Ford Motor Co. and General Motors Corp. plan to raise prices in the U.K. to counter the pound’s drop, a strategy that may drive away buyers and accelerate the plunge in British car sales.
Ford says it will raise sticker prices in the U.K. by an average of 4.7 percent today, including a 5.2 percent increase for the best-selling Ford Focus. GM’s Vauxhall, whose sister brand Opel has cut prices and offered improved financing in Germany, will release details of a planned U.K. increase later this month, Simon Hucknall, a Vauxhall spokesman, said in a phone interview.
“Additional price increases are likely unless there is a strengthening in the value of the pound against the euro,” Brian Bennett, a Ford spokesman in England, said in an e-mailed response to questions.
U.K. auto sales fell 11 percent last year, with the decline gathering pace in December, when vehicle deliveries dropped 21 percent. The pound has fallen 11 percent against the euro and 27 percent against the dollar in the past six months, leading carmakers to strike a new balance between logging a sale in Britain and getting enough money from a purchase.
Raising prices in the midst of a recession is normally “suicidal,” Simon Empson, managing director of car sales Web site Broadspeed.com, said in a phone interview. Dealers use Empson’s business to move hard-to-sell inventory.
Writing Off Britain
“The manufacturers are going to write off the U.K. market for the foreseeable future,” said Empson, whose site is offering a buy-one-get-one-free deal on the 2008 Kia Magentis. “There’s such an overhang in the market that we’re seeing dealers sell at real losses. I can’t see too many positives right now.”
GM’s price increases are “due to the decline in value of sterling,” Hucknall said.
The Bank of England cut the key interest rate in January to the lowest level since the bank was created in 1694 as it tries to drag an economy that’s contracting at the fastest pace since 1980 out of a recession. Frozen credit markets have led to unprecedented discounting, such as Broadspeed’s offer on the Kia model.
Boosting prices seems “idiotic” because it’s likely to accelerate the industry’s decline, said Tim Urquhart, a London- based analyst with research firm IHS Global Insight. “The argument may be: What’s the difference? They’re not selling anyway, so we may as well charge a decent price.”
The U.K. car market is the third largest in Europe and was traditionally a key source of profits for automakers because of the high prices consumers were willing to pay, Urquhart said.
‘Cash Cow’
“They saw the English consumer as a cash cow, but no one’s making money in the U.K. right now,” said Urquhart, who estimates that sales of cars and sport-utility vehicles will fall 19 percent to 1.96 million vehicles this year in Britain.
Volkswagen AG, Europe’s largest carmaker, probably will follow the lead of its U.S. rivals. Paul Buckett, a spokesman for the German carmaker’s U.K. operations, said the company tries to keep pricing in line with competitors and that GM and Ford are two of the manufacturers it tracks. “We are looking at what our competitors are doing.”
The weaker pound means Europe-based manufacturers, such as Volkswagen, PSA Peugeot Citroen and Fiat SpA, get fewer euros for cars sold in Britain, depressing profits.
“The manufacturers should be helping dealers by putting the price down rather than up,” said Richard Peace, a sales manager at car dealer Motorhouse in Cannock, England, near Birmingham. “It all comes down to price” in the current environment, he said.
Export to Continent
The pound’s decline also makes U.K. cars potentially attractive for exporting to continental Europe, even with the steering wheel on the opposite side, and could hurt sales there, said Broadspeed’s Empson.
Higher U.K. car prices will “protect more profitable EU markets and provide support for drastically falling” values of cars being returned from leases, Empson said. The U.K. car market has reversed, he said, becoming the cheapest in Europe “by a big margin.”
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