UK magazine Which? Car reports that automakers in the Land of Hope and Glory have hiked prices, effectively killing the advantages of the country’s cash-for-clunkers (a.k.a. scrappage) scheme. The mag cites three examples: “The price of a mid-range Ford Fiesta has jumped from £11,570 in October 2008 when the car was launched to £13,195 in July 2009—a massive 14% increase.” And “Vauxhall’s new Insignia looked affordable in January 2009, priced at £17,981 but it has now broken the £20K barrier with a list price of £20,430 in July 2009, also a 14% jump.” And “Another chart-topping supermini, the Nissan Micra, was priced 11% higher in July 2009 (£12,395) than in September 2008 (£11,200), although its equipment has been improved.” Said the actress to the Bishop. Yes, well, the conclusion is inescapable. Ish.
It appears manufacturers are inflating prices just when the scrappage scheme requires them to chip in at least £1,000 worth of discount on a new car. The reality is more complicated—global economic conditions have forced a rethink of UK car prices. But some manufacturers have managed to resist price increases despite the rising costs of raw materials and spiralling exchange rates.
In other words, supply and demand, baby. But the point is still well taken: don’t get well taken by car dealers who could conflate the price of a car even if the number was tattooed on their forehead. Or maybe, especially.
Especially in an industry where negotiation is so common, but even otherwise, some portion of subsidy is going to the seller and some to the buyer, regardless of who legally the government gives it to. And it’s really nearly impossible for the government to prevent this, again when prices tend to be raised each year anyway.
When I lived in the UK (twice), prices tended to be about 40-60% higher than Holland and about 100% higher than the USA, for new cars in the UK.
The EC was “supposed” to bring prices “in line” across borders, but for some reason the UK prices never really did that, and while they did come done gradually (from what I heard), they never came down to the level of Holland or anywhere below the average of the other EC countries on the mainland of Europe.
I suspect that the price increases are related more to the slippage in the value of the Pound compared to the Euro, or anticipation of same (which amounts to the same thing – higher prices in the UK) not so much the clunker discount/rebate from taxpayer monies. (Most “British” branded vehicles are built in mainland Europe).
It’s a bit long, but pay particular attention to the part where it says “Banking leverage over the past ten years has risen form 19% to 50% versus tangible equity and is currently about 45%. In England it is 55%. UK bank assets are 5 times GDP, whereas they are 2 to 1 in the US.” If the UK is in worse shape the the US economy, little wonder confidence in the Pound is slipping. Next will be the US Dollar and then the Euro.
http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Causes_of_Depression_Yet_To_Be_Addressed
Now that the pound exchange rate is in the basement, it’s not really a surprise.
Mr Menno,
Long time, no argue! ;O)
Your comparison against UK car prices against the Netherlands (not Holland. Holland is a province, Holland Noord and Holland Zuid, within the Netherlands) isn’t fair.
In the UK, cars are used far more than in the Netherlands. Even though the public transport system is good here, the fares are still not competitive against running a car. Whereas in the Netherlands, petrol is taxed insanely high, public transport is dirt cheap and people bike everywhere due to cheap, or even free bikes.
Hence, Dutch car prices have a LOT of competition, therefore, the price has to be lower for anyway to consider buying a car.
As for US prices against UK, I’m convinced that the reason for this is twofold:
1. Because of economies of scale, car makers can lower the prices of their cars because they have a bigger market to sell to, thus, maintaining healthy profits.
2. The cars in the US are worse than the ones in the UK. I’ve just come back from a trip from the US and I got given a Nissan Versa from the car hire place and it is the second worst car I’ve ever driven*. The handling was shot to buggery, the fuel economy was woeful and the build quality was shocking. Now I’ve driven the Nissan Note, which is the UK equivalent and whilst it was a pretty poor car, it was still streets ahead of the Versa. Hence, another reason why cars are cheaper in the US.
Anyway, back to topic.
If Ford, Vauxhall and Nissan do go through with this price hike, they do so at their peril. There is still, Toyota, Honda, Mazda, Mitsubishi, Peugeot, Renault, Citroen, FIAT, BMW, Mercedes-Benz, Volkswagen, Audi, SEAT, Skoda and plenty of other car makers will to sell cars at cheaper prices than them. I just hope it’s a calculated risk on Ford, Vauxhall and Nissan’s part and not a knee jerk reaction to falling profits…..
As for the pound falling, don’t believe the hype. We’re already back to $1.65 per £1 and €1.16 per £1. Talk about the UK economy collapsing is utter twaddle. Don’t forget, we have Europe to trade with, not to mention the warmer ties with China (who placed massive orders with UK companies recently). Nobody is selling pounds because they believe it is going to be a worthless currency.
Now, what about the US dollar…..?
* = The worst car I’ve ever driven? A Renault Scenic (the same as a Renault Megane). Trust me, it was the automotive equivalent of a “Paris Hilton” film….just terrible!
I live in a no-sales-tax jurisdiction, and car dealers here jack up the price to put this in their own pockets.
Anyway, I’m not surprised; what you describe is like college tuition in the US. The more money governments provide to support students, the more the schools raise their fees. Today’s astronomical costs at Big Name schools are in effect direct transfers from the taxpayers to the institutions.
That was predictable – adjusting the price to meet demand is as old as Adam Smith.
It’s Rip-off Britain! What did people expect! A country where you pay the equivalent to everybody else around the world? Get real.
The UK suffers by being by far the largest right hand drive European country. This restricts supply (and hence cost) of vehicles to whatever the manufacturers want. In left hand drive European countries, an attempt to raise prices like this would cause an influx of gray market cars from elsewhere or another manufacturer would alter distribution and marketing to fill the void.
Low car prices in Netherlands? Only if you look at them ex tax. A basic Golf 1.4 Trendline is priced at €19,550 in the Netherlands, compared to €16,650 in Germany. But it does include €6,005 in VAT and car tax; the pre-tax price is €13,545, compared to €13,405 in Germany.
Another example of low pre-tax prices is Finland, where it’s less easy to do cross-border shopping: that same Golf costs €18,772 including car tax and VAT, but remarkably only €11,450 before taxes. Clearly a less-profitable country for the car manufacturers to do business in.
But UK makes up for all those lost profits …
Hi Katie, nice to hear from you. Yes, the US dollar is going to possibly (probably) collapse in value, in much the way that the Weimar Republic Papiermark did, for the simple reason that the United States is, for all intents and purposes, Bankrupt. (It’s called “hyperinflation” which in our case, is going to be followed by the current depression caused “deflationary” cycle).
Anyone can argue hither and yon until hoarse, about whether or not this or that or the other – but the facts are clear.
Just as a household with a spendohaulic couple totally out of control, both of whom are bankers with access to essentially unlimited credit, at some point “someone” will catch on and realize the debts cannot be paid back. Did you catch the CANNOT part of PAID BACK?
Britain is in reality, better off in the one sense (trade with the EC and as you say, China) but on the other hand, with figures like the UK’s debts and house-of-cards-banking institutions, well, it probably wouldn’t do to crow too loudly because your house of cards is likely to collapse just as ours will. As will the Eurozone. If the wheels all come off, it’ll make the Great Depression look like a pleasant tea party with fresh scones and jam.
GM and Chrysler are only microcosms of what is happening in this country. The crunch will come when the Chinese and Japanese stop buying debt.*
When the President of the United States accidentally slipped away from his teleprompter for a moment, he actually admitted that the United States was “out of money”. But of course, the slobbering Obamalatio press simply let that comment slide by. Any responsible press would have – um – pressed the matter further.
*so, who here followed the news about the $134 BILLION dollars in huge US Treasury bonds which were hidden in a suitcase and found at the Italy to Swiss border, being held by two Japanese nationals on the way to Switzerland? You know, the bonds which were subsequently said to have been “counterfeit” yet the two Japanese walked away scot free? The Japanese simply blinked first and were trying to secretly sell and get out of some US dollar denominated bonds…. they quite obviously believe they’ll be worthless, soon. Likewise, when the highest ranking US Federal Bankster gets LAUGHED AT in China by the generally very polite university students when he passes comment that “your money is perfectly safe” what does that tell you?
By the way, I haven’t lived in the UK for almost two decades, but when I visit and compare prices it sure seems expensive for everything.
Yes, Katie, you hit the nail on the head regarding the lack of quality of vehicles in the US compared to what is expected in Europe and the UK.
Conversely and perversely, Americans are actually getting to really demand Japanese (i.e. Toyonda) levels of reliability in their cheap Playskool plastic interior vehicles, where Europeans and Brits will still buy rolling abortions of unreliability just because they are “desirable” in some way or fashion.
Probably because over half of the Brits get to pass the expense of their car buying/leasing to their employers as perks – new every year – (or at least that is how it used to be), whereas in the states, most folks pony up the money for their own cars.
Anyone can argue hither and yon until hoarse, about whether or not this or that or the other – but the facts are clear.
The same group of people who don’t have a clue about economics (or numbers in general) have been asserting this for about the last 100 years, and have never been right.
Apparently being wrong for a century hasn’t fazed them at all, so I wouldn’t hold my breath they’ll get smart soon.
–
Did you catch the CANNOT part of PAID BACK?
You realize, for example, most mortgages are not fully paid back? Do these people ever think about these simple counter-examples that show their ideas to be idiotic?
—
Today’s astronomical costs at Big Name schools are in effect direct transfers from the taxpayers to the institutions.
More like direct transfers from the feds to the states.
For what it’s worth, this report seems to me to be a badly researched hatchet job. To give an example, highlighting the price increase on Insignia as being to cover scrappage sounds like a perfect smoking gun. Problem is, I just checked and Insignia isn’t even in the programme…
Bottom line is that for most of 2008 the pound was below 0.8 versus the Euro. This year it’s been over 0.9 for most of the year (it’s back a little just now, but still along way from where we were last year). Given that most costs for most manufacturers are in Euros, guess what’s been happening to prices. Great time to buy a Morgan, though…
Interesting addition is that the largest demand in the UK is for imported cars – mainly Hyundai i10 apparently.
http://www.zigwheels.com/News/Hyundai-i10-soars-on-UK-scrappage-scheme/Hyundai_20090728-1-1
And its true, the bloody things are everywhere.
So much for helping the UK or even European car industry (ok – yeah I know, dealers, servicing, parts etc. do get help, but come on…)
Vehicle classifieds; buy and sell new and used cars, motorbikes, trucks and vans.
http://www.deal-autos.co.uk™ distinguishes itself from other online car selling websites by giving a generous donation of 10% of its revenue amount for various social causes©