Commentary: Bridging the car price gap

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The Independent Online
Vauxhall yesterday published a study purporting to demonstrate that British car buyers pay on average no more and no less than their Continental counterparts. Unfortunately, the supporting evidence suggests that this has only been made possible by sterling's enforced departure from the ERM and subsequent devaluation.

The study, carried out by AT Kearney, quotes the example of an Astra GL 1.4. Before our exit from the ERM this car was significantly cheaper in Spain, Italy, France, Germany, the Netherlands and Belgium than in Britain (once their local currency prices were converted into pounds). The Dutch price, for instance, was pounds 1,500 less. By this January, the tables had turned and the Astra was cheapest in Britain. A German customer would now have to pay pounds 1,000 more than his British counterpart. This is what was to be expected from sterling's 14 per cent devaluation against the ERM bloc: the sterling price of cars on sale in Germany or France has risen.

This conjures up several interesting possibilities. One is that the car makers may have been a little economical with the actualite when they insisted long before devaluation that UK car buyers were not being fleeced. Another is that the days of the personal import may be over - at least temporarily. It may no longer be worth scurrying across the Channel to pick up a cheap right-hand-drive car.

But this happy state of affairs may not last long. Intense competition may keep the lid on British prices for a while. Rover, for instance, has suddenly found itself with a 15 per cent cost advantage over its European rivals but it is hanging back from announcing prices for the new Rover 600 until Ford has said what its Mondeo will cost.

Once sterling's new rate is perceived as a permanent fixture, the temptation to begin edging UK prices back up may be irresistible. After all, the structure of the UK market allowed car makers to charge more to personal customers in Britain than on the Continent, and that has not changed.

Under pressure from the European Commission, car makers have agreed to begin publishing EC-wide price comparisons from May. In Britain, the industry is less happy about proposals from the Office of Fair Trading to eradicate some of the most restrictive features of the exclusive distribution system by which cars are sold. Car makers have a block exemption to operate such agreements until 1995.

In the meantime the EC should ensure that its price transparency code is rigorously enforced, armed with the knowledge that it does not have to renew the car makers' block exemption.

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