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Friday, 31 August, 2001, 17:43 GMT 18:43 UK
Drive for lower car prices 'losing pace'
Government inaction is allowing car manufacturers to reverse price cuts introduced last year following rip-off claims, a sector analyst has warned.

While new car prices were 10.4% lower in December 2000 than a year before, the rate of decline had fallen to 6.8% by July this year, a survey by UK bank Alliance & Leicester has revealed.

The slowdown reflects a failure by the government, which last year warned manufacturers to drop prices or face tough action, to pursue its threat, bank spokesman Geoff Seymour said.

"The government has not kept up the pressure on the industry," Mr Seymour told BBC News Online.

"There has been a general election, a change of secretary of state... the government has taken its eye off the ball for the time being."

New probe?

It "remains to be seen" whether the latest car price data prompts ministers to review the issue, Mr Seymour added, speaking on the eve of the anniversary of the government order aimed at bringing UK prices in line with those on the Continent.

New car prices - year to July
Small cars: -13.5%
City cars: -9.9%
People carriers: -7.6%
Super minis: -6.3%
Luxury cars: -5.6%
Executive cars: -5.6%
Family cars: -1.7%
Compact executive cars: -1.1%
Overall: -6.8%

Data: Alliance & Leicester

A Department of Trade and Industry spokeswoman told BBC News Online said the government was "concerned" about price differences across Europe.

"The government wants an effective single European market to supply new cars," she said.

"Our aim is to make the new cars market more competitive to deliver value for consumers."

'Rip off prices'

The government introduced the Supply of New Cars Order a year ago after the European Commission and a succession of industry reports questioned the level of car prices in the UK.

Trade for new cars dried up as a succession of reports on "rip off" prices kept Britons away from showrooms.

And a report by the Competition Commission in April 2000 found that UK motorists were paying an average of 10%, or 1,100, too much for new cars.

The then trade and industry secretary Stephen Byers, giving manufacturers three months to cut prices, said the order would mean a "better deal for car buyers".

"We... have taken quick and decisive action which will ensure that consumers get a fair deal when they buy a new car," he said.

"I believe we need to make sure that prices come down and stay down across the board."

Decline slows

But while car prices fell rapidly in the last few months of 2000, the rate of decline has slowed this year, with some manufacturers introducing rises.

A European Commission report in July found that the UK was the most expensive place within the EU to buy 52 out of 81 models surveyed.

Prices have been supported by a rush for showrooms, as buyers have taken advantage of lower prices.

The Society of Motor Manufacturers & Traders has revised upwards to 2.3 million, the highest figure for 12 years, the number of new cars which will be sold in the UK this year.

The Centre for Economics & Business Research sees the number of cars bought by private buyers surging 31.5% this year, chief executive Douglas McWilliams told BBC News Online.

"It is plain economics - strong demand tends to lead to rises in prices," Mr Seymour said.

Segmental analysis

Price cuts have been steepest in the small car market, including models such as the Ford Focus, Peugeot 306 and Volkswagen Golf, where competition is greatest, Mr Seymour said.

Family cars cost only 1.7% less last month than in July 2000, the A&L report said.

But the SMMT, while admitting the pace of price cuts had slowed, said that prices had fallen consistently since the publication of last April's Competition Commission report.

"There has never been a better time to buy a car in Britain," an SMMT spokesman told BBC News Online.

He also warned that the A&L report covered showroom prices, rather than directly surveying the prices charged by manufacturers to dealers.

Stagnant market?

Mr Seymour saw demand for new cars stagnating towards the end of this year, as the one-off effect of a change in licence plate design in September tails off, and consumers begin to feel the pinch of the economic slowdown.

"The winter months are anyway typically a poor time for the market," he said.

"People are thinking of other things, holidays, Christmas presents.

"I can see it being relatively quiet until the next licence plate change, in March."

See also:

27 Jul 01 | Business
Car prices 'set to rise'
23 Jul 01 | Business
EU: Cars cost most in the UK
23 Jul 01 | Business
Q&A: Buying a new car
25 May 01 | UK
Car insurance set to soar
23 Jul 01 | Business
Q&A: 'Rip-off' car prices
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