The competition watchdog has expressed "preliminary concerns" about an aspect of AP Eagers' proposed acquisition of rival car dealer Automotive Holdings Group.
The Australian Competition and Consumer Commission says it has concerns about how the tie-up would affect competition north of Sydney, but says the merger would be unlikely to affect competition nationally or in Australia's biggest cities.
"The ACCC is seeking further feedback from market participants about this proposed transaction, in particular regarding the Newcastle/Hunter Valley region," Australian Competition and Consumer Commission acting chairwoman Delia Rickard said on Monday.
The combined company would have 46 per cent of the new car dealerships in the Newcastle/Hunter Valley region, the ACCC said.
"We believe that local consumers generally don't travel beyond the Newcastle/Hunter Valley region to buy new cars, and it is difficult to find out the final price for a car without visiting a dealership," Ms Rickard said.
But the ACCC said that the acquisition would be unlikely to substantially lessen competition for the supply of new cars in Melbourne, Sydney and Brisbane or nationally.
Neither would it affect the wholesaling and retailing of used cars, the acquisition of car dealerships or the supply and acquisition of finance and insurance products.
According to the ACCC, AP Eagers has six of 10 dealerships in Newcastle and AHG has three.
AP Eagers has another five dealerships in Cardiff and Glendale and two in Maitland, while AHG has three in Cardiff and Glendale and five in Maitland.
Overall, however, the two companies only have a total of 25 dealerships in the region - compared to 204 elsewhere in Australia.
The ACCC said it was seeking information about whether a divestiture would address potential competition issues in the Newcastle/Hunter Valley region.
AP Eagers said it was reviewing the ACCC's preliminary views, "however, we continue to believe that the merger will not substantially lessen competition in any market.
"Even in the few geographic areas where the activities of the two groups overlap, including Newcastle and the Hunter Valley, it is AP Eagers' view that there will continue to be choice and competition."
AP Eagers said it would continue to assess its options and "believes it is well advanced in addressing the issues identified by the ACCC."
The ACCC must make a final decision on the merger by July 26, unless AP Eagers agrees to extend this period.
At 1305 AEST, AHG shares were down 1.45 per cent and AP Eagers shares were down 3.46 per cent.
