103/06    27 June 2006

The first independent evaluation of an OFT market study, published today, 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 (see note 1). The total cost of the market study and subsequent actions was £300,000 (see note 2).

Download Evaluating the impact of the car warranties market study (pdf file 555 kb).

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 (see press release 170/03). 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 (see note 3). 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 (see press release 59/04).

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 (see note 4)
• 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 (see note 5).

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.'

NOTES 

1. The evaluation was conducted by Europe Economics, an independent economics consulting firm that specialises in competition, regulation, impact assessment and policy evaluation. Their estimate of impact was based on quantitative analysis of new consumer research commissioned for the valuation.

2. Total costs, estimated by the OFT, include all direct and overhead costs of the study, subsequent liaison with business and information campaigns.

3.  Following discussions with the OFT, all members of the SMMT agreed to remove restrictive terms in manufacturer's new car warranties that prevented consumers from servicing their cars at garages not authorised by the manufacturer of their car. The SMMT has also stated in its OFT approved New Car Code of Practice that consumers will continue to benefit from the manufacturer's new car warranty while the car is serviced to the manufacturer's recommendations, even if the service is carried out by an independent service/repair outlet.

4. New car warranties remain valid if the car is serviced at any garage authorised by the manufacturer, whether it is attached to a franchised dealer or not.  Warranties also remain valid if the car is serviced at a non-authorised independent garage. However, if a car is taken to an independent service/repair outlet, records should be kept of work completed, including receipts, and owners should ensure that any service/repair is completed according to the manufacturer's requirements.

5. Despite the price differential there are legitimate reasons for car owners servicing their cars at franchised dealers. Not all new car owners would have their car serviced at non-franchised dealers even if they knew that they could.  Due to this uncertainty, Europe Economics has estimated a range of likely outstanding detriment.