Blog: Dave LeggettAnyone for higher car prices?

Dave Leggett | 28 July 2008

I walked past a used car lot yesterday and it looked very much like a buyers' market - especially for the larger cars. The 'bargains' reflect current economic realities. Big cars come with big running costs (not just thirstier engines, but increasingly punitive taxes in Europe). And at this point in the economic cycle consumers aren't exactly in the mood to spend, in any case.

Across the auto industry managing cost, especially in manufacturing, is a big issue. If your raw materials are going up in price there's not a lot you can do about that. It's the laws of supply and demand at work on steel and energy inputs. Squeezing your suppliers on price and encouraging them to make productivity gains can only take you so far. And the same goes for your own productivity gains. There are limits to what can be achieved.

Last week Volkswagen announced some pretty good financial results. They're about as good as could reasonably have been expected and our financial analyst, Rob Golding, was suitably impressed.

He noted however, that VW would like to raise prices on its cars to pass on some of the increase in raw materials prices that it is having to take on the chin. Other manufacturers would like to do the same. Indeed, CEOs of car companies seem agreed that it would not be unreasonable to increase prices a little.

However, making car price increases stick in the current economic climate would be like defying gravity. The markets know that (take a look at Fiat's share price - it has halved over the past year). Even car company CEOs who have walked on water in the past should perhaps be careful with profitability forecasts right now.

GOLDING’S TAKE: VW now stands for...very well, thank you


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