View from City Road: Number magic from Ford

Click to follow
Two headlines were involved in a head-on crash last night, one telling us that car sales rose 12.7 per cent last month, the other that Ford is cutting prices by 10 per cent.

Isn't this strange, when everyone knows that manufacturers only lower their prices when the market is doing badly?

There is indeed something wrong - not with the headlines themselves but with the stories behind them which, in fact, can be reconciled quite happily.

Let us take the first one. Car sales did indeed rise 12.7 per cent last month - but the comparison is with 1992, when March sales were at their lowest for 15 years.

The real picture is that car sales, one of the motors of consumer spending, remain relatively depressed. We know this because March 1993 sales are 4.5 per cent down on their level in 1991.

So to headline number two.

Well, yes, Ford has reduced its car prices by an average of 10 per cent, but the actual transaction price that customers will pay in the showrooms will not fall by anywhere near that amount.

What Ford has actually done is to lower dealer margins - the difference between its recommended retail price and the amount charged to the dealer - from 17.5 per cent to 10 per cent. This means that the real price of Ford models, including its new Mondeo successor to the Sierra, will, at best drop by 2 or 3 per cent.

What we have then is a market that is just about about dragging itself off the bottom, and a market leader that has taken the merest sliver off prices because to make any bigger an inroad would be commercial suicide.

There will be few winners and one set of losers - the motor distributors. Yesterday the stock market had not yet taken that on board, but their share prices look vulnerable.