Commentary: Ford does the industry no favours

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The Independent Online
If those slender green shoots of recovery sighted recently in the car market suffer a fatal bout of frostbite in the new year then the industry will need look no further than Ford, the market leader, for the explanation.

Barely a month after the Chancellor presented the motor lobby with an early and unexpected Christmas gift by abolishing the remaining 5 per cent special car tax, Ford has reversed the measure by announcing price rises of between 4.5 and 10 per cent.

To the casual observer, it looks suspiciously as if Ford has decided to pocket the Chancellor's tax cut rather than pass it on to those consumers driven out of the car market in their hundreds of thousands by recession, fear of unemployment and falling house prices.

Ford denies this, insisting that the price rises have been forced on it by devaluation and the resulting increase in the cost of imported models.

Its argument would carry more weight if the price rise was limited to those models it brings in from the Continent - the Sierra and the Granada. As it is, buyers of the British-built Escort and Fiesta ranges will see prices rise as well.

Ford's ability make the price rise stick is, of course, another matter. That depends on whether other manufacturers follow suit and whether the recent rise in car sales is sustained.

The cynical calculation is that since November's 6 per cent increase in sales took place before the abolition of car tax had a chance to work through, then a price increase that reverses the benefit of that tax cut will have no impact. But it is a high-risk calculation to make in a market that has been hit worse than most by recession and where, as Ford is first to point out, consumer confidence is paramount.

Even if the gamble pays off, Ford is unlikely to have done itself or the rest of the industry a favour by being perceived to have taken the Chancellor for a ride.

The industry's next battle will come in the spring Budget, when Norman Lamont has made it plain he intends to recoup the loss incurred through abolishing car tax by raising the cost of motoring.

Having initially said that what it objected to was not so much a tax on the use of cars but on their purchase, the industry is squawking about the dangers of increasing the road fund licence or petrol taxes.

Mr Lamont would be more than justified in ignoring its pleas.