Ford, GM Raise U.K. Prices to Squeeze Value From Falling Pound

Feb. 2 (Bloomberg) -- 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.”