Car manufacturers are unprepared for the inevitable – prices in the UK are about to come down. The Competition Commission could bar the fixing of prices, creating an opening for cheaper retailers. To stop the slide in sales, manufacturers must make value for money their marketing focus.
The UK motor industry is facing the biggest shake-up in the way it markets cars in over 20 years, but is wholly unprepared for the changes being forced upon it, according to industry observers.
The Competition Commission’s report into overpricing of cars due for release this spring could force price cuts on UK manufacturers. The ending of “block exemption”, permitting European Union manufacturers to choose their suppliers and fix prices, is likely to be scrapped. This could lead to a host of new low-price car retailers – supermarket Tesco has expressed an interest – stoking a price war. The Internet will increase price transparency and make it easier for consumers to find the lowest prices.
But according to one advertising agency insider, the UK car industry is heading into the new decade completely unprepared for these changes. He says: “I don’t think anybody has a clue what will happen. They are burying their heads in the sand, hoping it will go away. A sort of ‘we won’t do anything until they do’ attitude has emerged.”
However, in an early taster of how manufacturers may approach the problem, Volkswagen has announced it is dropping the five-year-old “surprisingly ordinary prices” campaign in favour of a strategy emphasising value for money, with the slogan “More Volkswagen for your money” (MW last week).
This new strategy is an acknowledgement by the car industry that it has a problem with price perceptions, and VW’s rivals will be watching closely to see if its initiative improves sales.
The car industry has been slow to act on the storm over high prices that has been brewing for the past 18 months. Philip Price, general manager of marketing for Mitsubishi Motors, admits: “The public outcry has taken us [the car industry] by surprise. I don’t think the industry has done itself any favours over this whole debate.”
Last month’s car sales figures make depressing reading for the industry. Its worst nightmare – that consumers would shy away from new car purchases in the hope that prices would come crashing down later – appeared to come true.
According to the Society of Motor Manufacturers, VW sold 7,103 cars in December 1999. For the same month in 1998 it sold 8,148.
VW is not alone. Almost every manufacturer has reported a drop in sales. Overall, car sales dipped by 2.22 per cent in 1999, to 2.2 million.
The Consumers’ Association, which has been protesting over what it refers to as the “Great British rip-off” for more than 15 years, claims that consumers staying away from the showroom is more than just a phase.
Even if the Competition Commission report is not as damning as some might hope, the Consumers’ Association says car manufacturers should not breathe a sigh of relief.
A spokeswoman for the Consumers’ Association says: “We’ll still be appealing for people to stay out of showrooms. We’re also launching a scheme later this year to help people import cars.”
Car manufacturers have been able to rely on UK consumers’ hesitations over buying cars abroad more cheaply. But the Consumers’ Association wants to change consumer perceptions and show how easy it is to buy outside the UK.
For a company such as VW, which began marketing its cars in the Eighties on qualities such as high-standard engineering and its luxury status in the mass market, this change in strategy is more than just a “tweak”.
Vauxhall, which also majors on the traditional performance clichés of motor car advertising, has seen its sales dip. In December last year it sold 10,106 cars, in comparison to December 1998’s sales of 12,952. The car manufacturer is now offering customers up to &£2,000 cash-back in January – an indication that it is only a matter of time before these lower prices become permanent.
Vauxhall also says it is preparing for changes and has a team of people looking at all the scenarios that could evolve.
Vauxhall marketing operations director Andy Jones says: “Obviously, this is a concern to us. My frustration is in helping consumers understand the value in what we’re offering. Free insurance, for example, can be worth a lot of money to someone living in a city.”
UK cars are generally fitted with higher specifications than those in other EU countries. UK consumers expect these automatically. However, when consumers compare prices, they generally look at the overall price. Be this as it may, manufacturers have been slow to get the value-for-money message across.
VW says it will be looking to retail experience to lure customers away from the discount dealerships which could spring up in two or three years.
VW communications manager Bernard Bradley says: “We believe the whole process of car retailing is changing. How our business moves forward will not be based on block exemption.”
Bradley, who admits he believes new car prices will be harmonised with the rest of Europe in the near future, adds: “If Tesco starts selling our cars, we will offer a better service. Buying a car at a supermarket is not like buying a pair of jeans. We don’t think our customers worship the price god.”
In what has been construed as a marketing gimmick, Mitsubishi announced it was reducing its prices by &£1,000 in December. So far, this has done little to help its share of sales, which have halved since December 1998.
Whatever its aims were, Mitsubishi’s decision to lower its prices was not taken seriously by industry observers.
“No one cares what Mitsubishi does,” said the advertising source, “they’re looking to see what Ford or Volkswagen do.”
The industry has made it clear that a reduction in prices will not happen overnight.
Bradley says: “Price harmonisation must happen in a controlled way.” He adds that the car industry could not suddenly drop prices as this would create bad feeling among existing customers and make the bottom drop out of the used-car market.
According to a study released last week by What Car? Magazine and Alliance and Leicester, used-car prices are plummeting. In November last year, vehicles up to a year old cost on average 13.5 per cent less than a year ago.
Marketing departments are also looking at the way they bring a car to market. In the US, over 50 per cent of privately bought cars are bought through sophisticated leasing mechanisms. This figure is below ten per cent in the UK, with many opting for loans from banks.
The industry plans to develop this area over the next few years, as it is a rising trend among younger consumers. It is also a good way of hiding the overall price, as consumers can be diverted by how much they can afford to pay off per month, rather than the total price of the car.
Brands at risk
Some car companies have spent years building brand equity with consumers. Others, as in the case of Vauxhall, are still trying to get there. The recent backlash against the industry could create real long-term damage.
Ads which proclaim the high performance of cars – showing them driving across deserts, through hoops of fire and round tight mountain bends – are likely to be replaced by a much simpler message. In coming years, manufacturers will not be blinding consumers with auto science. They will be trying to persuade them that their cars are the best value for money.