As the motoring industry prepares to navigate its way through several major changes, Jon Robins talks to the lawyers at the wheel

The placing of the last British-owned car manufacturer, MG Rover, into administration was a disaster for the 6,500 employees at its Longbridge plant in Birmingham, not to mention for the thousands of suppliers, and its collapse casts a pall over the motor industry.

‘If you look at the macro-economic background of the industry the big challenge is one of massive over-capacity,’ comments Stuart Young, head of Wragge & Co’s automotive industry group. ‘The global buying market for vehicles is about 45 million per year and the global selling capacity is nearer 60 million. All of our clients are very keen on value for money and that’s an ongoing, unremitting pressure upon them.’


Wragges is based in Birmingham, the heart of the UK motoring industry, and acts for a handful of global vehicle manufacturers as well as the likes of engineering company GKN, Johnson Controls, which makes vehicle interior systems, and the RAC.


So how does that economic pressure bear on the legal work? ‘It means motor companies are outsourcing, they’re looking to relocate to lower-cost base jurisdictions, [exploring] joint ventures and collaborations between suppliers and, more obviously, there are companies going bust,’ Mr Young says. Wragges does not represent MG Rover but it acts for pension trustees, ‘a large number of creditors of the company’ and ‘one person seeking to buy a large part of the business’. Lean times do not necessarily make for less work. ‘If there is less corporate work, there’s more recovery work,’ Mr Young adds.


South-west practice Clarke Willmott, which also has a base in Birmingham, maintains a long association with the industry through its merger with Amery-Parkes last year.


‘We don’t quite go back to the days when people used to walk with the red flag in front of the car – but we’re not that far off,’ says partner David Faithful. In fact, the Automobile Association (AA) was formed in Amery-Parkes’ London office in 1905.


The firm worked for the AA for 98 years, more recently on the legal expenses service it offers to its members. However, that connection ended shortly after Centrica bought the association.


But Amery-Parkes was keen to retain its historic links with the motor industry and became the first and only law firm to exhibit at the motor show at the Birmingham NEC in 1998, as well as at the Fleet Show. ‘We have shifted away from the motor industry generally and honed our practice on the narrower fleet market,’ says Mr Faithful, a self-confessed ‘petrol head’ and advanced motorcycle instructor.


Clarke Willmott now acts for four out of the five top fleet companies in the UK. It is a hugely regulated sector and Mr Faithful is a specialist in managing occupational road risk, telematics (all trucks made after August next year will have to be fitted with digital tachographs to record the driver’s working hours) and corporate manslaughter. ‘Small fleet operating companies are easy targets if you’re looking for a guilty individual with a guilty mind who is responsible for health and safety and can therefore be held responsible for an accident,’ he says. The solicitor points to the prosecution of Martin Graves, manager of haulage company MJ Graves International, who was jailed in 2003 for four years after he was convicted of manslaughter for failing to prevent his drivers from working excessive hours, and one of them killed a man in a crash.


The motor industry is a sprawling sector and ‘motor law’ covers a huge breadth of work. Wragges divides its automotive work into three areas according to client base – manufacturing, retail and motor sports – and its automotive industry group involves 20 lawyers.


At Honda, general counsel Christopher Morgan breaks his work down according to the constituent businesses – Honda Motor Europe, Honda UK (a trading division of the former), and Honda Finance Europe (the retail and banking side). ‘I used to say I do everything except for divorce and conveyancing – but I now do a bit of the latter as well,’ he says. There is industry-specific law and Mr Morgan points to an increasing regulatory burden on car manufacturers, such as the strict new targets on the recycling and re-use of vehicles and a new ‘block exemption’ regime allowing car manufacturers to introduce new conditions on its dealers.


Under the UK regulations implementing the 2000 European End of Life Vehicles Directive, by January 2006, 85% of a vehicle must be reused or recovered, and by 2015 that will rise to 95%. The regulations also make the vehicle’s producer responsible for the cost of disposal where a car no longer has any economic value. ‘As of June last year, we had responsibility for every vehicle sold after that date but they will have a long life and will not be coming back for a long time,’ says Chrissi Evans, UK general counsel at DaimlerChrysler. ‘By August, we have to have submitted our plans to the authorities detailing as to how we will take responsibility for all our products on the market whatever their age’.


Ms Evans is also chairwoman of the Society of Motor Manufacturers and Traders’ legal committee. Under the regulations, she explains that 75% of customers have to be within ten miles of a ‘take-back centre’. ‘It’s one example of the increasing amount of regulation that we face which, because of environmental and safety aspects of the product, is constant,’ she says.


Suffolk firm Ashton Graham last month launched a niche motor practice led by head of business law and biker Paul Whittingham (he rode his Yamaha XT 600 Ténéré across Africa from Egypt to Cape Town in 1991). The practice is aimed at its motor dealership clients who have to deal with the new block exemption rules that have been called the biggest shake-up in the way cars are sold, bought, serviced and repaired.


In 1988, the European Commission exempted the motor industry as a ‘block’ from the competition laws and so it was allowed to run outlets selling only one manufacturer’s products. The idea was that a system of tied dealers was necessary to ensure cars were properly serviced. As of October last year, the first wave of changes were introduced and it is now possible to sell cars from different manufacturers under the same roof via multi-franchise dealerships.


As to whether that is good news for Mr Whittingham’s dealer-clients, he says it depends ‘which end of the telescope you’re looking down. If, for example, you’re a dealer with a particular franchise, then you might have only made £200 on the sale of a new car, but at least the customer would have to come back for servicing,’ he says. ‘Whereas they might not [come back] anymore.’


Colin Miller, a competition law partner at the Scottish firm Biggart Baillie with a number of car dealer clients, points out that despite numerous investigations into car prices by the government and European Commission, car prices in the UK have remained higher than in most other EU countries. As he points out, the exemption has been constantly challenged on the basis that manufacturers have been using their networks to maintain high prices in certain areas of the EU and stop parallel importers from taking advantage of those differentials.


‘Car prices have been investigated twice in the UK over the past ten years, firstly by the Monopolies and Mergers Commission, in 1992, and by the Competition Commission in 2000,’ he says. ‘They concluded that the system still contributed to higher prices because of restrictions on advertising, the volume of cars a dealer could sell, the ability to hold competing franchises and the prevention of dealers from engaging in other car-related businesses.’


The new rules mean dealers would be able to develop greater bargaining power with their suppliers, he argues, increasing sales to private buyers and enabling dealers to offer lower prices.


The next big change comes later in the year with the introduction of the ‘location’ clause in October. After this date, manufacturers will no longer be able to stop dealers from opening extra outlets where they wish, including in other member states.


Miles Trower, a competition solicitor at Osborne Clarke, acts for dealer associations including Land Rover and Toyota. ‘Under the previous regime, dealers were very much restricted to where they could set up shop but these territorial restrictions are going to be removed as of October this year,’ he says. ‘So dealerships in the UK can be set up in Paris provided that they meet with local standards.’


In the UK, he notes there have been few dealers planning on expanding so far but he reports that the firm’s Cologne office has been busy. Mr Young also reports that the change has so far been a ‘damp squib’. He explains: ‘Partly that is because it is early days, but partly because the margins are so tight at the moment that no one has money to invest to make the most of the opportunities.’


Jon Robins is a freelance journalist