Consumer gains in car after-sales market

The first independent evaluation of an OFT market study, concluded that car owners and fleet operators saved between £120 million and £170 million over two years as a direct result of OFT intervention in the car after-sales market.

The total cost of the market study and subsequent actions was £300,000.
Market studies are short but wide ranging investigations into markets that the OFT suspects are not working well for consumers. Since their introduction by the Enterprise Act (2002) the OFT has conducted over 30 market studies into issues ranging from private dentistry to the competition effects of state aids to industry.

The New car warranties market study, published in December 2003, found that it was generally £80 more expensive to service a new car at a garage attached to a franchised dealer than at an independent garage, while there was no discernible difference in the quality of service offered. However, many owners of new cars did not take advantage of the lower prices at non-franchised garages because of restrictive terms in their car warranties. The study also noted substantial confusion amongst consumers on this issue, with more consumers thinking their warranty contained restrictive clauses than was the case.

Following the 2003 study, the Society of Motor Manufacturers and Traders (SMMT) put in place measures which ensure that most car owners now have the right to have their new car serviced at any garage without invalidating their warranty, and also ensure that they are informed of this right. The OFT ran a consumer information campaign to provide clear advice to buyers and owners of new and nearly-new cars about the choices available to them for servicing their cars.

The evaluation study came to the following conclusions about the OFT market study and follow-up actions:

as a direct result of the OFT intervention in the market, fleet operators saved between £90 million and £140 million and private consumers saved £30 million over two years

car warranties now allow owners to have their car serviced at any garage, though some warranties still strongly recommend the use of garages attached to franchised dealers

the OFT information campaign was successful in changing customers'

behaviour where noticed, but could have been better targeted and sustained over a longer period

continued confusion over warranty terms mean that some new car owners continue to have their cars serviced at franchised dealer garages when they would rather service them at independent garages.

These car owners overpay for servicing by £40 million to £90 million in total per year.

John Fingleton, OFT Chief Executive, said: 'This report highlights an excellent example of the OFT working with industry and using its full range of tools to deliver a high-impact outcome for the consumer at a low cost and in a short amount of time.

On this particular study, the OFT delivered over £400 in benefits for consumers for every £1 of taxpayer money spent. The report also demonstrates our continued commitment to evaluation for both external accountability and internal development purposes.'