Car prices up 7.8%

Average retail prices for new cars in Ireland rose by 7.8 per cent over the 12 months to June 2003, according to the latest European Index of New Car Prices.

The claimed rise in Irish prices is in line with EU figures due out later this month, expected to show a price rise here to the end of May of about 6.9 per cent.

According to the figures published by eurocarprice.com in association with PricewaterhouseCoopers, prices across Europe rose by an average of 5 per cent over the 12 month period to June.

Here the industry has forewarned about the price rise for some time, according to Cyril McHugh of the Society of the Irish Motor Industry (SIMI). Due to new rules concerning price harmonisation in the EU, Irish pre-tax prices are set to harmonise with other EU states.

The new rules are aimed at increasing competition and are forcing manufacturers to introduce a single pre-tax price across all 15 member states. Already one industry source told Motors of one manufacturer which has begun to set a single pre-tax EU price on new models.

According to McHugh, retail price rises are exacerbated by taxation on new cars here, which doubles any pre-tax price rise imposed by the manufacturer.

"For every €1 added to pre-tax car prices here, an additional 89 cents is added by Vehicle Registration Tax (VRT) and VAT," says McHugh.

Previously car firms offered Irish distributors cars at a discount to compensate for the high tax imposed on new cars. According to eurocarprice, new car retail prices in Ireland are 32 per cent higher than the average price of a new car in the euro currency zone.

However, while the introduction of a single pre-tax price is expected to drive Irish prices up, there are indications that single pre-tax prices for all 15 markets will not be set simply at the German market rate. Germany is the key European market and it was feared car firms would simply bring all other EU prices into line with it.

Elsewhere, of 19 countries covered by the eurocarprice index, Poland experienced the greatest increase with prices up 11.5 per cent.

At the other end of the scale, retail prices in Finland fell by 2.3 per cent over the same period. This, says SIMI's Cyril McHugh, can be attributed partly to a significant reduction in tax on new cars which in turn has led to an increase in new car sales.

The impact of currency movements is also influencing prices in Europe. In Britain, car prices have been among the lowest in Europe for some time, thanks to the strength of sterling.

New car sales in June were up 15.8 per cent on the same month last year, according to the Society of Motor Manufacturers and Traders (SMMT). EU figures to the end of May are set to show Britain to be cheapest pre-tax price for 20 out of 71 models surveyed.

However, several industry sources suggest British prices are moving up again as a result of the strengthening of the euro which has eroded profit margins for car firms trading in Britain.