There are already some serious discounts out there.
An earlier posting referred to the offerings from a main Ford dealership. Now comes news that several London area Renault dealers are currently offering up to 50 per cent discount on various models.
Presumably that's because Renault has lots of surplus vehicles on its hands. Its sales in the UK have slumped in recent months according to figures provided by the SMMT.
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But surely a large and sudden reduction in new prices would have a ruinous effect on the industry anyway. Bear in mind how many cars are bought on PCP, it would do the manufacturers no good whatsoever to devalue the used market. They would make a massive loss when all the PCPs came to an end and they had to take the stock back and found themselves with massive negative equity?
I'm sure the credit markets would be over the moon to own a fleet of cars in negative equity, and would probably respond by putting up the interest rates or reducing availability of credit to the manufacturers, can anyone else see the problem with this? :-)
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But surely a large and sudden reduction in new prices would have a ruinous effect on the industry anyway. Bear in mind how many cars are bought on PCP it would do the manufacturers no good whatsoever to devalue the used market. They would make a massive loss when all the PCPs came to an end and they had to take the stock back and found themselves with massive negative equity?
It comes down to what is the lesser of 2 evils. Cash in hand from selling existing stock vs upsetting the PCP market [which IMO works against the individual motorist anyway].
As I said before ALL motor manufacturers are crying out for cash - selling their existing stock piles is one way of achieving this. If offering a discount to attract new custmomers is the way then I think they should consider it.
We are all going to have to adjust to the new world post credit boom and there is a lot more pain to come from all the ramifications of lower new [and therefore used] car prices.
The alternatives are the motor industry carries on charging prices which above the means of most consumers and they go bust waiting for the consumer to cave in [not before they come cap in hand to the Govt asking for a bail out - wait - that's already happened].
One way or another new car prices have to come down - my guess is 20% on average.
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there's got to be a balance hasn't there. A car company needs to make enough profit to be able to re-invest some of it for future models etc..and that's expensive.
For me, I think a reasonable level would be for main dealers to match the prices that companies such as Drive the Deal can get, as after all main dealers supply them...so instead of sniffily sending the customer up the road with a load of twaddle about they must be grey imports or pre-registered, or some other excuse to try to put the customer off......match the price and take the sale
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Who drives the market for newer models ?. Up until know it has been the car makers who know that once it's customer base has bought it's nice new model X , it must quickly come up with the newer model XX in order to get them to buy again and then the model xxx and so on.
In my years of motoring, it has become clear that the time gap between one model and its successor has become shorter and shorter.
This has kept sales buoyant as the ' keep up with the jones " brigade have over stretched and bankrupted themselves to be seen in the latest model .
There is only one answer. Fewer car makers and fewer models with fewer model changes.
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>It has become clear that the time gap between one model and its successor has become shorter and shorter.
Partly because new production lines are built to produce cars faster - to satisfy the bulk demand from those who want to buy NOW, not next month. That means that all those wanting that model get one in a shorter time, thereby requiring the replacement model sooner. And in 'good times' sales move fast because new-car prices get steadily cheaper in real terms - that is relative to the public's spending power. A new model must always be ready to roll when the sales curve starts to fall off.
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>>Cash in hand from selling existing stock vs upsetting the PCP market [which IMO works against the individual motorist anyway].
You mean works in favour of the car industry - which you are trying to come up with ways of recapitalising... by suggesting something that will decapitalise it.
Somebody else who had a good Christmas. Smile, chaps, the end of the world is not nigh. Yet.
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I think car prices will eventually drop and to continue to break even all the superflous rubbish piled inside them will dissapear in the process too. Real world options will reappear, PAS, central locking and a passenger side mirror.
Gone will be auto wipers, aircon'd gloveboxes, auto dipping interior mirrors, tyre pressure monitors, memory seats, PS3 and DVD set ups ........................
Only the fittest will survive
Oh deep joy :o)
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You mean works in favour of the car industry - which you are trying to come up with ways of recapitalising... by suggesting something that will decapitalise it.
Tough. I for one don't want to see anyone lose their jobs but I also don't want to be paying over inflated tax bills for the remainder of my life just to fund an industry which made too many of it's products than it had customers for (and has been doing so for MANY years now).
I'm also not suggesting this should go on indefinately - just as long as it takes to clear the air fields of all the thousands and thousands of new vehicles - then back to some kind of normality.
Remember these companies have made substantial profits in previous years and yes they do need to make a profit to plough back in to research and development etc, but again I don't see why the tax payer should pick up the bill for their inability to run a businss properly.
It's probably all academic anyway I'm sure GB and his side kick Mr Badger will put their hands in our pockets and foot the bill on our behalf.
And yes I did have a good Christmas thanks and no it's not the end of the world - just the end of an era of foolish borrowing and even more foolish lending.
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>>I'm also not suggesting this should go on indefinately - just as long as it takes to clear the air fields of all the thousands and thousands of new vehicles - then back to some kind of normality.
But put all those vehicles on the market now, and you'll devalue the entire second hand industry, and new cars, for years to come. They would be better scrapping the cars than selling them. And so would we be.
>>Remember these companies have made substantial profits in previous years
Really???
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>>Remember these companies have made substantial profits in previous years Really???
Yes really. Otherwise they would have surely gone to the wall years back, no?
Whatever - if you prefer to pay inflated prices for new cars then carry on. I too doubt we will see any large scale discounts - 10/20% off may be but not much more.
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Yes really. Otherwise they would have surely gone to the wall years back, no?
"no?" at the end of a sentence is a question, no?
I am fule so I kno little, but I think that the profitable part of motor manufacturer is in their finance and OEM spares business.
I think car prices will eventually drop and to continue to break even all the superflous rubbish piled inside them will dissapear in the process too. Real world options will reappear, PAS, central locking and a passenger side mirror.
Is that a prediction, or merely stating that the Tata Nano has been designed and will soon be in mass production?
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I am fule so I kno little but I think that the profitable part of motor manufacturer is in their finance and OEM spares business.
What's a "fule" then? and "kno" ?
If it really is true that only the finance and OEM spares parts of the business make the profit then they are in BIG trouble. Finance is screwed for the next 2 + years. I guess it may just be possible for them to exist on the profits from spares alone but it seems illogical somehow.
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"What's a "fule" then? and "kno" ?"
Look up Adrian Mole. One of the greatest philosophers of the 20th C.
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"What's a "fule" then? and "kno" ?"
Look up Adrian Mole. One of the greatest philosophers of the 20th C.
I think you mean Molesworth.
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BTW,
dagenham motors sale is a myth
they only had 2 cars - thats right, 2 fiestas at 38% discount
and the remault 50% sale is still 15-20% over trade book prices.
give it another month, and manufacturers will HAVE to sell at realistic prices.
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Fret not, chaps, by next Christmas we can expect to see a common sight of dad, mum and 4 kids hanging on to a Honda C50 roaring round the streets.
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Car prices may go down a little in the short term but in 6 months to a year you'll see an increase in price. The currency situation and the sales declining will mean that they'll have to make more per customer.
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I think the manufacturers will eventually resort to drastic measures to get rid of at least the older and less desirable stock. Then they will regroup to lick their wounds. They'll reduce the number of RHD models for the UK, reduce their planned sales and dealer stocks and increase the prices in line with the sterling devaluation.
That's essentially what happened in the last recession 92/93. A mate of mine bought a new VW Golf Diesel in early 1993, which the dealer admitted had been standing for several months, for not far off half the new list price. Prices went up and he sold it 4 years later for more than he'd paid for it.
Some interesting business possibilities at the moment through all the uncertainty. I heard of an entrepreneur in the USA buying brand new unsold german and japanese SUVs at firesale prices and exporting them to Russia for sale at a hefty profit.
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Retailers have sales to get rid of old stock.
a 2008 Gucci handbag is worthless to a retailer in 2009 (if the name matters to you you would not be seen dead carrying an old version). Ford generally don't care if the cars stand in a field for a month or so.
Car manufacturers do have sales at end of model line, we took advantage of this a few months ago when my daughter traded in her Corsa for a new Fiesta (end of last model run - she does not like the appearance of the new one) and beat the target prices published by the motoring press and the Glass trade in by around £1k.
Just don't expect them to have the sale based on what month it is, they have it when it suits them.
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Having just seen the Ford ad for the Focus, it looks like Ford are going to shut up shop in the car business, selling all their bits to use as musical instruments.Makes sense as they would be rotting on an airfield somewhere anyway.
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Ford generally don't care if the cars stand in a field for a month or so.
I understand that all Fords destined for the UK (which are now all made in Germany) are produced to order, whether for a dealer's stock or for an order placed by an individual or a company via a dealer, so you won't see Fords standing in a field.
Edited by L'escargot on 30/12/2008 at 07:50
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I completely concur with your reasoning there HJ. I run a small business supplying consumer goods to retailers in the UK and Ireland. Most of those products are initially purchased in other currencies. The exchange rate effect will inevitably cause prices to rise. In our industry there is no "spare" margin. Costs are not significantly saveable in the supply chain. They are already cut to the bone. If the consumer continues to demand lower prices, as they will, the only option for most businesses will be to cut their people costs and therefore their levels of service.
What, if any, effect do you forecast this having on the second hand car market in 2009?
Some might argue that it could, paradoxically, strengthen it?
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Humph.
I can see the headline now - Knackered old Mondeo fetches thousands as Signum values soar. :)
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I have also had that dream.....
;-)
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There's only one thing worse than selling one new car at a loss - selling two new cars at a loss.
The manufacturers would rather not make the things and shut the factory - as we have already seen in the last few weeks with Honda, Nissan and Vauxhall.
Common sense tells me HJ and Humph must be right on this one.
A mixture of a weak pound and fewer cars for sale will lead to higher prices, not lower.
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And a refusal by people to pay such prices will lead to some one breaking ranks and cutting those prices. We paid over the odds when times were good and I don't recall any car makers feeling guilty about that.
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And every time such a retailer is forced to sell at a loss it sends even more people to the dole queue, or encourages unethical supply lines, or both.
But go for it why don't you, you have the moral high ground. Those nasty businesses which have profiteered from us for so long deserve a good kicking don't they?
Trouble is, they support families and communities too. Any bright ideas as to what we do about that minor inconvenience in the future?
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And every time such a retailer is forced to sell at a loss it sends even more people to the dole queue or encourages unethical supply lines or both.
I fear that regardless of whether motor manufacturers sell their excess stock (sitting in a field near you) at a discount or not many of their employees will find themselves on the dole queue.
Yes ALL business is built on the premise of making a profit out of the customer. Most reasonably minded indivduals recognise this and accept it as the way it needs to be - me too. I do think however motor manufacturers have taken advantage of the consumer in recent years offering their goods at inflated values and little by way of decent customer service in return. Not all have succumed to this greed but many have.
Still we only have ourselves to blame - if we were not gulible enough to buy the goods in the first place and put up with poor customer service then I doubt we would have been in as much mess as we are now.
I am in no way in support of a recession or depression (whichever it turns out to be) but I think, like a good hard cold winter, once every few years it acutally does good in the long run. Well run sensible businesses will survive and weak mismanaged ones will go to the wall. We should all benefit from that.
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And a refusal by people to pay such prices will lead to some one breaking ranks and cutting those prices.
Other than in the very short term, you cannot sell at a loss.
You go bankrupt. There is no magic formula for overcomming that one.
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And when you've bought your prize for a bargain price and the manufacturer keels over you're left trying to get rid of nuclear waste when the time comes to part ex.
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Businesses may like to increase the prices in response to the depreciating Pound but the consumer has the money (or not as the case may be).
For businesses to increase prices at the moment is suicidal. The consumers won't/can't pay, so bankruptcy follows.
The Pound will begin to strengthen again in mid 2009 when the Euro comes under pressure.
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Don't forget motor manufacturers call Britain 'Treasure Island' because they make such a high margin on cars here . Eastern manufacturers sell cars here for over double what they get back in the far east, Sure they load them with 'goodies' that the foolish westerners think is progress. But these costs are marginal at the factory. I recall Ford selling a model as a L that had a cardborad shelf under the dash. For that great experience they charged £100 or so, but the suckers bought them. I always went for the 'lead in', stuff your cardboard etc.
Buyers are easily fooled, it is the British way of life to try to be a snob and get one over their neighbour. Car makers exploit this endlessly, we are all paying far too much for the cars, and teh service is crap afterwards.
The best way to bring prices down is to stop buying, it is working with houses anyway.
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Csgmart and TurboD - I'm with you both for what it's worth. Too many people trying to keep up and paying over the top with PCP finance. (near criminal in my mind but that's another thread). Car makers happy to sell in the good times should have made provision for now. Underpinning much of the current situation has to be the consumer spending what they haven't got on what they often don't need.
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'Buyers are easily fooled, it is the British way of life to try to be a snob and get one over their neighbour. Car makers exploit this endlessly, we are all paying far too much for the cars, and teh service is crap afterwards.'
Couldn't agree more. Will change my mind only when I am actually sat in a car where every single cup holder is in use by the occupants.
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"The Pound will begin to strengthen again in mid 2009 when the Euro comes under pressure" - maybe but only as a consequence of the Euro weakening.
We need to get used to Sterling running at EUR 1.1 and USD 1.3 for a long while yet. Like it or not anything imported is going to be 25% to 30% more in 2009 than it was in 2008.
Discounting stock items is easy, slash the margins (maybe even make a loss on some items) to get cash in the till, stock off the shelves, and people through the door. It's not sustainable though and as soon as sellers have to re-stock prices have to go up even if margins are reduced.
The real time bomb is the continuing use of credit, if we enter a period of deflation then the real value of debt increases over time.
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How do you pay over the top for PCP finance?
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I thought that all cars were a year older in January, so "sale" prices are just annual depreciation being reflected in prices. Or am I just being cynical?
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Don't forget that cars need people to buy them and even though Sterling may be weak, and the Yen indeed high, 3 million people unemployed in the UK by end of 2009 is not going to have many turning up to buy cars from dealers - be they new or secondhand.
In fact, all the current evidence is pointing to a general slow-down across the economy for 'big ticket' items as people fear for their jobs and the priority will be keeping a roof over your head and food on the table in 2009.
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The the tightening of the emission rules on an almost yearly basis, who will want to buy a 3 year old car which, by that age, will be attracting punishing VED rates having fallen 3 years behind the current , acceptable figure ?
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T Lucas - PCP finance is more commonly known as 'balloon' finance because there is a final lump sum payment required to purchase the car. Referred to as the 'minimum guaranteed future value' (MGFV) by the car seller. You pay over the top in several ways (typically) - 1) the car is frequently sold at it's list price because the salesman draws the punter to the headline figures, normally low monthly payments. 2) The interest rate on the financed part is not always the best available 3) you are tied to a contract mileage and condition clause, if you exceed these, charges are payable (so the MGFV means little). When you get to the end you have to find the MGFV to pay for the car, or hand it back, having paid a deposit and monthly payments. Compared to straightforward finance and negotiation over price I cannot see that PCP makes any sense. It is however, a winner for the dealer. Cars shift at list price and if they are handed back can be moved on at more than the MGFV. The punter is back in the showroom at the time too!
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The trick of course is to negotiate the price of the car down,pay little or no deposit.Lots of manufacturers subsidise the rate,often very low 0% to say 5.9%APR with no admin/set up fees.Benefit for punter is budgeted costs,no worries with depreciation (GFV) and of course new car warranty.At the end of the term hand the car back or have a new one.Paying the outstanding amount is not the most sensible choice.If the value of the car is higher than the GFV you have some equity for the next PCP.
It doesent work with all brands or models but if you do your homework it can be the easiest lowest cost way of driving a car in the UK for many people.(Obviously excluding bangernomics.)
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Reading HJ's supply and demand comments makes me wonder - what sort of 3 year old used cars will be in most demand come 2012? What do you think?
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Car manufacturers will still want to manufacture cars at a price people will pay, however, to get there, there will have to be lot of deflation in wages and other costs.
Raw materials have already plummeted, wages will follow soon
MVP
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Lessons of the past teach us that car manufacturers cannot afford to sell new cars at a loss for long which is why they are all cutting production.
Agreed. Once the existing stock of new vehicles has been sold at a [possibly] reduced price then prices will have to go up.
Question - anyone car to estimate the volume of new cars already made that are waiting to be sold? My guess is tens of thousands (a guess and not based on anything).
In the current climate that might last a few months before the manufacturers have to start making new cars again. So HJ is right - buy now (but get the deal you want).
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Live now pay later, thats why this country and indeed the world is in recession.
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>Anyone car to estimate the volume of new cars already made that are waiting to be sold?
My son-in-law, who works for Nissan, said the other day that they had about 4 months 'stock' on airfields etc, when there would normally be about 6 weeks (depending on model of course). Draw your own conclusions.
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speaking to VAG main dealer Parts people on Wed, they said 17 jobs across all depts have been made redundant and everyone else has been told to accept 10% pay cut, or their jobs will go, too. Wonder if any any "glass palace" dealers are reducing servicing prices, from their £100-plus per hour rates - or is that where the main money's made these days?
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10% pay cut, or their jobs will go, too. Wonder if any any "glass palace" dealers are reducing servicing prices, from their £100-plus per hour rates
But since the labour element of the £ 100/hr is probably only £ 30 (allowing for supervision/reception overheads) a 10% reduction in staff wages is probably only going to reduce the £100 to £97 ! But suppose that 10% fewer cars will be serviced the other overheads will rise by £7/hr. new rate '£104/hr sir!'
I know it is not really that simple but the principle applies! It would be interesting to see a real breakdown of servicing dept costs from someone in the trade.
p
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I know it is not really that simple but the principle applies! It would be interesting to see a real breakdown of servicing dept costs from someone in the trade.
I have posted parts margins elsewhere on this site, (and been told im talking carp!) but... the profit in labour will normally be between 50% and 70%.
I believe that by lowering labour rates, or dping deals on older cars for example, would bring more cars into the workshops, but have been told that it doesn't work like that.
now... empty bay - paying tech to stand around, pay electric bills etc @ say £100 ph = loss!
or a working tech, maybe finding faults, and maybe getting authorisation ie more work/parts sales @ say £70 ph = 10% profit, which business plan sounds better??
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The fact is that with Sterling 40% down against the Euro and the Yen, manufacturers will have to raise new UK car prices. There simply isn't enough fat in the pricing system to absorb this sort of loss.
There was an item on this morning's RadioFiveLive from a sector of industry [that HumphBackBridge is very familiar with] where about 95% of goods are sourced from abroad. They are now putting up their prices by 30% to 40%. The spokesman said that the cost of goods from Europe had gone up 33%, and goods from the Far East up by 40% where currencies are linked to the US$. He said Chinese goods were up 40% to 50%.
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We could always make our own :-(
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We could always make our own :-( >>
Shoes. Spokesman said about 5% were made and sold in UK. That was half the total the UK production as the rest was exported. So if we stopped exporting, the imports would come down from 95% to 90%, if UK producers do not take action to make the most of the competitive advantage of current weak £ to increase production [to sell more in the UK, as well as to export].
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I suppose we could always make a point of buying our own goods where those goods are and always have been of far better quality, and boots and shoes are a prime example.
Its not possible to buy a pair of regulation safety boots made in this country, i am prepared to be prooved wrong and would welcome it, i'll then know where to buy the only type of footwear that i am compelled to wear made elsewhere.
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Car manufacturers can put their prices up 30%, 50% or 100%, it doesn't make any difference - nobody is going to spend £26k on a car that was £20k last year, when you can buy a 1 year old version for £10k
So unless companies want to close-up shop and go home, they will have to reduce the price of cars.
MVP
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I wonder how many people are wandering around a car showroom today, intent on buying a new vehicle as opposed to used and still finding that there is nothing like the discount they thought there would be. ?
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Um, me :-)
From what I am seeing in Swansea there is very little reduction on new car prices and when you look at 12 month old models you would have to be insane to buy new even if you had 0% finance.
Problem for Swansea though is that if I pay £5 for a return bus ticket to Cardiff I am seeing secondhand prices about 3 or 4 thousand less than Swansea used 12 month old prices so... seems the car market is nuts at present.
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nobody is going to spend £26k on a car that was £20k last year, when you can buy a 1 year old version for £10k
But that is exactly how the market used to work here. People bought new cars that then went to the 2nd hand market a year later at half price.
Now if the new sales have dried up, where are the half-price 2nd hand ones going to be conjured up from. That is the point that I think HJ is making. The price of new as well as 2nd hand cars is going to go up, because new ones are going to be much more expensive, and there are going to be fewer of both new and 2nd hand ones in the future.
The whole market [manufacturers/dealers/buyers] will shrink to adjust to the new reality.
Edited by jbif on 02/01/2009 at 12:25
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HJ makes a very vaid point if you assume that the status quo will continue. I do not think it will and I expect that we will see a new paradigm in the car industry in that car prices of new vehicles will fall dramatically in 2009.
They are trying to resist it now as they know that once they reduce then everyone will realise just how over-priced cars have been for several years and how only freely available 'cheap' debt was allowing such silly prices to exist. Now the cheap debt is gone very few people can afford to buy new cars at, I guess, even 50% reduction let alone the current prices that makers and dealers alike are stubbornly holding onto. Once the reductions come the makers will not be able to return to the high prices for a very very long time. Hence a new paradigm.
In the past 70 years Japan has been the only country to go through true deflation. I have studied the Japanese delfation, and numerous other credit bubbles throughout history, for about 10 years now. All of us can take a lesson from Japan and what happened there in the 1990s for big ticket items such as houses, large electrical goods and cars.
We can all be in as much denial as we like now about it not happening here but, believe me, it is going to happen. Yes, a weaker Pound will mean that goods brought into the UK will cost more but in a deflationary World the reality is that there will be hardly any credit available, that debt will cost much much more and that there will be fewer people out there with purchasing power and even fewer prepared to spend. You don't buy a car or a new flatscreen or book a holiday when you fear for your job. The result will be that anyone who wishes to sell in a deflationary economy will have to cut their prices and make cut-backs in other areas - supply chain, salaries, etc, etc.
(Before this is out it would not surprise me to see, perhaps even before the end of 2009, at least one firm selling direct to customers ala Amazon and cutting out expensive dealerships inbetween.)
This is one of the many lessons from Japan's 20 year long deflation. We would all be foolish indeed to believe that we are going to escape what they went through and continue to go through.
One last comment - although the UK is weak against the Euro currently do not expect it to stay this way for long. Spain is in a huge recession, Eire is screwed, Germany is heading for a MINUS 4 or 5 percent growth and the Italian Government is buying up pasta and cheese and giving it to the poor to help our suppliers. The EU is just as screwed as we are but the EU Central Bank has kept its IRs higher - just wait until those IRs fall in 2009.
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In the past 70 years Japan has been the only country to go through true deflation. I have studied the Japanese delfation,
So can you explain how the Japanese situation [a country that had a huge manufacturing base, had no minimum wage bottom, a strong currency, and a vast balance of trade surplus ] can be applied to the debt ridden UK [which has a huge personal and Government debt, a weak currency, not much of a manufacturing base, and which relies on borrowing from the Arabs, Chinese and Indians to fund its lifestyle].
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Yes, quite simply. We have none of the benefits that the Japanese had yet still deflation caused their economy to rot and fester.
How it applies to us is simple - it will be much worse for us.
Sorry, but I am someone who sold my house over a year ago and moved into rented accomodation because I believed house prices would crash big time in the UK from 208 onwards as part of the global housing crash. Tick one.
I am someone who took my money out of shares because I believed the markets were about to crash in a crash not seen since 1929. Tick two.
I then put all my cash into separate non-linked banks because I thought the crisis would bring down the global banking industry and reveal corruption and ineptitude throughout the sector. Tick three.
I do not post the above to sound arrogant or smug, and apologise if it comes across as so, but the basic bottom line about credit bubbles throughout history - be it the Roman slave bubble (Yes, they had such a bubble), the Dutch Tulip bubble, the South Seas bubble, the 1908 to 1911 UK housing bubble, the 1929 stock market bubble and the dot.con bubble - is that the bust from every single credit bubble in history has resulted in a bust greater than the rise. In other words, the bigger the bubble the bigger the bang.
That is the undeniable fact about bubbles and no number of people saying "it will be different this time" will change a thing. (Remember how only just a year or so ago people were saying the same thing about UK housing and how that UK house prices would not fall because it was "different"?). The tide goes out regularly on credit bubbles and, as Warren Buffett says, when it does you soon find out who has been swimming naked.
The question ahead of us now is how long will this deflation last - a year according to Brown and Co. Some hope. We wsould be very lucky indeed if it was that short. Could it last the 20 years of Japan. Hmm, alas I have no crystal ball on this I am afraid but what I can say is that prices are going to fall and keep on falling during this deflationary period. People are already getting their heads around putting off buying things because it may be cheaper tomorrow. Oh dear.
What comes after deflation - probably rampant inflation and hence why the gold price has been soaring as people buy up physical gold as a hedge against inflation. The worrying thing is that some time in the future we may see oil suddenly soar up to the 150 bucks a barrel level and that would have a huge imapct on the car industry all over again.
I think Obama needs to get his act together and start mass-producing those Honda hydrogen cars and get a hydrogen filling station network in place. Hyperinflation may well be the outcome of the deflation we are now entering.
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I am someone who took my money out of shares
Darling Brown will have loved you for the capital gains hit! ;-)
How it applies to us is simple - it will be much worse for us.
Japan could deflate because:
1. They made the products
2. They could cut wages.
3. Cost of imported raw materials and oil worked in their favour.
How can the UK deflate:
1. when it relies on foreign goods & raw materials, and
2. the £ has weakened drastically [40%] in a such a short space of time [6 months?], and
3. the cost of labour in the UK only goes up [the minimum wage is set to be raised in 2009], and
So where does the deflation come from? You won't find the UK's biggest economy sector [the non-productive public sector] taking pay cuts.
Fire, Police, Ambulance, NHS, Councils, Roads & public Transport, their pensions, etc. are all inflating.
The only people taking a hit are those in the private sector losing their jobs, and the estate agents, conveyancers, Woolworth etc. stores employees, and Motor-traders without work.
Where is the deflation apart from the housing bubble getting slightly burst [it needs to be a further 20% or more down to restore affordability]?
I have not seen it yet anywhere else, no reductions in the list prices for new 2009 Cars. If anything, quite the opposite.
Edited by jbif on 02/01/2009 at 17:16
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Deflation is not some kind of lifestyle choice. It is an economic state. We have no choice now we are in such a situation.
The deflation is coming from millions of people up to their eyeballs in debt be it from houses, cars, holidays, electronic goods, etc. We have had a 10 year binge of keeping up with the Jones on the back of cheap credit - read cheap debt - as a result of stupidly rising house prices and people MEWing on the back of those house prices to buy the BMW , Merc, the holidays, the plasma TVs, etc, etc.
Likewise, the banks are to their eyeballs in debt partly from the stupid deals they have done and partly because they relied on people taking on more and more debt but there comes a point where Joe Public can't do that so you end up with the situation where people will never be able to pay off all their debt.
The result is that people stop spending in order to try and pay back their debt. The banks begin calling in loans in order to recapitalise and it becomes a vicious circle as people quickly try to sell assets - be it houses or shares or whatever - in order to get cash to pay off their debt. Desperate people who need the cash for their debt eventually realise that selling the house or car for less in order to get some cash to help pay their debt is better than having a huge debt... so the falls in houses, cars, everything accelerates.
The bottom line is that bubbles are all about easy or cheap credit - when you see the word credit just think of the word debt instead - and busts are about a lack of credit.
We now have a lack of credit as the consumers are maxed up to their eyeballs in debt and the banks are short of cash because of all the debt they have lent to people who probably will never be able to pay it back. Such a shortage of debt, or credit if you prefer, is what results in deflation and that is what we are experiencing now.
Now that the sales rush is over the months of January and February are going to be interesting as maxed out savers, having spent in the sales, will not be spending later in the year. Expect some really big household retailers to go bust in 2009 which will send shockwaves throughout the economy.
Yes, regarding the pricing of cars I agree with you. I am carless and need to buy a car but I ain't seeing the prices fall YET. Just because they are not happening yet doesn't mean that they won't. I think car makers are very much in denial at the moment and hoping desperately that things will get better.
(The moves by the Japanese makers - Honda pulling out of F1, the recent comments by the boss of Suzuki and several Japanese firms pulling out of motorbike racing - is very pertinent I believe. They know how bad things are going to become and are planning accordingly. We all should heed what they are doing.).
So car dealers and makers can be in denial now but wil lthey be by the time 2009 is out. I doubt it. You still need to put food on your table this year, you still need to warm your house but you do not need to go out and buy a new car, be it brand new or secondhand, or a new TV or go on an expensive holiday. Just wait and see what happens to the car industry this year - Ford, GM and Chrysler are not the end. They are just the begining.
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Oh, I forgot.
Re your question of Public Sector versus Private Sector. Yes, the Public Sector is taking the hit currently but expect there to be growing anger towards those in Public Sector jobs and do not rule out wage cut-backs and job losses in the Public Sector in the next 18 months.
Yes, Brown will do everything he can to avoid this as he wants the votes but the economics are going to be so grim that the unthinkable will have to be thought.
I suspect we will slowly move to a Californian type model where as soon as there is a Private Sector downturn you see big job cuts in the Public Sector. Good news for all the extra drosh that exists in the Public Sector but bad news for things like care of the sick and elderly, the emergency services, etc.
Sadly, even the prudent have to suffer as a result of all the Mewing, the Property Porn programmes, the house price ramping, the greedy, etc. Hopefully, a better, more balanced and kinder Society will emerge.
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Tawse,am i to understand from your previous posts that you want to buy a car,if i remember correctly a CRV.
Now you are obviously a very clever cookie,selling your house and selling your shares near the top of the market and then spreading the load around the banks etc.
Why dont you just go and buy the CRV,they may become cheaper new,(i dont think significantly so)due to supply,exchange rate etc.What difference is a few thousand quid going to make to you,you can obviously read the market very well and can make that back in a blink of an eye.Couple of short spreadbets on the FT or the Dow and you have your new car and still be quids in.
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Two reasons - firstly, I am a tight git :-) Secondly, I have been very ill the past few years and sadly now have to weigh all purchaes versus the economic implications of my health and employment.
I am not trying to sound smug but simply am trying to point out to people that we face difficult times in the coming years not seen before by many alive in the UK.
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No time like the present if you have been ill....i agree we are in for some hard times and there will be some manufacturers going bust,but Honda will not be one of them,why do you think they stopped production at Swindon?Unlike other brands Honda understand about supply/demand protecting residuals etc and of course that all important 'P' word..profit and they like to make lots of it.
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I don't think Honda will go bust - far from it. In fact, if Sterling picks up against the Yen at all this could be a wonderful once in a lifetime opportunity to buy quality Japanese stocks like Honda and Toyota later on in 2009.
I think Honda are being very prudent - reducing costs across the board by pulling out of F1, reducing production of cars and generally cutting back. They have seen the hugely damaging affects of deflation in Japan and realise what is coming globally. We could all learn a few things about what is coming simply by keeping an eye on the Japanese companies cutting back.
It wouldn't surprise me to see Toyota pull out of F1 also before the season starts in March.
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Do not forget that part of Honda's "shutdown" is to realign the production lines so that the model mix can be changed more easily in future, hence Civic and CRV (?FRV?) sharing one line, Jazz on the other.
Similarly, Honda have been quite candid, the pot is only so big and they have chosen to get out of F1 so that they don't have to cut funding to things like fuel cell development.
I agree, Toyota will be the next to cut back.
One thing not touched on here is another fundamental reason why the manufacturers are in trouble. For sure, some have been horribly inefficient but another factor is that they have really been operating as much as banks as car producers. The likes of Ford and GM have been offering cheap debt like no tomorrow and have been funding (or least fronting) most of it themselves. Quite a bit of this was low grade..... same issue as the banks then.
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I wonder if Honda personnel in Japan are secretly relieved at being able to pull out of Formula 1 - on financial grounds.
It seemed to give a (gift from the gods) one off chance to exit from allegedly `severe loss of face` over performance on track - while instantly making them seem like the industry leader - on financial responsibility.
An aid to sales by seeming responsible? - and surely the exact opposite (in image) to getting that regular drubbing at the rear of the field?
Do the two Japanese manufacturers slogans, resonate with new intensity in this context?
The Power Of Dreams....... (allegedly `in` entering popular use)
The Car In Front Is A Toyota......
I suspect that Toyota will stay in Formula 1 and that decision may have a similar (positive) effect on sales - as in Honda pulling out - but for different reasons.
Edited by oilrag on 04/01/2009 at 10:10
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>The Car In Front Is A Toyota......
or, as my rear-view mirror tells me, The Car Behind is an ATOYOT ...
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Any cars behind you with ECILOP written on the bonnet are the ones you've got to worry about ;o)
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>Any cars behind you with ECILOP ..
yes, DD, but at least the Toyota ones read correctly both ways round ... :-
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Perhaps you are right about F1 and Honda.
I always support the Brit drivers but I had become fed up and unconvinced by listening to Jensen tell us of how the new car was going to be the one - it was always the car later in the season and then the next season's car.
How long can anyone wait for success, be they Honda execs or F1 fans, when you are spending so much money and no improvement is visible?
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GM last week applied to become a bank in the US so that it could gets it hands on the bank bailout money. So GM now is a bank with a sideline in making cars!
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