In the process of doing some clearance at PU towers...came accross a newspaper dating back to August 1989...the motoring pages no less. Local Ford Delaer selling an F reg Ford Sierra 8k
1.6LX - £9299.
Its present day equivelent seems to be a Mondeo 1.8 found one of these on the web - a pre-reg all yours for £11,930.35. A markedly superior vehicle 14 years on. I would reckon that the average weekly wage in '89 was around 250 per week and likewise today 500 per week, we seem to be getting an awful lot of car for our moeny these days !
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You're so right Pug - I bought a brand new Ford Fiesta 1.1L in 1987 for IIRC around £7k, very much the same that I paid for my new Polo recently. There is literally no comparison - the cars are from two diiferent planets.
By the by, You've also hit on the reason for our current congestion problems - lots of cars around these days because they're so cheap. I guess that's why road 'pricing' is the only way to control it - basically making motoring so expensive that people can't afford to do it so much. More 'new' labour than 'old', as of course the ones priced out will be the poorest.
Rev.
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Canon - and because cars are so cheap, people can afford to buy a new one more often, so they depreciate faster because they are sold on quicker. Result is that almost everyone who wants/needs a car has one (or more), and spends time occupying the roads and making public transport less viable. Oh - and complaining that everyone else is doing the same thing.
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(along with videos, TV's, Hi Fi's, computers, etc etc)
Funny the mortgage stills seems to suck it all up tho!
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If you need help with remortgaging .. let me know .. really .. it's my .. ermm ... hobby!
rojer@lycos.co.uk
Astra, Renault 18, Renault 25 TXi, Astra Est, Passat Est, Mercedes 190E, Mercedes
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Too late, just done it, I am what they describe in your business as a "rate tart"
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The site below gives today's value of any price back to 1264:- eh.net/hmit/ppowerbp/pound_question.php . The Sierra works out at just over 14 grand in today's money.
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The "problem" we have with mortgages is that because of low inflation (including wage inflation) and rapid rises in the cost of houses over the last decade or more they are not eroding so quickly as a proportion of income as they did in the past (the 1960s to the 1980s), or in comparison with other items--the situation was quite different for those who bought houses in the late 1960s and 1970s. If/when there is an interest rate hike, widening the gap between wage inflation and the cost of borrowing even more, we will have a serious problem. I reckon the car market is getting near the bottom, though. The number of interest free deals and/or free insurance (Peugeot now offering four years at 0% and two years' free insurance I notice) is a sign that the margins on the vehicles themselves are very tight--of course "prestige" manufacturers like Jaguar can't "cheapen" the brand this way, so they cut back production instead.
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Why are finance and insurance deals a sign that margins are tight? Someone is still funding interest free, and even if Peugeot can get finance and insurance cheaper collectively than most of its individual customers, it's still got to come out of gross margin.
Of course generous deals are a sign that perhaps volumes aren't as high as manufacturers would like them to be, and I tend to agree with most of your analysis, but interest free and free insurance deals are just a way of differentiating the brand other than directly on list price. Those that don't qualify can then be sold other offers - but in itself it says nothing about the profitability or otherwise of a particular product or the industry as a whole, other than it's better for them to sell at that price than not at all, i.e., there is a marginal cost. In an industry with high fixed costs (e.g., plant and development) that's almost always going to be the case.
That said, I do think that real margins on actual transaction prices are quite low, judging by the way that production and promotion seem to be skewed towards special editions and models covered by special deals.
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Of course someone has to pay for it, but presumably turnover (production and cash) is important as it's expensive to shut down a production line and have it standing idle. I think you covered this when you said "it's better for them to sell at that price than not at all." These cheap insurance/finance deals keep sales rolling, even if they do cut into margins. And since financed consumer spending seems to have slowed in other markets, and interest rates are otherwise very low, 0% is the only way to persuade people to borrow more.
It's actually possible that companies will do this at a loss for a while as long as the loss is less than the cost of an idle production line: it happened for the first time in the Depression of the 1930s, the period when GM invented our current "system" of three-year cycles for car ownership. They kept prices (cash turnover) up by offering cheap finance and took perfectly serviceable three year-old cars in part exchange and scrapped them rather than selling on. This kept production lines open and the market more buoyant than perhaps it would have been. They made huge operating losses for the time but held onto just enough market share and survived as a result.
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I agree that that's one explanation for it.
Another can equally be that Peugeots are (say) £11k, Renaults (say) are £10k for the equivalent car but production costs are the same. To preserve sales without an apparent price cut/price rise cycle, the more expensive manufacturer can produce deals that can be switched on and off without affecting the headline price charged.
My point was that the existence of these non cash financial incentives says very little conclusive about the extent of the margins.
Incidentally, I think the offers are either/or and the two years' 'free' insurance requires finance at 14% APR (!) so it's more of a combined finance and insurance package.
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My point was that the existence of these non cash financial incentives says very little conclusive about the extent of the margins. Incidentally, I think the offers are either/or and the two years' 'free' insurance requires finance at 14% APR (!) so it's more of a combined finance and insurance package.
I agree, not conclusive, but it is very suggestive given what other companies are going through: Jaguar, FIAT, Ford etc. Peugeot's sister company Citroen tends to go for heavy discounting, but the Citroen brand is seen as the budget side of the business (can't see any difference in the quality myself) so I guess Peugeot can't do it that way that so much. Oh, and I was in a Peugeot dealership the other day for the first service on my car and I'm pretty sure they are offering two years free and the 0% finance deal "on selected models." Didn't enquire what they were exactly (wasn't really paying attention), but the poster listed variants of 307/406/807(?). It could be that the selected model range is pretty narrow and anything else requires 14%, but desperation springs to mind nevertheless.
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If you had been a stereotypical yuppe in 1988, a mk2 Golf GTI 16v would have set you back £16k - a lot of money in those days. The modern equivalent of that car, a Golf GTI 1.8t can be bought from a supermarket today for £14,999. If only petrol was cheaper now than in 1988.......
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I was recently doing exactly the same thing in my corporate HQ and came across several old issues of Parkers Guide. I was astonished to see how list prices have varied (especially on some models) over the years. I don't think it's so much a case of us being better off now though - we were just being ripped off even more then !
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Perhaps cars are cheaper in real terms because they are cheaper to manufacture e.g:
More sharing of parts, engines and platforms - economy of scale
Cheaper labour by moving factories to Eastern Europe or South Africa in the case of the Golf
More efficent prodution methods
Cheaper raw material costs (e.g. steel, computer chips)
All these factors mean that the cars are cheaper to make in te first place, much like videos, TV's and other goods as someone mentioned.
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Car prices have come down significantly as of late for a whole variety of reasons either that you're familiar with already or are being discussed here.
The industry in Europe is currently in extreme trouble. Projected vehicle sales across Europe which all manufacturers base their projected annual figures on have been slashed by a million cars against current figures. My own employer (you can make an educated guess) is in a dire financial situation and is only being supported by income from it's US arm. This situation is not however unique - profit margins are wafer thin across the board. This year has even seen luxury German brands pre-registering cars and offering aggressive incentives - unheard of previously. Even VW has slashed prices as of late. Also what you don't see as retail customers is the higher and higher incentives offered to fleet customers. This is, in some instances, at a massive loss simply a) to shift stock and b) to retain a very large customer who will hopefully still be buying in better times.
Many current incentives are not financially sustainable though however a unique situation has appeared which is currently on the side of the customer. When a motor manufacturer backs off from one of these current massive incentives (read 3 years interest free with no deposit, 2 years free insurance, VAT effectively repaid etc) then the sales volume drops immediately. You have to of course remain competetive because of the large fixed-cost structure in the auto business though and big scale manufacturers *have* to keep metal flowing through the dealerships.
Desperation is setting in amongst all the big European manufacturers and it is more likely now than ever before that one of the "big 5" will disappear or be forced to merge. The market simply cannot sustain the current level of cars being manufactured.
What you won't see is car prices coming down much further. Rip-off Britain may still exist but the car manufacturers are scraping the barrel at the moment. Good news for the customer though I think. I predict, with some degree of "education", that we'll see a move towards the US as regards marketing incentives. I'm thinking 5 year interest free credit deals and 5 year warranties etc.
I've probably gone off at a slight tangent here but the auto market in Europe, and to an extent worldwide, is going to be a very interesting place over the next 12 months...
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If the market cannot sustain the current level of manufacture then the sensible thing to do is to cut it. Would it be cheaper to run the production lines for the same amount of time but slow them down in some way so that fewer cars are produced rather than cutting the time they are in operation? This has the added benefit that it could be done subtely and without frightening the work force into assuming they are about to be made redundant. Cutting production would also have the added benefit of improving second hand car prices as supply would start to fall closer to demand. Oddly that might actually stimulate new car sales as the only group left that doesn't buy new but can afford to is the depreciation averse. Perhaps a guaranteed buy back scheme where the manufacturer gives you more for the car in part exchange than it's true worth would allow them to control the second hand car market more effectively and reduce depreciation even if they are discounting heavily? Probably not a good idea from a competetion point of view though!
teabelly
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Also with slower production lines is that the cars may be made slightly better, *cough* anything non-Japanese
Kev
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