Car makers are likely to maintain their discounts and incentives for new car buyers in the UK in 2005 in spite of sharp rises in the cost of steel and electricity.
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UK new car sales shrank fractionally in 2004 even though manufacturers pegged back price increases dramatically. The latest PricewaterhouseCoopers and eurocarprice.com New Car Price Index shows that the average list price of a new car in Britain rose by only 2.6% last year, compared to 4.7% in 2003.
However, a much larger fall in registrations is forecast for 2005.
PricewaterhouseCoopers said: “The lost revenue from new car sales in the UK – if registrations fall as far as predicted – would be more than £1 billion. With a large number of new models due out in 2005 and continuing intense competition for market share, we expect the trend for discounts and incentives for car buyers to continue and for list prices to rise slowly, if at all, in real terms.”
There is also evidence that car makers are successfully diverting consumers’ cash away from used car purchases into new cars. The most recent government figures show that households spent 1% more on buying used cars in 2003 than they did in 2000. In contrast, they spent 43% more on new cars although the number of new cars registered went up by 26% over the same period.
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By GlobalDataAlthough this difference implies that the level of price discounting has not damaged car industry sales revenues, the majority of cars were manufactured outside the UK, so the manufacturers’ return was affected by exchange rates. The significant weakening of the pound against the euro since 2000 has reduced car makers’ revenues despite the buoyant UK sales picture.
Automotive sales forecaster, R L Polk Marketing Systems, predicts that UK new car sales will fall by nearly 170,000 (6.5%) in 2005. This is expected to intensify competition for market share and limit the level of price increases despite the jump in raw materials costs.
The price index also shows that pre-tax car prices in the UK rose by 2% last year, compared to 3.1% in 2003. In Western Europe as a whole, where the new car market has been generally sluggish, the rate of pre-tax price increases fell from 1.7% to 1.3% during 2004.
There is a mixed outlook for car prices in Europe in 2005. R L Polk forecasts for the five largest markers predict a turnaround in sales in France and Germany this year, with both markets showing modest increases in volumes. In the UK, the continuing earnings concerns of the manufacturers, coupled with the predicted increase in material costs, are likely to result in higher price rises in 2005.
Car buyers in Italy, Spain and the UK can expect relatively lower price rises as manufacturers strive to limit declines in sales predicted for these markets.
The weakening of the pound against the euro has produced some compensation for UK car buyers. In June 2004, UK new car prices were 6% higher than the average for countries in the euro zone. In December, UK prices were only 1% above the same average despite a slight strengthening of the pound.
