Car makers forced to offer big discounts in Europe to counter a sales slump

Article by Christian Andrei, on November 7, 2010

In Europe, new-car prices have plunged as carmakers are compelled to offer big discounts in an attempt to boost their sales. The car industry had been struggling due to the economy downturn and the ending of the scrapping program.

However, the price war is pulling down profits. In the first eight months of the year, net car prices (including discounts and incentives) dropped by 3%, compared to an average annual decline of about a 1% in recent years, according to Jean-Marc Gales, director of brands at PSA/Peugeot-Citroen SA.

Stuart Pearson, an auto analyst at Morgan Stanley in London, said that net pricing excluding discounting is expected to drop between 0.5 and 1.0% for the year as whole, “but with a higher pressure in the second half.” Many carmakers complain about heavy discounting, something that many of them do but would rather not admit to doing.

On Oct. 26, Ford Motor Co. Chief Financial Officer Lewis Booth said that in Europe some of its rivals are “doing very unbusinesslike things at the end of each month." He cited the practice of flooding dealer lots with unwanted new cars that are self-registered and that are sold off later at used-car prices.

Fiat CEO Sergio Marchionne said that to offset the sluggish demand for new cars and to keep their factories working hard, some of its rivals in western Europe "have taken a much more aggressive view of pricing.” [via autonews - sub. required]

Topics: europe, sales

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