Outlook: Euro nirvana fails to work magic on car prices

Norman conquest; Old Mutual blues
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The Independent Online

The launch of the euro three years ago was supposed to usher in the great nirvana of lower prices by making the cost of goods transparent across the eurozone. Prices are meant to harmonise down to the lowest common denominator, since if retailers charge more in one country than another, consumers will simply hop across the border and spend their hard earned euros where they buy the most. Well, it may be working for some things, but it is not working for automobiles.

The latest car price comparisons from the European Commission show that little or no convergence has taken place. Indeed, in some instances, the differential between the cheapest and most expensive pre-tax prices in euroland has actually widened as the single currency has matured.

Britain, which is not of course part of the single currency and still insists on driving on the wrong side of the road to boot, has long been the bad boy of the European car market with prices that would make even the most grasping Continental dealer blush. But who would have thought that car prices in Germany, one of the prime architects of the euro, would be 20 per cent higher than the cheapest in Europe three years into the great single currency experiment?

In fairness, the new car market is not one which readily lends itself to price convergence. The arcane and anti-competitive rules under which new cars are distributed and sold militate against free and fair competition and the consumer pays the price. The liberalisation of the rules announced last month should go some way to addressing this problem, although manufacturers will still be able to select their dealers and blind consumers as to what represents true price transparency through the varying equipment levels they specify for different markets. The real problem lies, however, with differing tax regimes. The motor car is one of the few consumer products where tax is levied at the point of use, rather than the point of sale. In Spain, it is 16 per cent, in Sweden it is 25 per cent and in Denmark it is 105 per cent. It is no surprise, then, that manufacturers, by and large, charge prices which the market can bear – higher for low tax regimes, lower for high ones. Harmonisation of consumption taxes is the only obvious solution, but that's even less likely than agreement between Tony Blair and his Chancellor on whether Britain should join the euro.

Norman conquest

It takes a particular talent to be outsmarted at the Dispatch box by one John Prescott, the Deputy Prime Minister, but somehow or other Archie Norman managed it with aplomb during his short and inglorious career as a front bench spokesman for the Tory Party on transport and the environment. Mr Norman may be a brilliant turnaround artist, he may even be a brilliant behind the scenes strategist, but brilliant stand-up politician he is not. So it is no surprise to hear that the former Asda boss is looking around for a suitable challenge in business once more.

Mr Norman joins a long and ever growing list of successful business leader turned failed politician. David Simon, formerly chairman of BP, tried it for a while, and then quit apparently disgusted by the whole miserable rigmarole. Subsequently he seems to have vanished without trace. David Sainsbury is said to absolutely love it, but then he was never a natural businessman in the first place, having had the role thrust upon him by accident of birth. As for Robert Maxwell and Geoffrey Robinson, the less said about them the better. One of the few examples of a comparatively successful transition was Lord Young of Graffam, who achieved the not inconsiderable feat of making the Department of Trade and Industry seem exciting. But that was in the glory days of the Thatcher government.

All business leaders turned politician dream of bringing the can do attributes of business to public life, but the skills and mindset don't easily transfer. Just look at Paul O'Neill, the US Treasury Secretary, formerly chairman of Alcoa. Well, not everyone thinks he's a buffoon and at least he's got a high level platform from which to preach his sometimes extreme free market views.

Mr Norman, by contrast, chose both the wrong party and the wrong leader to hitch his wagon to. There have been one or two attempts to make a business comeback, not least as part of the "awesome foursome" that was going to transform a little known shell company called Knutsford into ... no one was ever told and it was never entirely clear that even Mr Norman knew what he was going to do with it. The enterprise became memorable only for the way the Mirror's disgraced City slickers urged their readers to "beg, steal or borrow" the money to buy shares in it. Those that did would have lost their shirts.

Mr Norman made a lot of money as chief executive and then chairman of Asda, but set against the high flying entrepreneurs he regularly rubs shoulders with, he looks a veritable pauper. There are plenty of challenges in British industry right now, and in many cases investors are so desperate that they are prepared to pay very big bucks indeed to the man or woman who can turn them around. Mr Norman has already advertised his availability through the columns of one national newspaper, so roll up for the man who transformed Asda from basket case into an enterprise so attractive that the mighty Wal-Mart was prepared to pay £6.7bn for it. As for being bested by old Two Jabs, well, you can't be good at everything.

Old Mutual blues

Old Mutual is one of a number of South African companies that a few years back realised what a good wheeze it would be to come and list its shares over here. Not only do the executives get to live in London, as well as draw a London salary, but because these are big companies, they also secure a place in the FTSE 100, forcing the index tracking funds to buy up their share capital. It seemed a splendid idea all round, and in the aftermath of Old Mutual's demutualisation a little over two years ago, it drove the shares up to a high of more than 180p.

Today they languish at little more than half that, and it is not hard to see why. In South Africa, the core life assurance business remains strong, despite a mortality rate that would leave most actuaries trembling with fear, but the South African rand is in meltdown, which means those earnings are worth less almost by the day. Meanwhile, its attempts to escape its South African homeland could hardly have been more poorly timed.

At the top of the market, Old Mutual spent more than £2.5bn buying Gerard Group in the UK and United Asset Management in the US in an attempt to boost profits outside South Africa to a quarter of the total. The executive most closely identified with those acquisitions, Eric Anstree, paid with his job, while the shareholders are paying with some hefty write-offs. The new man in the hot seat, Jim Sutcliffe, reckons the company is well positioned for the future, but its hard to share this view.

Old Mutual remains a South African life assurer with a few, almost wholly unrelated, overseas businesses bolted on. At least with South African Breweries there is a certain coherence and logic in the company's attempt to secure leading positions in other emerging markets. Mr Sutcliffe has got his work cut out to develop anything similar.