Car manufacturers are expected to reduce prices of new cars in an effort to increase sales to company fleets and counteract a fall in registrations as the scrappage scheme ends.

Company car taxation is a key driver for the price realignment, says Adrian Rushmore, managing editor at Glass’s.

He said: “List prices rose by an average 6% last year, with some model lines increasing by more than twice this amount, and this has made many vehicles less attractive for those business users that will have to pay higher rates of Benefit in Kind tax.

“Manufacturers are planning to address this by either dropping prices on selected ranges, or by launching new entry-level models that will establish a new, lower price point for the range.”

Rushmore says carmakers are anticipating a marked shift in demand away from retail buyers and towards fleets and business users in 2010 – partly as a consequence of the scrappage scheme ending, but also because many fleets will be replacing their ageing vehicles after deferring purchases last year.

Smaller margins for dealers

Rushmore said: “We expect that some manufacturers will look to their dealer networks to share some of the pain of list price cuts, in the form of smaller margins.

“Car buyers will witness a reduction in discounts, rather than a reduction in transaction prices, because manufacturers have very little scope to adjust prices downwards while the value of sterling remains depressed against the euro and yen.

“Manufacturers need to do something now to stimulate sales, because everyone is expecting trading conditions to deteriorate in the second half of the year.”

For the manufacturers that are launching more affordable entry-level models, there is a danger that the list prices of their new cars could be perilously close to the current prices of late-plate used examples of a similar specification.

“This will present a fresh challenge for dealers, and it will be crucial for manufacturers to position their new entry-point vehicles in the right way to avoid confusion for consumers unsure about whether they want a new or used car,” said Rushmore.

“Low specification variants of fleet cars – especially those in the lower-medium and upper-medium segments – have limited popularity on the new and used market. The best strategy, therefore, will be for manufacturers to stress the low cost of ownership, advantageous company car tax position and the ‘green’ credentials of these new models, in order to shift attention away from specification,” he concludes.

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