmonization distorts competition and constitutes the single most important cause of the price differences for motor vehicles in the EU. If no significant progress in this area is made, true price convergence will remain an illusion although it’s for sure that the new distribution regulation makes Dutch cars rise next year with at least ten percent3.
The ACEA's Tax Guide tells that tax revenues in the EU amount around 3.8 percent of the GDP, making motor vehicles the number one tax contributor in the EU. This includes all taxes on the sale, registration, ownership and use of motor vehicles. With the gradual standardization of car prices, the average net car price of a new personal car is expected to rise in low-tax countries with 24 %. If Dutch taxes stay unchanged, new cars rise too much in the future, says Th. Hooning of the RAI (Dutch Automotive Cooperation). Low car taxes make buying new personal cars from the Netherlands very interesting for other European buyers. The aimed car-price harmonization has the benefit of all European customers in view.
Though European politics have to change their car tax rates much. The average car taxation imposed in each country is shown below. Behind the overall averages in some markets,
2Source: www.eurocarprice.com
3 Source: www.rai.nl
taxation does vary by engine size/prize. The highest level of taxation is in Denmark. On some luxury models Denmark has taxation of over 200 percent. Switzerland has the lowest car taxation in Europe at 7.6%.
Source: ACEA, 2002
The next example shows the influence of taxes on the final car price:
Breakdown of a new personal car
Dutch Consumer price € 20.570.00 Net catalog price € 13.465.00
BPM € 4.546.00
VAT 19 % € 2.558.00
Total € 20.570.00
Source: RDC/RAI, 2002
Manufacturers pricing policies
The new Regulation, pressures manufacturers to further harmonize their net car prices across countries. In order to predict future market circumstances their pricing strategies are followed by institutions like the European Commission. Car producers will focus themselves in the future in reaching more economies of scale to save costs and stay therefore competitive.
Assembling and marketing cars will be the main focus, and designing new cars and developing new technologies will be outsourced to a select number of long-term committed
suppliers. Economies of scale are also searched in distribution. This saves much since distribution costs are about 30 % of the total cost of a car (www.autobytel.com). More efficiency and lower car prices are the goal.
After the adoption of the BER No 1400/2002, CECRA4 noticed that manufacturers harmonize car prices to the German car price level. This will have an important impact on car prices in smaller countries, such as in Denmark, where prices are already rising. In Finland, price harmonization has already started. New models are significantly more expensive compared to old models because of better equipment, but the main raison is price harmonization. CECRA aspects no significant changes in larger countries such as Germany, France, Italy and the UKThe generally low pre-tax prices in Finland, Denmark and The Netherlands and Greece are largely due to manufacturer’s pricing policies and, to a lesser extent, in response to high purchase taxes. Most manufacturers fix pre-tax list prices at a low level, alleging that this is necessary to make the after-tax prices affordable. However, in other Member states in which now such taxes are charged, prices before tax may be either roughly similar, as in Spain, or much higher, as in Germany. Concluded can be that manufacturers have succeeded to connect their strategy of international price discrimination with a strategy that limits parallel import, or international arbitrage, i.e. with the system of selective distribution, till they can (Goldberg, Verboven, 2001).
International price differences on the European car market
International price differences are often used as a standard for economic integration. In a well- integrated economy, price differences are normally low, but in a geographically segmented market like Europe, they are large and longitudinal. These systematic price differences will stay until tax harmonization and exchange rate stabilization for all currencies takes place.
Although most countries in the EU have now accepted the Euro, the UK still forms an exception. Price differences that can't be explained by differences in marginal costs across destinations imply price discrimination. The markups are in turn determined by two factors:
differences in the firms' perceived price elasticity’s of demand, and trade policies (Goldberg, Verboven, 2000).
Car prices in Europe are characterized by large and persistent differences across countries for over two decades (P.K. Goldberg, 1998). Empirical analysis (Verboven, 1996), (Goldberg and Verboven, 1998), shows a significant international price discrimination in the European car market. This international price discrimination is the result of a failure in the competition policy according to M van der Heijden (See Interviews). Consumer organizations state that price differences evolve from the imperfect European integration, which enables anti- competitive price discrimination. Although the EC only allowed manufacturers to keep the selective distribution system on condition that price-differences across Europe would never be higher then the policy standard of a maximum car price deviation norm of 12 % to 18 % (1985, Commission Notice on the SED system), deviations of this regulation were never punished in the past. Degryse and Verboven (2000) found that international car price differences with identical specifications are important even if one adjusts the prices for various factors, such as discounts and other financial benefits, a right-hand drive surcharge, taxes and exchange rates. Exchange rates play an important role in explaining short-term fluctuations in the systematic price differentials, whereas taxes are an important determinant of long term, persisting price differentials. The following index represents the price of the vehicle adjusted for specification differences between markets and excluding all taxes. Index number 100 is the average pre-tax price for all euro currency countries. As well as being the benchmark on which the whole price structure is built by the vehicle manufacturer or
4 Conseil européen du Commerce et de la Réparation Automobiles (CECRA).
importer, it is also the most important Index when looking at potential cross border trading, as tax is payable in the country of use irrespective of the point of vehicle purchase. Most interesting remarks are the pre- tax prices in the UK that are now very close to the euro country average. Prices have fallen from a peak of 46 percent above the average in May 2000 to 7 percent today (April, 2003). The lowest annual rates of increase in pre- tax prices among the euro countries were in Germany (3.0%) and Italy (3.5%) and Austria (2.9%). At last, amongst the euro currency countries,
Greece, at 14% below average, and Source www.eurocarprice.com: Base-price index
The Netherlands, at 7% below average, have the lowest prices. When academic researchers started comparing European car prices almost ten years ago, differences of more then fifty percent were no exception (Verboven, 1995). Production costs and (double) profit margins were the main causes of price differences for 96 models in the five largest European car markets (Verboven, 1995). International price discrimination could eventually disappear without economic integration when competition in the markets increased. This is not expected to happen since the car market is characterized by large economies of scale, for R&D and Marketing. Concentration and market power become then essential to guarantee a normal profitability.
When comparing net prices of new passenger cars across European countries, Dutch prices used to be relatively low. The reason for this was the adjustment from car manufacturers of the net car prices to the high taxes that are imposed on new cars in this country. In countries with low taxes the net car price was raised to keep profit margins equal across Europe.
Because of the new regulation that opens up cross-border trade, manufacturers can's artificially keep these prices different, otherwise consumers will buy their cars in the cheapest country. And they will since price differences become for consumers more and more dependent of tax rates (M. v.d. Heijden, Appendix 3: Interviews).
Representatives of the car industry claim that these large international price differences depend on changes in exchange rates and therefore automatically will diminish. Degryse and Verboven (2000) say that the price differences across the EU can be reduced by harmonizing taxes and by facilitating market-entry. The European Commission follows international car prices differences since 1992 with half yearly publications of EU countries and found that car price differences remain substantial, despite introducing the Euro currency. Spain, Greece, Finland and Denmark keep the lowest car prices before tax. Prices in Germany, the biggest market, and Austria, are the highest within the euro zone (http: www.europa.eu.int). Another recent report of the European Commission shows an increase of price differences for only five of the fifteen most popular cars in the EU. With the new regulation, Mr. Monti hopes for a competitive business environment that makes car prices decrease and which enables a European integration. Price differences differ among car brands in Europe too. Car brands like
Opel, Fiat and Suzuki have the largest prices differences between Member States. BMW, Daimler Chrysler and Ford self have said to keep the price differences within the euro zone limited to a maximum of 15%. Where the EC allowed car brands to keep price differences within the EU at a maximum of 12 percent, Volkswagen, Opel and Mercedes got penalties of tens of millions of euros for not doing so (Dutch) Financial Newspaper, 07-23-2002).
One of the main goals of the new Block Exemption Regulation for automotive trade is to give customers in the EU best price-deals. But Detlef Wittig5 said: it's not only the customer's interest but also the commercial organization's profitability that are paramount to a manufacturer. To them, price harmonization requires the approximation of all elements of distribution. Volkswagen's contribution to customer-price approximation lies in the harmonization of net prices before tax cross-nationally, including harmonizing ex-works prices and margins for wholesalers and retailers. The contribution of the distribution policy of a motor-vehicle manufacturer to price harmonization should focus on price approximation as well as on Europe-wide harmonization of distribution standards and margin and bonus systems. Uniform European dealer contracts are then necessary. D. Wittig thinks that this will enable to link a basis of profitability with equal chances for European businesses with the consumer's wish for fair prices.
After the adoption of the "BER" some manufacturers raised their prices. In a high tax country like for example Denmark, nearly every manufacturer has raised their prices by approx 3 to 5 percent. In the UK, with very low taxes, car prices have decreased in high numbers as an effect of the competitive forces that rose in the last two years when many parallel-importers entered this expensive car market. The price of a typical new car in the UK is now only 5%
higher than the average in Europe, according to the latest European Index of New Car Prices6. This gap has dramatically narrowed since the year 2000, when new cars in the UK typically costed 35% more than their equivalents in euro zone countries. At that time, the gap forced the Government into action to drive down British car prices (www.autoindustry.co.uk).
Where most EU countries are about to increase up to the German level of car prices (CECRA Congress, 2002), British consumers still pay most as is shown in the last car price investigation of the EC7.
The narrowing price differences are mainly due to monetary integration, strengthening of the Euro versus other EU currencies and competition between car brands. Price convergence occurs in the car sector despite widely varying and very high registration taxes, in contrast to other products which are only subject to VAT. Increased competition brings prices down and fosters price convergence across Europe," says Ivan Hodac, Secretary-General of ACEA. The provisial new car price index was 102,5 for end 2002 (Euro stat), indicating a 1.2 % increase compared to the year before. Generally speaking, future car prices will not converge much downwards even compared with much slower convergence in other consumer goods (standard price deviation in EU, Nov. 2002 was 7%). Evidence from Denmark, Finland and The Netherlands already confirms this tendency (ACEA, 2002).
Future car price implications
-Rick Yarrow (www.eurocarprice.com) comments: "Car price differentials in Europe are caused mainly by the amount of tax levied by each country. There cannot be a truly competitive market for cars in Europe until Governments face up to the issue of harmonizing taxes."
5 Board Member of Volkswagen, Cecra Congress, 2002.
6 The European Index of New Car Prices: published by www.eurocarprice.com with PricewaterhouseCoopers.
7 Car price reports, published twice a year by the Directorate General for Competition of the European Commission (1998-2003): http: europa.eu.int/comm.competition/car_sector.
-Chairman Van de Coolwijk of the car department of RAI wants to convince political parties to abolish BPM which also by him leads to lower sales prices and will therefore give an impulse to car sales. That is according to the chairman not only advantageous for the car branch. Rising car sales lead according to Van de Coolwijk also to a quicker replacement or older cars by newer, with the cleanest technology, that meet European 2000 demands. Those cars are safer and environmentally saving.
-Also European Commissioner F. Bolkestein wants to harmonize Dutch fiscal registration taxes. His idea is to put a tax on fuel and lower registration taxes. This is necessary because as long as parallel trade continues, prices in high tax countries will increase. Otherwise car price increases make cars unaffordable for most high tax country consumers. This problem is now acknowledged and the discussion is now to abolish BPM (Tax on personal cars and motor cycles) that takes now 45 % of the price (Elsevier, 2002).
-In an EC Vehicle Taxation Study (ACEA, 2000) is stated on the future of parallel car trade: the amount of parallel car market sales will decrease according to the decrease of price differentials. Competition Commissioner Mario Monti declared: “Our monitoring of price differentials confirms that there is significant room for improving market conditions in the motor vehicle sector. The new regulation (1400/2002) should put the Internal Market into top gear, clearing the road for
consumers to benefit from greater competition and increased choice, while Mr. M. Monti reinforcing quality and safety in vehicle repair”. The study further said that as a rule of thumb, if the adjustment of tax differentials were with 20% (according to the first scenario) it would lead to a reduction of price differentials by 2-5%.
-Car dealer consultant Clem A.M. Dickmann (www.dealersupportnet.nl) says: "in the following years a new market order will become visible." Manufacturers will become more powerful in the retail business, since most manufacturers already have chosen for a selective distribution system. The car branch will no longer be a local but European oriented organism in which it will be more important for players on the car market to differentiate in marketing and alertness in front office and synergy and efficiency on back office. Where the role of the importer used to be high, now they only control and execute. This was for other branches for year’s business as usual. The brand-dealer will, according to Dickmann come under pressure.
Although the number of success-scenarios will decrease, now more then ever with the right market information and right choices they can survive.
Appendix 3: Interview Scheme
Date Name Institution Subject
4/2002 Sr. H. Meyer Staff of Sietsma B.V. History of company, orientation of company culture 4/2002 and
6/2002
Sr.Smelt, Sr., L.P. v d Molen
Former managing director, managing director
Internal aspects that effect export, policy/strategy expectations 6/2002 Sr. J.F. Kouwe International
Consulent at regional Chamber of
Commerce
Trade agent, business code, market research, trade regulations, international
limitations for SME's 6/2002 Sr. T. Kuipers Export specialist,
EVD
Export issues for Dutch entrepreneurs 9/2002 Sr. v. d. Heijden Financial journalist of
newspaper Volkskrant
Car distribution regulations, impact for all players in automotive branche and european consumers
9/2002 Different lectures Conference:
Internationalisation of SME's
Internationalisation of SME's, Country- selection research methods
9/2002 Lecture from Sr.C.
Wittig, Sr. J. Creutzig
Congres Cecra, Frankfurt (President and
EU legislation on car distribution and future expectations for dealers
10/2002 Ms. C. van der Heden Western-Europe Information manager (EVD)
Macro-economic situation in Europe 10/2002 Sr. Ing. P. Engel Car specialist,
department Advice and Expertise, ANWB
EU car distribution legislation and future perspective with customer viewpoint 11/2002 Sr. Joop Aret Head stock planning
at largest
distribution/logistics company Walon
Stockfacilities, transport/stock options. Efficiency improvement 12/2002 Sr. R. Veltenaar, K.
Huisman
2 Trade specialists Ambassy Austia
Macro-environmental factors Austria, Car branch Austria, Business culture
Appendix 4A. Measuring Table Chapter 5 Country Selection
Scale Points
1 Market Size
- Population in millions
- Number of cars in the country in millions
- Cars per head of the population Number of > 0.3 1 point
cars/population 0.3--0.4 2 points
0.4--0.5 3 points
0.5> 4 points
- Ford market share percentual < 4 1 point
4--7 2 points
7--10 3 points
2 Market development
- Registration of new passenger cars percentual > 10% 1 point
growth between 10----20% 2 points
1996/2002 20--30% 3 points
30%> 4 points
3 Entry-barriers
- Existence of import duties Yes - 1 point
No 2 points
- Different administrative procedures Yes - 1 point
No 2 points
4 Distribution channels
- Number of different distribution channels 0--3 1 point
4> 0 points
5 Car pricing
- Car taxation 37 percent tax - 5 ( till 32) 1 point
minus 5 - 10 (till 27) 2 points
for each point - 15 (till 22) 3 points
- 20 (till 17) 4 points
percentual -25 (till 12) 5 points
-30 (till 7) 6 points
- Car prices percentual 95>99 1 point
100>104 2 points
105>109 3 points
110>114 4 points
115>119 5 points
120>124 6 points
125> 7 points
6 Market risk
- Political stability Stable 2 points
Unstable - 1 point
- Economical stability Stable 2 points
Unstable - 1 point
7 Psychological distance
- Language familiarity Familiar 2 points
Unfamiliar - 1 point
- Geographical closeness Close 2 points
Unclose - 1 point
Appendix 5: Parallel Import Growth Examples
Growth of parallel car imports in four European countries from 1980 till 1993 (Goldberg, Verboven, 2000):
France
Parallel car imports France
0 20 40 60
1980 1993
Years (cars in 1.000 units)
Fr
Germany
Parallel car imports Germany
0 50 100
1980 1993
Years
(in 1.000 units)
Ge
Italy
Parallel car imports Italy
0 20 40 60 80
1980 1993
Years
(in 1.000 units)
It
Uk
UParallel car imports Uk
0 20 40 60
1980 1993
Years
(in 1.000 units)
Uk
Appendix 6A: Fiesta Price differences from 1999 till 2001 (Source: EC Price-diff. Report, 2002)
Fiesta Price-differences 1998
100 105 110 115 120 125 130
Ne Be Lux Fr It Au
European countries
Price-index
1998
Fiesta Price-differences 1999
100 105 110 115 120 125 130
Ne Be Lux Fr It Au
European countries
Price-index
1999
Fiesta Price-differences 2000
100 105 110 115 120 125 130
Ne Be Lux Fr It Au
European countries
Price-index 2000
Fiesta Price-differences 2001
95 100 105 110 115 120 125 130
Ne Be Lux Fr It Au
European countries
Price-index
2001
Appendix 6B: Focus Price differences 1999-2002 (Source: EC price-diff. Report)
Focus Price-differences 1999
95 100 105 110 115 120 125 130
Ne Be Lux Fr It Au
European countries
Price-index 1999
Focus Price-differences 2000
95 100 105 110 115 120 125 130
Ne Be Lux Fr It Au
European countries
Price-index
2000
Focus Price-differences 2001
95 100 105 110 115 120 125 130
Ne Be Lux Fr It Au
European countries
Price-index 2001
Focus Price-differences 2002
95 100 105 110 115 120 125 130
Ne Be Lux Fr It Au
European countries
Price-index 2002
Appendix 6C: Mondeo Price diff. 1998-2002
(Source: EC Price-diff. Report)
Appendix 7: Different car segments with examples of brand types
Table 1: Different car segments with examples of brand types (source: www.eurocarprices.com).
Appendix 8: Control points for the export process
• Check incoming order for being able to be delivered (type, design and construction, accessories, delivery-time and more).
• Check client credit-worthiness
• Plan payment appointment and penalties for late car pick up.
• Check all needed export documents before to send offer (passport, sales agreement…)
• Keep in mind response of order time-period
• Order cars direct after response and control accessories ordered
• Estimate delivery time and update the customer regularly
• File a complete customer document electronically, update regularly and make accessible for all export employees
• Check the order regularly in the manufacturer's online order system
• Order extra accessories for the ordered car early
• Keep sharp control of stock points and plan transports early
• Check car specifications and definitive receivement of car
• As soon as the Ford-invoice arrives, check with the order and calculate.
• Arrange the C.O.C. export document at the Ford Importer
• Store the invoice electronically and e-mail with delivery receive option to customer
• Install utter customer payment date in e-agenda
• Check car at receival for manufacturing/transport deficiencies and include on stock list
• Plan inspection and inform customer when car can be picked up
• Check accessories for transport planning
• Check transport planning
• Check transporter during picking up cars
• Control the freight letter and store electronically
• Do sales registration in time and make note in e-agenda for two month registration
• Send registration in time to importer to avoid penalty (most important control point)
• Save store material for possible juridical matters
Appendix 9: Export glossary
Commercial invoice
An itemized list of goods shipped, usually included among an exporter's collection papers. The commercial invoice is used by the importing country to value the shipment for classification and duty purposes.
Consumer The person who personally uses or consumes a good or service.
European Union An institutional framework for the construction of a united Europe—economically, legislatively, judicially, and socially. It includes the countries of Belgium, France, Italy, Luxembourg, Netherlands, United Kingdom, Ireland, Denmark, Greece, Spain,
Portugal, Germany, Austria, Finland, and Sweden.
Export Having to do with the shipment of commodities to other countries.
Franchising The right or license granted to an individual or group to market a company's goods or services in a particular territory.
Gross domestic product (GDP)
A measure of the market value of goods and services produced by the labor and property of a nation. Unlike gross national product, GDP excludes receipts from that nation’s business operations in foreign countries, as well as the share of reinvested earnings in foreign affiliates of domestic corporations.
Import Having to do with bringing commodities in from a foreign country.
Inflation An increase in the volume of money and credit relative to available goods and services resulting in a continuing rise in the general price level.
Intermediary An agent or agency situated between two parties; a go-between or mediator.
Marking Letters, numbers, and other symbols placed on cargo packages to facilitate identification.
Niche A distinct segment of a market.
Product The final commodity or service provided for trade.
Protectionist Government economic protection for domestic producers through restrictions on foreign competitors.
Sector A distinct part of society or of a nation's economy.
Strategic Essential to the conduct of a war, plan, or concept.
Tariff A document issued by carriers or conferences that establish all rules, rates, and charges for the movement of goods.
Trade The act or business of buying, selling, or exchanging commodities.
Value-added tax (VAT)
A tax assessed on the increased value of goods as they pass from the raw material stage through the production process to final consumption. The tax on processors or
merchants is levied on the amount by which they increase the value of items they purchase.
