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Monti gives a price warning to car makers

A major study into European car prices has singled out the UK as once again being the most expensive market for more than half the models surveyed. It also found British consumers still face obstacles when trying to buy a car from abroad.

The European Commission, which conducted the car price study, said it often receives complaints from British buyers who face long delivery times or high supplements for right-hand drive cars.

EC Competition Commissioner Mario Monti used the study's results as a platform to again warn car manufacturers the EC would investigate restrictive agreements and practices that 'directly or indirectly impede EU citizens from buying a car in another member state'.

Monti added that the reforms to the car distribution block exemption announced earlier this month should 'create the right conditions for competition in car sales'.

Based on price differentials of manufacturers' recommended retail pre-tax retail prices on May 1 this year, the study says that the UK market was the most expensive for more than half of the cars it examined.

Its findings show that people in Britain can buy a car manufactured locally thousands of Euros cheaper hundreds of miles away in another country.

For example, in Denmark the pre-tax price of a Land Rover Freelander is 21,096 euro and in the UK it is 25,907 euro – 4,811 euro, about £3,000 more expensive. And the pre-tax price for the Rover 75 in the UK is 22,810 euro – a massive 7,937 euro, about £5,000, more than the pre-tax price of 14,873 euro for the same car in Denmark.

'Since the prices in the UK are still much higher than elsewhere, many British consumers continue to try to buy cars from continental dealers,' the study said. 'The Commission often receives complaints from British consumers who encounter obstacles when purchasing a car in another member state, in particular, concerning long delivery times or high right-hand drive supplements,' it added.

The report found that pre-tax price differences were still 'substantial' across Europe despite the introduction of the Euro for 12 of the countries earlier this year.

In the study, Monti said: 'Our monitoring of price differentials and other indications have been regularly confirming that there is significant room for improving the functioning of the internal market in the motor vehicle sector.'

Monti added that the recent announcement of reforms to the car distribution block exemption 'creates the right conditions for competition in car sales and servicing, making the internal market work to the advantage of European consumers and economic operators alike.'

But commenting on the EC's findings, the Society of Motor Manufacturers and Traders' chief executive, Christopher Macgowan, said: 'Once again the industry has been criticised by a report which shows wide price differentials across Europe, with the UK singled out as a case in point.

'But the fact is that price differentials are caused by distortions which should not exist in a truly single market.

'It is a simple fact that while variables like different sales taxes across Europe remain we will continue to see reports like this in the future.'

For the rest of Europe, the report found that pre-tax prices in Spain, Greece, Finland and Denmark, a non-member of the Euro zone, are generally the lowest. Prices in Germany, the biggest market, and Austria, are the highest within the Euro zone.

Overall, the survey found the price convergence within different car segments has not greatly varied since the last report in November last year.

The Commission found that price differentials have increased for six models and decreased for eight models.

It added: 'As in the previous survey, the Commission has found that in the first four segments (A to D – superminis to mainstream family cars), where the high number of models from different competitors would normally lead one to suppose that competition should be strong, the average price differential within the Euro zone is much higher (well above 20%) than in segments E, F and G (executive and luxury cars.'

Commenting on low prices in Finland, Denmark and Greece, the Commission said: 'These are largely due to manufacturers' pricing policies and, to a lesser extent, in response to high taxes on car purchase in those member states.

'Most manufacturers fix pre-tax lost prices at a low level, alleging that this is necessary to make the after-tax prices affordable.

'However, in other member states where no such taxes are charged, prices before tax may be either roughly similar, as in Spain, or much higher, as in Germany.'

Regarding the United Kingdom, the study says car prices include the additional cost of UK specification, in particular right-hand drive, and are also affected by the high value of the British pound.

'All these aspects have to be taken into account when analysing the causes for high price differentials. The Commission has found that for British and Irish consumers buying a car in another member state, the supplement for right-hand drive specification is generally the lowest for models from the Japanese manufacturers, and the highest for models produced by Volkswagen Group (Volkswagen, Audi and Seat).'

Responding to the figures, Phil Evans, senior policy researcher at the Consumers' Association, said: 'The recently announced EC reforms to block exemption are welcome and will help force down UK prices.

'However, as the latest car price comparisons show the current rigged market will have a long and painful death – long and painful for consumers that is.

'We will not see real competitive pressures until 2005 and in the meantime manufacturers will do their best to wring every last penny out of overcharged British consumers.'

But Evans added: 'Reform is coming – just not for a while.'

Price-comparison - pre-tax prices in Euros
Make UK Denmark France Germany Spain
BMW 318i 23,352 19,063 21,409 21,681 20,334
Ford Focus 14,635 9,823 11,347 13,815 11,102
Ford Mondeo 18,773 12,066 15,217 17,478 14,409
Land Rover Freelander 25,907 21,096 22,580 23,156 21,218
Mercedes-Benz E220 31,460 30,687 30,401 30,400 30,642
Peugeot 406 16,692 10,888 15,552 17,131 14,546
Renault Laguna 18,793 12,064 15,506 17,072 14,855
Rover 75 22,810 14,873 18,012 19,756 17,849
Vauxhall Vectra 18,765 12,735 15,627 16,121 13,459
Volkswagen Passat 17,043 12,708 15,783 17,068 15,569
Source: National Office of Statistics

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