The European commission last night unveiled its much trailed shake-up of the way cars are sold in the single market and immediately ran into a political row.

Gerhard Schröder, the German chancellor, said proposals to reform the so-called block exemption regime by easing "serious restrictions" on consumer choice were a threat to the competitiveness of the car industry there.

In Britain, traditionally seen as the most expensive car market in the 15 nations, the proposals were welcomed both by the motor industry and consumers.

Sheila McKechnie, director of the Consumers' Association, said the proposals marked "a hard won victory for UK consumers who for years have been taken for a ride by car manufacturers."

The Society of Motor Manufacturers and Traders welcomed the decision to renew, not scrap, the block exemption regulation.

Christopher Macgowan, chief executive of the society, said: "After the most rigorous of investigations, the commissioners have concluded that motor vehicles are unique products that require special arrangements for sales, service and repair."

Romano Prodi said the commission over which he presides was "putting car buyers first. The car sector is... a test of our promise to deliver a true single market."

Though the proposals will not open the way to a "free-for- all" in car sales, they will give dealers far more independence and allow them to escape the existing regime under which they are bound by area-based sales targets, bonus schemes and restricted vehicle allocations. Independents should also find it easier to obtain low-cost cars to sell on to consumers.

From October 1, dealers will be able to solicit for business anywhere in the EU and open showrooms anywhere they want. They will be able to sell different manufacturers' cars under the same roof, where now they can sell just one.

"Flexibility and the possibility of choice are the key words," Mario Monti, the competition commissioner, told the European parliament. "A VW dealer in Amsterdam could for example open up a showroom in the UK and sell the Golf at the Dutch retail price which is 23% lower than the UK one."

One EU spokesman said: "It would be wrong to see this either as a maintenance of the status quo or as a wholesale deregulation of car distribution arrangements. There will not be a sudden shift to supermarket or internet sales. We are not saying that cars are commodities that can be sold like pots of yoghurts."

Mr Monti refused to respond to Mr Schröder's criticism in detail but reminded the German leader, who is facing an election later this year, of the "widely shared and repeatedly stressed" commitment to realise "a more effective single market and advantages for consumers".

His proposals will not lack political support. Phillip Whitehead, Labour consumer affairs spokesman in the European parliament, said the new regime was "a big victory for Mr Monti. You cannot say that the block exemption is dead but you can see a stake being driven through its heart. It's going to bring prices down."