On Thursday the Credit Suisse First Boston (CSFB) New Car Price Index published figures that showed UK car prices were still 24% above the European average, despite the spate of price cuts that have peppered the industry since September.
More significantly, the index also showed pre-tax prices in the UK were 35% more expensive than the European average.
Joseph Harrigan, vice-president of equity research at CSFB, said price reductions in the UK had only 'marginally narrowed the significant gap with the rest of Europe, but the continued strength of Sterling remains a barrier to any significant moves towards price harmonisation'.
Price differentials across Europe are a major concern for manufacturers, given that the car distribution block exemption stipulates pre-tax prices should differ by no more than 12%. Figures from Eurocarprice.com show that currently only 24% of cars meet this criterion in Europe, while 23% of car prices differ by more than 40%.
No car prices in the UK fall within 12% of the lowest European price, and nor do the vast majority of prices in all the major markets in Europe. For example, 77% of German cars, 80% of French cars and 78% of Italian cars are more than 12% more expensive than the lowest prices.
The reason for this divergence is largely due to national taxation systems, with the German, French, UK and Italian markets characterised by their low tax regimes, while the cheap pre-tax markets like Greece and Denmark have high VAT and car taxes.
If manufacturers were to harmonise their pre-tax prices across Europe to Greek levels, the move would cost the European motor industry Euros 40 billion (£24 billion) per year, which would mean bankruptcy.