VW in line for huge fine

THE EUROPEAN Commission will this week send shockwaves through the car industry by imposing a fine of at least pounds 13m on German car maker Volkswagen for preventing its dealers in Italy from selling cars to other European Union nationals.

The penalty will be the toughest yet in part of a long campaign by Brussels to iron out differentials in car prices across the 15 EU member states. It will come less than two weeks before the publication of a separate EU report that is expected to show that the strong pound has made Britain one of the most expensive countries in Europe in which to buy a new car. Eighteen months ago, it was one of the cheapest.

Brussels believes Volkswagen forced its Italian dealers to turn away thousands of non-Italians who flocked across the border to take advantage of cheaper car prices in Italy due the weak lira. In 1994, when the Italian currency fell to an all-time low against other EU currencies, cars were up to 40 per cent cheaper in Italy than in other EU countries. Competition officials in Brussels have documentary evidence proving that Volkswagen even threatened to stop supplying cars to dealers that did not observe the illegal agreements, according to Commission sources. Under the EU's single market rules, it is illegal to stop consumers from buying products in any country they choose. The fine will be fixed at a meeting in Brussels on Tuesday night and according to one Brussels insider "will be big, very big".

Car manufacturers and distributors have long claimed that currency fluctuations are the only reason for widely differing car prices. "Trying to maintain a stable price regime in the market is hopeless with wide currency fluctuations," said a spokesman for the London-based Society of Motor Manufacturers and Traders. He said that while it is theoretically possible to save thousands of pounds by buying a car in another EU country where the currency is weaker, in practice few UK car hunters bother because "most people are part- exchanging the car and there is little demand for used right-hand drive cars on the continent.