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Car makers raise prices by 5% after Mandelson bailout
Robert Lea2 Feb 2009
VAUXHALL and Ford are slapping price increases of 5% on cars in the UK - less than a week after the taxpayer bailed out the British motor industry with a £2.3 billion handout.
Ford said it would today raise prices by 5.2% on its best-selling Ford Focus with prices going up an average 4.7% across its range.
US-owned Vauxhall, part of the General Motors group, will announce its price rises later this month, a spokesman said.
The decision by the giants of the US car industry which have not only been bailed out by the American government but are set to benefit from Business Secretary Lord Mandelson's handouts will be met with dismay in Westminster.
Both Ford and General Motors said the firms are raising prices because of the fall of sterling. Others, including the German giant Volkswagen, indicated they would follow.
Industry experts said they were amazed.
"The argument [from the manufacturers] may be: what's the difference?" said Tim Urquhart of consultancy Global Insight.
"They are not selling anyway, so they may as charge a decent price."
Motor dealers are already struggling with a huge overhang of unsold new cars from the worst year for the motor industry in a generation when at times last summer there were fewer cars being sold than in 1966.
The British market is the third-largest in Europe but UK sales have been dreadful.
One in seven cars sold in the UK was a Ford but the American giant sold 25,000 fewer cars last year at 322,000. The fall in sales at Vauxhall was worse, down nearly 10% as sales dropped more than 32,000 to fewer than 300,000.
Sales for other manufacturers have been worse, with falls across the market at 11% for the year and down 21% in December.
The mainly foreign-owned car making industry here is also grinding to a halt. The number of cars coming off production lines in December halved.
Mandelson said the £2.3 billion would be used to help manufacturers keep their factories open as well as provide finance for consumers to buy cars.
Reader views (19)
Nothing ever changes as always the people at the top of the car companies seem to insist in showing the general public just how out of touch they are.
In the last recession in the Uk I was involved with a Family business with General Motors: a great many people were losing their jobs yet we were told that they were increasing the amount of cars that we had to sell!!
They can quote statistics all the time - but statistics do not pay for the cars.....hard working general public do.
- Elizabeth Taylor, dallas tx, 03/02/2009 15:08
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Not exactly familiar with the concept of supply and demand then ....... new car, anyone?
- Marianne, SW France, 03/02/2009 06:29
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It just means that the discounts that they are going to have to offer to clear the acres of unsold cars will have to be that much bigger.
- Seabee, London UK, 02/02/2009 19:35
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they are just pumping up the price so they can cut them again in a couple of months with a big fanfair
- John, Twickenham, 02/02/2009 19:28
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Cars in my opinion (like the housing market) are way over priced. Perhaps people were able (foolish) to pay those prices when credit was easy, but we are in a new world now. I accept the problem with the devaluation of sterling, but even allowing for that and the effect of inflation car makers need to wake up to the situation and realise that they need to offer a product at an affordable price.
- Joepublic, Surrey, 02/02/2009 17:59
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Brilliant business acumen. Two fingers up at everyone including their own employees who will presumably be losing their jobs eventually as a result of such a tactic!!!!!
- Raymond, London, 02/02/2009 16:32
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After 50 years in the Motor Trade its my opinion that they have got it wrong, the problem is that they view their products too highly, they think so much of their product they consider that if they put up their prices that on the ones they do sell the increased profit margin will keep the business solvent. What they should do is drop the prices to a price where the cars are flying out of the showroom door (cash flow) and when they have all gone, then the demand will be there for new ones, instead thousands of new un-registered cars will be out in the snow, some perhaps over 12 months, and with the public not being as stupid as they used to be customers will query when a car was actually made, not when the dealer registeres it for the first time. Its a changing world, they dealers are trying to change it their way by raising prices, the new economic downturn is bigger than them.
- Jim Alan, Lake District, 02/02/2009 16:17
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You want low interest rates for overpriced mortgages and then wonder why the pound crashes and import costs go up??
Just wait until the food industry, the clothing industry, and electronics retailers start to do the same - discounts meant that people held off thinking they could by cheaper - the tide will turn o that people buy becise they fear prices getting more expensive - the "discount" honeymoon isnt going to last believe me!!!
- Michael, London, 02/02/2009 16:16
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Dave Davies - Here begins the inflation part of devaluing a currency of a nation that hardly manufactures anything anymore. Imported goods will be more expensive. Ask Iceland how they are getting on right now. Just because you don't like it doesn't mean that it isn't solid business logic, cost price plus is a very practiced pricing model and does ensure a level of profit (when calculated correctly - many facors to include) for each unit sold. FX rates need to be reset every now and then to be inline with whatever FX hedging tools they use. As mentioned by others you don't need to buy a new car however the demand for used will increase pushing up their prices as supply decreases. People will then look at the price difference of used versus old and start to opt for new. As always in Britain people will pay in the end rather than go without as long as the cash is available somehow.
- James, Zurich, Switzerland, 02/02/2009 16:13
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The carmakers should never have been bailed out. The industry needs cutting down to size as all can see. Steve from Glos is dead right. The wretched Mandelson hopes to score election points by his bail out at taxpayers expense.
When an industry is on it's deathbed their is no point in trying to bring it back to life.
- Mordwinoff, Lisle France, 02/02/2009 15:51
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I was just waiting for a price rise to help me make up my mind and buy one. Can anyone think of a better reason.
- Michael, Bristol, 02/02/2009 15:43
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The second hand car market is also going to see price increaes as dealerships are moving their attention from the showroom to the used lot and having been stocking up at bargain prices.
- Chris Davies, Stalybridge UK, 02/02/2009 15:08
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You don't have to buy one.
- James, london, 02/02/2009 14:46
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James - Zurich. A price rise is a price rise, whether or not it could have gone up by more.
You could theorise that a rise is a discount, but in the real world I inhabit, it takes more cash to purchase a car that had a price increase of 5%.
- Dave Davies, Basingstoke, 02/02/2009 14:33
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Makes sense if they are planning to pay back the loaned money (since we didn't give money to foreign companies, thank god), as opposed to the yanks' car bailout recepients who will almost certainly merge or tank.
- Madmax, London, 02/02/2009 14:18
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If you can't see the logic behind this then I think you need the Business Basics class. Unit cost price, which is in Euros for Opel, let us assume has remained the same in Euros. The Pound has dropped by approx 15% over the last twelve months against the Euro. So a 5% price rise is in reality a discount. Discounting is one option when facing a situation where you need cash and aren't too worried about profits, how much you discount (to the extent you might end up selling it below what you built it for) is a decision not to be made lightly. Now if you were bringing in a new model, such as a New VW Golf, and you had lots of the old ones already built then I think Joe Public will get some great deals on the old model. Shop wisely and I'm sure you'll find great deals.
- James, Zurich, Switzerland, 02/02/2009 13:45
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Not only the bankers laughing at Brown by giving themselves bonuses with tax payers money.Now the car makers are laughing at tax payers by taking taxpayers money then putting their prices up.Is Brown a total fool letting them do this.
- Anon, leicestershire, 02/02/2009 13:02
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That's very clever.
Adding 5% to cars they can't even sell in the first place.
Seems like these car makers want to go broke.
- Steve, Gloucestershire, 02/02/2009 11:42
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Not very bright these Car people, certainly no grasp of economics. They have unsold cars all over the place, but put prices up. Doh!
- Dave Davies, Basingstoke, 02/02/2009 11:32
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