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Manufacturers must maintain price-cut 'momentum'

As we have been predicting, price realignment is now well underway. First to move have been the manufacturers of lower volume,executive and prestigious marques.

Their action is brave as they are the most likely to suffer the effects of a realignment, despite working with small volumes.

This is because their low-volume niche products fetch close to list prices as used cars, so their values will be hit hardest by list price cuts.

Cars like the Mercedes SLK or the BMW Z3, for example, will feel the effects.

But even these manufacturers are safe enough with mainstream saloon models making up their core business. Most of their late-plate used market values are already far enough away from list prices to be unaffected.

Dealers have welcomed the first phase of price realignment and most have already noticed renewed showroom traffic since the cuts were announced.

The industry is still holding back, though, in anticipation of what the volume carmakers are going to do. Despite the high number of vehicles involved, price cuts would have a lesser impact on these manufacturers because most volume products are heavily discounted from list prices anyway.

There will be no knock-on effect on used prices. Even six-month-old Vectras and Mondeos are around half the new price, so there is little chance of list cuts being drastic enough to affect them.

The volume franchised dealers I have spoken to are impatient for list prices to drop to generate some customer interest – something that the current spate of special offers is evidently failing to do.

With price realignment being welcomed by dealers as well as the public, it is now up to the volume manufacturers to keep this momentum going. Others have proved that they can use this opportunity to generate business.

Indeed, in the long term when retail demand is sufficiently stimulated by price cuts, residual values will strengthen.

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