The British car industry was reeling yesterday as Volvo became the first company in the country to admit involvement in price-rigging with dealers.

The Office of Fair Trading said that the manufacturer had colluded in "a blatant disregard for UK law" and shown an "indifference to exploitation of customers".

Mr John Bridgeman, director general of fair trading, said: "This is a disgraceful case. A major and well-respected car manufacturer colluded with dealers who were fixing prices by penalising distributors who didn't toe the line."

Volvo Car UK and the Society of Motor Manufacturers and Traders (SMMT) tried to limit the damage, insisting that the investigations had revealed isolated incidents, but the revelation could hardly have come at a worse time for the industry.

The Competition Commission is about to start public and private hearings into car pricing and dealership arrangements after complaints that British consumers pay higher prices to subsidise smaller profit margins elsewhere in Europe.

Volvo UK, which sold about 40,000 cars last year and had a £70 million sterling (€107 million) turnover, has signed assurances that this will not happen again and that it will not support any dealership cartels.

It said staff co-operating in such arrangements in future could face dismissal for gross misconduct. Dealers risk losing their franchises.