Car prices 'set to rise'

Car prices in the UK are set to rise in the next few months, some reports suggest.

Manufacturers may reverse the price cuts introduced in the past year either by raising prices overtly or by cutting dealer margins and changing car specifications, some dealers say.

Earlier this week, the Alliance & Leicester Car Price Index showed that car prices fell by a smaller amount in June than the average falls seen last year.

Those manufacturers offering significant discounts over the past six to eight months are looking to recoup their losses

Justin Skinner, e-commerce manager at Jamjar.com

But car manufacturers have dismissed suggestions that prices are on the rise.

The price of new cars in the UK has been a fraught issue for several months.

In recent weeks, a European Commission report showed that the UK is still one of the most expensive places in Europe to buy a new car.

Many car manufacturers cut their UK prices last year, following a Competition Commission report. Fear now exists that prices could be on the rise again.

Fiat's Alfa Romeo already raised prices by about 1% across Europe in June.

However, on Friday, a spokeswoman pointed to the fact they were "the first manufacturer last Easter that reduced our prices by a massive 20%".

Prices of Alfa Romeo cars are on the rise

Simon Empson, managing director at Broadspeed.com, agrees that some manufacturers have already raised prices.

"Those that have not raised prices have cut dealer profit margins and changed specifications on some of the best selling models, which has the effect of raising prices," he said.

By cutting dealer margins, dealers are less likely to offer discounts, automatically raising the transaction price.

"There is a lot of effort within manufacturing groups trying to find ways [ of raising prices] that don't affect the headline price," he said. "We have certainly got indications from some of the UK dealers we trade with that there are other increases in the pipeline."

Other internet car sellers have noticed that there are less bargains to be had.

"There is evidence they are not giving us the deals they were. The discounts that you were able to get a year ago are being squeezed," said Justin Skinner, e-commerce manager at Jamjar.com. "Those manufacturers offering significant discounts over the last six to eight months are looking to recoup their losses."

Smaller price falls

New car prices in June were 6% cheaper than a year ago, according to the Alliance & Leicester report.

In December, new car prices were 10.4% cheaper than a year previously, but since then the index has 'tracked a progressive upward trend', the Alliance & Leicester report found.

Car price movements in June

New car prices fall 6%

Prices of nearly new cars rise 5.8%

Used car prices rise 8.3%

Source: Alliance & Leicester

Douglas Williams of the Centre for Economic and Business Research said: "Although car prices are 6% lower than 12 months ago, the Index highlights a potentially worrying trend - new car prices are beginning to rise.

"New car prices fell 14% from their high in January 1999 to December 2000. But since then car prices have actually risen by 1% - and beware, if private demand continues to boom, price rises could accelerate this autumn."

Steve Fowler, editor of What Car?, said: "As new models replace old and car buyers flood back into showrooms, so we're seeing prices edge up."

But the Society of Motor Manufacturers and Traders (SMMT) has interpreted the Alliance & Leicester figures somewhat differently.

SMMT chief executive Christopher MacGowan said: "During the last few days, there has been a great deal of speculation about car prices in the UK, but this [Alliance & Leicester] report is clear evidence that prices have come down and continue to do so."