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Forget the hype over car prices tumbling in the UK following the European Commission’s changes to the way cars can be sold. Some national newspapers, spurred no doubt by the Consumers’ Association, have been claiming that carmakers in ‘rip-off’ Britain will get their come-uppance. Not if you study the details properly. In fact, very little will change as far as UK car buyers are concerned writes Anthony Lewis.
Price harmonisation, a key platform of competition commissioner Mario Monti’s strategy, is likely to lead to higher prices in cheaper countries rather than lower prices in more expensive countries, like the UK.French carmakers have already raised prices in Denmark, where high purchase taxes force car makers to lower the prices to dealers, by 6.5 per cent while prices have also risen in other high car tax countries like Finland and Greece.
Patrick Blain, Renault sales and marketing vice-president, Europe, believes that tax harmonisation is the key to more uniform pricing within the EU. The problem with relaxation of the block exemption without movement on tax harmonisation was “potentially dangerous,” he said. Dealers could buy cars in one country and sell in another. “What we don’t want is for people to set up in France and import cars from Denmark, for example, where the price is low and the tax is high. All that will happen is that we will raise our prices in Denmark and become unpopular there. This is not a nice way of doing things but it would solve a problem.
“What we need to ensure is that the consumer gets the best sales and aftersales service.”
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By GlobalDataCross-border shopping is hardly a new idea. Alcohol and tobacco, taxed far lower in France, make for a buoyant trade for cross-Channel ferry operators.
Norwegians, defiantly outside the EU, pop into Sweden to load up with decent red wine, for which they pay about £5 a bottle instead of more than £8 at home. Swedes in turn use the new Oresund crossing linking Malmo to Copenghagen to buy alcohol in Denmark while the Danes take advantage of the lower tax Sweden imposes on children’s shoes and clothing.
The Danes also head south to Germany to buy their most famous beer – Carlsberg – more cheaply than they can at home.
Unlike booze and ‘baccy, cars are seriously expensive purchases, and Professor Garel Rhys, head of automotive research at Cardiff Business School, says that consumers will not gain as much by the block exemption changes as the popular national press would lead them to believe.
Despite the evidence, the Consumers’ Association is convinced prices in the UK will drop by as much as 20 per cent and it claims that UK prices are still up to £2,000 more than in the cheapest EU country.
The association’s views find support in a survey by CarPriceCheck.com with more than four in five consumers think UK car prices are still too high. While as many as 61 per cent of car buyers believe it is now easier to negotiate a reasonable discount off their new car, 84 per cent still reckon car prices are too high. Most of the 3,500 car buyers who were surveyed felt manufacturers are being “greedy”. Only two per cent recognise the disparity caused by varying tax rates across Europe, which means manufacturers will have their work cut out getting the ‘tax harmonisation’ message across.
The survey also looked at the high profile possibility of supermarkets like Sainsbury’s and Tesco entering the market following the changes to European block exemption next year.
Only 32 per cent of the sample said that they would buy from a supermarket, and even then only if the price was lower than elsewhere. However, a massive 62 per cent were unconvinced they could offer enough choice and after-sales support to persuade them to part with their cash.
Steve Evans, chief executive of CarPriceCheck, said: “The question of whether prices have or haven’t fallen may still confuse the consumer, but they’ve certainly embraced the concept of not buying from the first dealer they visit, and the notion of hunting down bigger savings.
“We’ve seen a culture shift since the heydays of the Rip-Off Britain campaign back in 1999. Today, the first words a dealer is likely to hear from a customer is ‘What kind of discount can I expect from you?’ – something that was alien to the majority of car buyers two to three years ago.”
This survey comes against a potentially confusing background with figures from the Alliance & Leicester Car Price Index showing that today’s new cars are much cheaper – with some costing as much as 21.5 per cent less than when the Index was first issued in June 1999.
Overall, average car prices have fallen by 12.7 per cent in the last three years. The drop contrasts sharply with the rise in consumer costs elsewhere. Property values are up 50.3 per cent over the same period, while council tax and rates have risen on average by 21.7 per cent. The average cost of foreign holidays has also risen over the last 36 months, becoming 26.6 per cent more expensive, says the Alliance & Leicester.
Since June 1999, all categories of new car have seen a fall in price, with MPVs recording the largest drop (21.5 per cent). New Luxury Cars fell by only 1.9 per cent over the same period. In the nearly new (one year old) market, the average fall in value was 16 per cent – but MPVs recorded a 35.5 per cent drop. Used cars (three years old) demonstrated the largest overall fall in value, dropping by 20.6 per cent on average since June 1999, with MPVs once again showing the largest fall (30.8 per cent).
The cost of car ownership has fallen sharply compared with incomes (which have risen by 12.5 per cent over the last three years) – dropping 26 per cent since the first set of Car Price Index figures were released in June 1999.
At that time, it took 30.6 weeks for someone on average earnings to earn the price of an average new car (£11,971). June 2002 data on new car prices in the UK shows that it now only takes 22.6 weeks, with an average car costing £10,445.
Andy Bayes of Alliance & Leicester commented: “The story over the last three years has been one of ever lower prices and, conversely, increased earnings. These factors have combined to make new cars more affordable than ever before. Interestingly, many other prices, such as property, have risen considerably in this time period. By using the Car Price Index to track the continuing downward trend in new car prices, it is clear that UK car buyers are getting a far better deal than they were three years ago. ”
Douglas McWilliams of the Centre for Economics and Business Research commented: “Car prices in the UK have now reached a much more realistic level than three years ago. It is very unlikely that the price reductions will stop here: with the retail and car markets appearing less buoyant, there is now further downward pressure on car prices.”
Steve Evans, chief executive of CarPriceCheck.com explained: “Manufacturers are competing by improving specification, offering a wider selection of trim options and introducing an ever increasing raft of Special Editions to boost the appeal of their products. It works for some, but more and more people are buying on price and availability first and last, which is why the likes of car supermarket Trade Sales and importer Virgin Cars are concentrating on the models that can deliver the biggest savings for buyers. Increasing the number of available models and changing the specification makes it easier for manufacturers to cloud the issue and more difficult for the consumer to really see what’s happening on price.”
The pricing issue is also complicated by the level of discounts the industry is willing to give – discounts that some observers feel gives a false view of the true strength and vitality of the new car market in the UK. During the summer, consumers could have expected an average discount of 10.8 per cent on an EU imported model compared to 4.69 per cent from a UK supplier.
Anthony Lewis is a partner in Interchange, the automotive business news agency and consultancy www.interchange-auto.com
