Fleet News

Rip-off claims don't add up

IF you believe the hype, car manufacturers are not only ripping off British motorists but they are also laughing all the way to the bank. The Consumers' Association's 'Great British Rip-Off' campaign has portrayed manufacturers as arrogant money-making machines who don't give a second thought to the motorist.

But look under the surface and the rip-off argument doesn't quite add up. Factors such as the strength of the pound, local VAT levels, various special car taxes and high interest rates cloud the price comparisons across Europe. Manufacturers' financial results show Ford and General Motors globally have profit margins of 4.44% and 3.22% respectively - well below the average UK companies' operating margins of about 12%.

Speculating on the continuing acquisitions by larger car makers of smaller companies, Professor Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff University Business School, said: 'Some of the rates of return look derisory. There are few excess profits, but the fact that you do make a profit doesn't mean that you are making it because prices are high. In order to get lower prices, we need bigger companies with more production. High costs in the industry means it is uneconomical for smaller companies and the only way to get profit back into the industry is for a shake-out of some of the smaller players.'

Low profit margins and high customer expectations do not sit easily together. With the Competition Commission report compiled, but yet to be published, the industry also faces extra costs under the new European directive on scrappage. So if the Competition Commission finds UK prices are indeed a rip-off, what will the manufacturers do? A lengthy amnesty on price increases and effective negative price rises with car makers adding extra specification at no cost doesn't seem to have changed public opinion.

Christopher Macgowan, chief executive of the Society of Motor Manufacturers and Traders, said: 'I have seen the swings and roundabouts in the past and the situation now is particularly unpleasant, but it is not of our making. Across Europe most of the industry is on cost-down mode and this is driven by a need to reverse losses or improve very slim profit margins.'

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