Pound Down -Car Prices Up.

[hawk20]

Some reports say 86% of new cars sold in the UK are imported and the falling pound could well lead to higher prices all round if the pound does not recover soon.

Monday Feb 2nd both Ford and GM (Vauxhall etc) announced that they are raising prices 'due to the falling pound'.

My E class estate, with the extras I've got, lists at £40k in the UK and at 55k euros in France and in Germany.

At nearly one Euro to the pound it needs to rise by an awful lot to yield the same revenue in euros for MB.

The French have begun ordering over here as they are legally entitled to do and they get a big saving. Can't last IMO.

 

[Deadhead]

Yes but new cars aren't selling now. What will price rises do to the market? Its going to be tough for the distributers and dealers.

Of course maybe right now is the time to buy - before prices rocket...

 

[Smiley]

It is the same story for most things we buy in this country as almost everything is imported - we could see unemployment going up at the same time as higher inflation; not nice.

 

[richard]

We hear the politicians tell us that the weak pound benefits exporters and is thus not a problem.

Trade data to Dec 07 (sorry couldnt find 08 data, may not yet be published)
- Total value of UK exports for the 12 months ending December 2007 was £218,919m (approx 10% lower that previous year)
- The total value of UK imports for the 12 months ending December 2007 was £308,689m (approx 2% higher than previous year)

So, given we import more than we export, and I dont really see us suddenly starting to manafacturer on a large scale (certainly not a £90billion more exports), I can only see that the weak £ is bad for us, and thus prices will either rise or manafacturer/retailer margins will be squeezed and businesses shrink.

However its good that Europeans are buying cars here, at least the 'profit' on the sale goes to employing staff here and tax being paid here.

Since I keep a keen watch on certain parts pricing, Mercedes UK put up parts prices by about 5% and reduced dealer margin on a lot of the parts by 2-3% on Jan 1st. No where makes up for the currency loss though, and depending how far forward they bought their Euros will no doubt effect when further price rises show up.

Richard

 

[A-AvantGarde]

I'm in the process of choosing a new comapny car and I've seen in the past month some of the manufacturers price lists have had quite a hike, in particular with the prices on optional extras. Some of the BMW (sorry!) options costs appear to have gone up by about 10%

 

[crammy69]

List prices may well go up, but given that all manufacturers are giving upwards of 10% discounts on list prices, three are still deals to be done. Its true that in the short-term sterlings fall will lead to some un-hedged importers trying to pass on these costs, but with demand so tight the pricing power lies with consumers, I would guess that there will be downward pressure on wages in countries from which we import to counter the drop in the pound. The end result is the whilst prices may well rise in UKon certain imported goods, we wont see the whole 30% increase that the pounds drop would suggest. Anyway, the bad news in EU isnt all out yet, dont write the pound off just yet....

 

[Subyland]

I know that a couple of manufacturers have put their prices up in Jan and Feb, due to the falling pound. But will they go down when the pound goes up ???

 

[Nik_Endeavour]

Well I do not think that putting prices up when nothing sells is a smart move. Maybe the Japanese (Honda and Nissan) that have plants here will fill the gaps left by ford and Vauxhall.

 

[Smiley]

List prices may well go up, but given that all manufacturers are giving upwards of 10% discounts on list prices, three are still deals to be done. Its true that in the short-term sterlings fall will lead to some un-hedged importers trying to pass on these costs, but with demand so tight the pricing power lies with consumers, I would guess that there will be downward pressure on wages in countries from which we import to counter the drop in the pound. The end result is the whilst prices may well rise in UKon certain imported goods, we wont see the whole 30% increase that the pounds drop would suggest. Anyway, the bad news in EU isnt all out yet, dont write the pound off just yet....

I agree with you - as this mess unravels I expect we will be glad to be in control of our own currency, and given all the problems in the eurozone I am surprised the euro is holding up as well as it is.

 

[Dieselman]

Well I do not think that putting prices up when nothing sells is a smart move. Maybe the Japanese (Honda and Nissan) that have plants here will fill the gaps left by ford and Vauxhall.

Absolutely. It could be great news for UK manufacturers, it will improve their ability to sell products both domestically and internationally at a stroke.

Anyone fancy a ToyondaMGIni.?

 

[wemorgan]

as this mess unravels I expect we will be glad to be in control of our own currency

Are we really in control of our own currency?

 

[st13phil]

Richard is absolutely right: we are a net importer of manufactured goods in the UK, so the weak pound is far from the "benefit to exporters" that some would have you believe. Even for goods finally assembled in the UK many of the components are sourced from the Eurozone, so the overall cost of manufacture rises significantly.

Anyway, the bad news in EU isnt all out yet, dont write the pound off just yet....

The pound has overshot in it's fall against world currencies and the Euro seems to have been a bit of a bolt-hole during December for those scared out of Sterling and the US$. As such, the Euro is probably trading higher than it should too. Roll on the correction

But will they go down when the pound goes up ???

Maybe. A number of our suppliers have actually kept their price lists stable but have added a transparent (i.e. a separate invoice line) "exchange rate surcharge" of 7% recently. This would suggest that they may actually reduce or remove it once Sterling picks up again. But then maybe they won't

 

[Rory]

Some reports say 86% of new cars sold in the UK are imported and the falling pound could well lead to higher prices all round if the pound does not recover soon.

Monday Feb 2nd both Ford and GM (Vauxhall etc) announced that they are raising prices 'due to the falling pound'.

My E class estate, with the extras I've got, lists at £40k in the UK and at 55k euros in France and in Germany.

At nearly one Euro to the pound it needs to rise by an awful lot to yield the same revenue in euros for MB.

The French have begun ordering over here as they are legally entitled to do and they get a big saving. Can't last IMO.

Why do you keep posting on this theme over and over again? Some people might wonder if you are trying to soften us up on behalf of MB UK.

We've paid more for cars than almost anyone in the world for many years.

Where is the evidence of French people buying cars in the UK? I just Skype'd one of my French colleagues (who, incidentally, drives a 2.7d Land Rover Discovery III and when he bought it new a couple of years ago he paid an awful lot less for it than it would cost in the UK) and he was astonished at the suggestion that the French would order cars in the UK.

Perhaps if prices do rise, and manufacturers sell less cars, than residuals will improve? At the moment we seem to have the world's lowest used car prices.

 

[crockers]

Some reports say 86% of new cars sold in the UK are imported and the falling pound could well lead to higher prices all round if the pound does not recover soon.

Monday Feb 2nd both Ford and GM (Vauxhall etc) announced that they are raising prices 'due to the falling pound'.

My E class estate, with the extras I've got, lists at £40k in the UK and at 55k euros in France and in Germany.

At nearly one Euro to the pound it needs to rise by an awful lot to yield the same revenue in euros for MB.

The French have begun ordering over here as they are legally entitled to do and they get a big saving. Can't last IMO.

A few points -
Are these prices both after tax?
Would anyone pay that price for that car? If not what are the equivalent discounted prices?
Would you rather drive a Ford / Vauxhall or a Honda / Toyota? So putting up prices when sales are at an all time low is suicide. Honda / Toyota will easily fill that void.(And in my opinion are better cars)
When the pound was strong Britain was the place to rip off the customer and turn a good profit - now it's time to take a little pain on the grounds "it all comes out in the wash"
If Manufacturers do raise prices - makes our cars better value second hand.

 

[hawk20]

Why do you keep posting on this theme over and over again? Some people might wonder if you are trying to soften us up on behalf of MB UK.

We've paid more for cars than almost anyone in the world for many years.
.

My interest in cars and the economy can survive even your usual abuse, Rory. And both Vauxhall and Ford putting up prices despite the recession is interesting to some motorists and might be a sign of what is to come for those of us who prefer German makes.

BTW this thread has brought forward some interesting views (which you are not compelled to read) and the info on spares prices rising, of which I for one was not aware.

BTW we have not paid significantly more than other Europeans for ages for cars and that is why the import trade has largely dried up. And today, both the French and the Germans are now paying much more than us at list price. I have no idea whether or not they get more or less discounts than we do.

The US is a different market and we cannot sensibly buy over there nor they from our dealers and comparisons with their prices are notoriously difficult.

 

[hawk20]

Are these prices both after tax?
.

Price includes VAT. IIRC the French rate is 19.6% and isn't Germany similar? The UK price was taken when out VAT rate was 17.5% -so not very different.

 

[crammy69]

I think i saw on another site a post that said vauxhall were bringing out an offer of 0% finance with......5% cashback!!!. So looks like they're putting prices up to make a discout look better.

 

[st13phil]

Actually, I don't think we're likely to see the recent collapse in demand significantly depress the medium and longer term price of cars in the UK. It's probably true that there is structural over-capacity worldwide for the manufacture of passenger cars, and - as others much better placed to judge than I have already commented - it's quite possible that not all the European car makers around today will survive the current recession, but falling prices are unlikely.

Car manufacture is highly capital intensive, with high levels of automation. This means that the fixed cost per unit produced become cripplingly high if you (for example) cut production by 50% without actually removing capacity. And that doesn't mean labour from the line, because that's direct variable cost. So, even after the direct labour lay-offs that have already happened in the car industry around the world, the cost per unit produced has probably increased rather than decreased purely through the higher proportion of fixed overhead that each produced unit attracts.

It's no surprise that Ford and GM have raised their prices in the UK. Much of the value in the vehicle is sourced from non-Sterling economies and the cost has of that value has increased by around 40% since October 2007. Add in the lower volumes and thus higher overhead costs per unit and it's easy to see that the car makers have big problems. Frankly, it wouldn't surprise me to hear that they were close to loss making on every unit sold in the UK at the moment because structural capacity cannot be shed at anything like the rate that demand has dropped. And the solution to that problem is to further drop prices? Errr... No. Those manufacturers who continue to sell at a profit should be the ones who come out of the recession with a business that's still working. A destructive downward price spiral where each manufacturer reduces prices to undercut the next would actually make matters worse, and they know it so it won't happen. The weakest will go bust anyway, but "buying" sales in this way damages the prospects of those who would otherwise survive.

Sadly, the real solution to the problem will only arrive once the manufacturing overcapacity is removed through plant closures. The trouble is that adding that capacity back if demand recovers is very costly and happens even more slowly than removing the current excess.

 

[Smiley]

Are we really in control of our own currency?

We can still decide our own interest rate policy - part of the current eurozone problem is that different econmoies are in different shapes and need varying interest rates to deal with their own situations - it could implode because of this over the next few months. Not sure if that is good or bad.

 

[hawk20]

I agree with much of what st13Phil says. Car makers actually make tiny profits per car in general and many actually make losses -even before the recession and the big drop in sales.

With the fall in the pound, we are not talking about a two, three, four or five per cent drop in value, which some car makers could have swallowed. We are talking about an amazing drop of 30% or more in under a year. No car maker, not even Porsche, makes enough per car to cover such a huge increase in the cost of importing cars to sell them in Britain.

At the present exchange rate even without the fall in sales, none of the major car makers who import their cars, could make any money on sales to the UK.

Either the pound recovers or we shall see a nasty rise in car prices and spares. As the night follows day. Only the timing is in doubt.