OFT warns car dealers over warranty restrictions

The Office Fair Trading (OFT) has warned that if servicing restrictions remain on car manufacturers warranties, it will consider launching a formal investigation under European competition law.

In a study published today, the OFT has urged car manufacturers and franchised dealers to lift restrictions on where new cars may be serviced while under warranty, and to provide better information to customers on the terms and conditions of their warranties.

Recent changes to European regulation for the car sector mean that manufacturers and their franchised dealers are obliged to open themselves up to greater potential competition for after-sales services from garages outside their network. For this to work effectively customers must have undistorted choice about where they have this work undertaken, the OFT said.

Over 2.5 million new cars are sold in the UK every year. All new cars come with a manufacturer's warranty, generally running for one to three years, covering the premature failure of components due to manufacturing defects.

Many manufacturers also offer, at no additional charge, 'dealer-based extended warranties' that take the total period of cover to three years. Under the terms of many of these extended warranties, and some manufacturers' warranties, the car must be serviced at a garage belonging to the manufacturer's franchised dealer network. About half of all new cars sold have warranties with such servicing restrictions.

The costs of after-sales service and repairs on average equate to about 40% of the lifetime cost of a car. The total spend on car servicing and repair in the UK is around £10 billion a year, of which about £1.4 billion is spent on servicing cars up to three years' old. Franchised dealers carry out around 90% of servicing of cars up to three years' old.

Servicing at franchised dealers is generally more expensive than servicing at independent garages, averaging £199 and £116 respectively, without any apparent difference in the quality of the service offered. On this basis, servicing at franchised dealers may be costing consumers up to £500 million extra per year.

The study found that customers are often unaware of the options available to them when choosing a garage, and that over two thirds of customers assume that their warranty will be invalidated if they use an independent garage, even where this is not the case.

To promote further the development of competition in the market, the OFT will launch a consumer awareness campaign in spring 2004 to provide clear information to buyers and owners of new and nearly-new cars about the choices available to them for servicing their cars.

John Vickers, OFT Chairman, said: "Competition and consumer value in the after-sales market are inhibited by restrictions.on the car servicing choices of car owners.

"The car industry now has the opportunity to address the concerns in our report, and we welcome the recent moves by some manufacturers to remove servicing restrictions."

(gmcg)