Car manufacturers are considering plans to raise the price of cars in Britain because the strengthening of the euro has further eroded their already weak profit margins, industry sources said yesterday.
It is understood some car makers want to increase prices by about 3%, bringing to an end years of slashing prices that have seen Britain move from being the most expensive EU country in which to buy a new car to one of the cheapest.
Britain's booming car market, said to be the most competitive in the EU, is being largely met by imported vehicles which so far this year account for 80% of all cars sold. The overall market is likely to match or fall just short of last year's record 2.56m sales.
Last week Christopher Macgowan, chief executive of the Society of Motor Manufacturers and Traders, said British car prices were now the second lowest in Europe as evidence emerged that 20 of 71 models sold there are cheaper in Britain than elsewhere. This has partly been as a result of the government's "rip-off Britain" campaign.
Foreign producers such as Ford, which makes no cars in Britain, Renault and Citroen are among those said to be considering price rises to offset the squeeze on margins accentuated by the rise in the euro against sterling.
Paul Everitt, SMMT chief executive, cautioned against a general tendency to raise prices. He said there was undoubtedly pressure among importers to maintain margins but domestic producers, including the Japanese, were more concerned to retain market share in highly competitive conditions.
Others, such as BMW, which builds the best selling Mini in Oxford and imports the rest of its range, can balance losses on German-produced vehicles with gains on UK-produced cars because of the changes in the exchange rate, he said.
"We have seen a bit of prices rising, mainly new models rather than a general hike. It's everyone's aspiration to get better value for their product where market conditions allow it.
"Everyone is focusing on the UK because the market is holding up so well and trying to maintain their market share. The reality is that those conditions will remain very tough and militate against generalised price increases."
Other industry sources said the strengthening of the euro could be a smokescreen for the planned slight increase in prices. "Margins are so squeezed that manufacturers are de-contenting models," they said, pointing to measures such as removing cigar-lighters as standard fixtures.
"The euro is not a significant factor compared with inefficiencies in the manufacturing process. All manufacturers are having very hard discussions with unions about improving that process but any change comes at a price in the form of higher wages."
Industry sources also said car makers are shaking up their distribution systems to raise margins in advance of changes to the dealer network brought about by the ending of the EU's so-called block exemption rules at the end of September.
