Price rise plans need careful strategic backing following Brexit

October 07, 2016

Manufacturer price rises designed to counteract falling revenues caused by a sharp drop in the value of sterling since the UK’s vote to leave the EU could fail to stem losses without careful implementation. Instead they could lead to an increase in discounting, disrupted market share, deflated RVs and higher TCO. In the past month, several manufacturers have warned that revenues have been impacted by currency losses caused by the falling pound. Ford and General Motors have estimated combined losses of more than €1 billion over the next two years because of currency fluctuations and predicted losses for manufacturers with European HQs could run into hundreds of millions of euros. General Motors Europe president Karl-Thomas Neumann said in an interview with Automotive News Europe that prices of Vauxhall models will rise by at least 2%, while brands including Ford, Nissan and Peugeot have also taken action. However, careful planning and implementation of price increases will be crucial and needs to be implemented consistently. Manufacturers will need to train their dealer networks to ensure margin increases are reflected in higher transaction prices to deliver the expected rise in revenues. Attempts to increase list prices can be quickly undermined through discounts or indirect costs, such as incentives, gifts or low-interest payment terms, particularly if sales teams and distributors are expected to prioritise volumes and market share over margins and profitability. Increasing the list price of a new car does not automatically lead to a rise in its used value, so a car could suffer from greater depreciation as a result. Autovista Intelligence analysed the residual values of three popular models in the Spanish market and, where there was a fall in the residual value as a percentage of list price, it could be linked back to a historic price increase.

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