Fleet News

Single market - single price - singular optimism?

NEW car pricing is one of the most emotive issues in the fleet industry - in any country. The idea of pricing is further confused by the different levels at which it might be compared, and by the different ways in which those apparent price inconsistencies are treated by the plethora of interested parties - whether professionally or politically.

Whichever category one considers, it is important that the fleet manager has it clear in their mind what is meant by pricing - and today, how those prices compare between countries, and, as important, how might they realistically expect to benefit if at all, from those market differences.

In this article, we will examine the different new car price levels within the EU, the different levels of pricing which might be considered and seek to pull out some pointers as to how pan-European fleet operators might seek to manage those differences.

What is a new fleet car price?

There is quite a range of different prices that might be considered when looking at vehicle prices in Europe, indeed within a single market, and it is critical that we are all singing from the same songsheet when trying to make comparisons and strategic decisions. Consider the following range of different prices, any of which might be quoted to the international fleet executive:

  • Base price - the price of the vehicle before any tax is added to it.
  • Retail price - the price charged for the vehicle with the tax added to the vehicle. Those taxes in Europe vary between about 8% and 120% or more; clearly they can have quite an impact on the final price.
  • Retail price - the sticker price that one might see in the showroom: that is the figure from which any negotiation about discounts might begin, whether with the private or fleet prospect.
  • Specification adjusted price - a figure which one never actually sees on a vehicle but is a calculated figure which makes adjustments for options and series differentials so one is comparing like with like.
  • Transaction price - the figure which is finally paid for the vehicle taking account of all of the different allowances and perhaps the trade-in value of the previous car. This is probably as near a 'real price' as one can get; however, it will vary unit by unit.
    Inter-market and inter-vehicle pricing can be further complicated by currency fluctuations and short-term deals. Suffice to say, the range of opportunities to make mischief by comparing different levels of pricing is enormous. An index comparison

    To try to bring some sanity into this complex situation, one might look at the euroPrice indicators produced by Jato Dynamics; here the company has undertaken an analysis of a basket of cars' prices across the EC - in this case some 1,100 variants in the markets which between them account for some 80% of new car sales in Europe, so it is comprehensive.

    The build-up to the car price is shown in the three charts on this page. Consider the contents and their strategic implications.

    Base prices are worked from an index of 100 at the beginning of 1999. It will be noted that base prices vary between the low figures of Greece and Portugal to the high figures of the United Kingdom and Germany - yet the two latter are some of the biggest car markets in Europe. Some of the markets which appeared high in terms of base price have, in reality, a lower tax figure. Thus Germany and the United Kingdom would appear to be among the lower tax-rated figures.

    Attention to the fine detail is necessary when an organisation seeks to plan a pan-European fleet strategy. The temptation must be to look at the different markets and ask the question: 'Why can't I buy in one market and use in a second?' In theory, the answer might be 'no problem' in reality, however, it should be 'proceed with extreme caution'.

    Cross-border leasing is possible; there are companies claiming to be willing and able to do it. So what are the practical pitfalls of purchasing a vehicle in one country, operating it in a second, and even selling it in a third?

    Within the EU, after all, we claim there is free movement of goods and services, and in the majority of those markets there is a single currency, so there should not be, at least in theory, any issues of currency exposure. Some pragmatic approaches to the cross-border issue

    International fleet operators have a number of options which they might pursue regarding cross-border operations in an attempt to seek lower overall costs of vehicle provision.

  • Buy vehicles in one market and use them in a second - or third - and return them at the end of the vehicle life for disposal.
  • Follow a policy of cross-border leasing - and take the vehicles from a provider in a low-cost market and use them elsewhere.
  • Talk nicely to the manufacturer and ask him if he will help you in terms of pricing in the market in which the vehicles will be used so you at least bring them some way towards a better price. Some practical issues regarding market price minimisation

    Efforts to seek to take advantage of lower prices across borders can take a variety of approaches; some of which might work; others of which are, frankly, dubious, and still others which are probably illegal.

    However, there are a number of points which the pan-European fleet should bear in mind when it considers the opportunity of operating across the border in attempting to cut costs. Consider the following - and this list is by no means exhaustive.

  • Warranty - vehicle warranty may vary between one market and another; one year may be the norm, but elsewhere it may be three years - or even unlimited mileage. How does one seek to claim the differential warranty - and what chance of success does one have - realistically and economically?
  • Vehicle specification - while size might not matter, specification can be critical to a field force or other deeply competitive group. Differential specification may make some feel great and good - if they get the higher specification vehicles - while others may feel dejected and abuse the vehicle as a result. Option prices may soon absorb any cost saving through buying across the border.
  • Collection logistics - a well managed pan-European fleet would expect its new cars to be delivered to the driver and the used vehicle taken away, as part of the transaction price. No such safety net may exist with a car bought in a different country and shipped across the border. Just how much would be the cross-border delivery cost - or the opportunity cost of the driver collecting it?
  • Used vehicle disposal - this may have an impact at both ends of the spectrum; on the one hand, does the organisation have in place a disposal system that will take the current used vehicles and sell them at an attractive rate. Equally, how will vehicles acquired abroad be disposed of economically?
    The administrative task of acquiring cars out of market can be complex - or at least time-consuming; does that get added to the real price? Quite simply, there are a lot of hidden costs to be taken into account when a business seeks to acquire a car out of market and then operate it. Before you consider just the saving on capital cost which might be possible in acquiring in a different market, look at that range of broader issues and put a monetary and hassle value on them; make sure it is a realistic figure. Some conclusions

    Cross-border transactions might seem to be a panacea to high purchase prices; however, there are many smaller issues that need to be taken into account - and jointly they may well destroy the difference between the perceived retail price and the transaction price of those shiny new cars 30km away, but in a different country.

  • Professor Peter Cooke is head of the Centre for Automotive Industries Management at Nottingham Trent University. peter.cooke@ ntu.ac.uk (April 2000)
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