UK car price cuts ordered

Car makers have been ordered to slash prices in the UK after prices for new cars were found to be 10% to 12% higher than in other European countries.

Government orders

Dealers can buy cars on the same terms as fleet buyers

Car makers must tell dealers current fleet buyer prices

Dealers can advertise price discounts

Manufacturers must supply cars to discounters

Suppliers cannot set sales targets for dealers

Acting on a report by the Competition Commission, Trade and Industry Secretary Stephen Byers ordered manufacturers to offer private purchasers the discounts normally available only to fleet buyers.

Typically, consumer discounts average 7% to 8%, while fleet discounts can be as high as 35%.

He has also taken steps to prevent car makers dictating prices to dealers.

The price cuts must come into effect within two months.

Over-paying

The Competition Commission's 737-page report found that prices in the UK had been up to 12% higher than in similar countries in Europe.

This report confirms ... that in Britain we are paying over the odds for new cars.

Stephen Byers

It also said private buyers were paying about £1,100 too much for the average car.

It is estimated that the overall cost to car buyers in the UK amounts to £1bn a year.

Mr Byers said the report's findings could not be ignored.

"The market is not operating as competitively as it should," he said.

The Society of Motor Manufacturers and Traders said there was little scope for significant price reductions.

Paying too much?

ALFA ROMEO 145
UK - £11,040
Denmark - £6,178

CITROEN Saxo
UK - £6,442
Greece - £3,979

FIAT Bravo
UK - £10,183
Finland - £6,304

ROVER 214
UK - £10,055
Spain - £6,283

RENAULT Clio
UK - £6,913
Denmark - £4,071

TOYOTA Corolla
UK - £9,339
Italy - £6,089
EC figures

Its spokesman, Christopher MacGowan, said prices had been tumbling in recent months and that this would "take some time to work through the system".

For that reason, he said, he did not see any scope for an immediate drop.

The motor industry has consistently denied that consumers were being "ripped off", claiming currency differences were responsible for lower prices on the Continent.

However, various surveys have shown prices in the UK to be far higher than could be explained by the weakness of the euro.

Also, manufacturers have been able to control the prices dealers charge because of a long-standing block exemption from EU competition laws.

The exemption is due to expire in September 2002 but this is now under review.

Crossing boundaries

Different national circumstances can create scope for price cuts in other countries.

In Denmark, for example, prices are kept low to compensate for a luxury tax on cars.

That allows EU consumers to import new cars from Denmark and pay the lower rate of tax in their home country.

Car makers still seem to be able to make a profit on their operations in Denmark, even though they have to keep the prices net of tax so low.

Successful campaign

The Consumers Association welcomed the findings as a victory for its campaign against high UK car prices.

The association has long accused the UK motor industry of operating as a monopoly and deliberately fixing new car prices.

It told the Competition Commission that blaming the price difference on the strength of sterling did not stand up.

It said 70% of UK-registered new car sales were imports and that when sterling was strong, these cars should get cheaper. But, in fact, they had become more expensive.

More delays?

For the Conservatives, Angela Browning said she was pleased the report was finally out.

But she said: "The motor industry will have to put up with further delay before anything is actually implemented, creating yet more uncertainty for an industry that could well do without it."

The campaigning arm of the motoring organisation the RAC welcomed the government's action.

"We predict this should lead to a 10% drop in new car prices in the UK and help to re-establish a buoyant new car market," said the RAC Foundation's executive director, Edmund King.

Car makers and dealers have until 19 May to comment on the report's proposals.