Car price differentials across EU remain overall stable

Publication date: 08 March 2007

Car price report Car prices at 1/11/2006
Main highlights: car price differentials across EU remain overall stable The European Commission’s latest report on car prices shows that price dispersion across the EU has remained largely unchanged during the second half of 2006 while somewhat increasing in the euro zone mainly as a result of price reductions in hightax countries. Among euro-zone Member States, pre-tax prices are generally lowest in Finland and highest in Germany. Looking at the EU as a whole, Denmark is least expensive on average followed by Hungary, which is the cheapest market among the new Member States.

Overall, price differentials within the EU-25 remained stable in the second half of 2006 and the gap in average car prices between "new" and "old" Member States is closing. While car prices have generally increased less than headline inflation in all Member States, this trend is stronger in euro-zone countries with high taxes, in which prices have declined even in nominal terms. These adjustments have resulted in somewhat wider price dispersion within the euro zone, compensated by converging market conditions at EU-25 level. In particular, price indicators seem to suggest that car manufacturers have competed more aggressively in countries where cars are relatively more expensive for consumers.

Price dispersion overall stable
The latest report provides an indication that, on the one hand, pre-tax price differentials across the 25 Member States have been stable on average compared to the earlier Car price Reports released in August and March 2006. On the other hand, it seems that price differentials within the euro-zone have widened slightly compared to previous publications. More precisely, the dispersion indicator — the average standard deviation of prices — for the EU-25 slightly decreased compared to the last report (from 6.5 % to 6.4 %), while for the euro zone the same indicator increased slightly (4.6 % compared to 4.4 % in the Reports published in 2006).

However, despite this small rise, the dispersion indicator for the euro zone remains at a historically low level. This relatively small rise should not be seen as indicating a deteriorating internal market for cars, but may be explained by the fact that car manufacturers have tended, on average, to significantly reduce pre-tax prices in countries in the euro zone where cars are usually more expensive for consumers due to very high taxes (Finland and Greece).

Within the EU-25, 581 out of 1823 price quotes listed in the report show prices that exceed by 20 % those in the cheapest national market in the EU. This compares to 598 out of 1 789 prices in August 2006 issue, and 568 out of 1 817 in the February ’06 issue.

Of the 10 top best selling cars in the EU in 2005, the widest price difference in the euro zone is for the Ford Focus, which costs almost 30 % more in Germany than in Finland. This difference represents a potential saving of €4000 (including VAT) for the German consumer buying in
Finland.

Cheap and expensive Member States
Within the euro zone, Finland remains the cheapest country in terms of pre-tax prices (more than a quarter of the 87 models of the report reach their euro-zone lows in Finland) followed by Greece. As mentioned above, the gap between these Member States and the rest of the euro-zone has slightly increased, seemingly as a result of car manufacturers' attempts to sell more cars at affordable prices in these countries. In the EU as a whole, Denmark remains the least expensive country, with prices 5.5 % lower than in Finland, followed by Hungary (2.6 % lower than in Finland). Germany remains the most expensive country in the euro zone (for 33 models out of 87 in the report Germany is the most expensive country in the euro zone). As in the report published in August '06, the Czech Republic is the most expensive country in the EU-25, with prices 8% higher than the EU average.

On average, new Member States still appear to be cheaper than “older” Member States (pretax prices in the report are, on average, 2 % lower in the new Member States than in the euro zone). It should be emphasised, however, that his gap has further narrowed since the new Member States joined the EU (from 4.9 % in May 2004 then 3.6 % in May 2006), pointing to a continuous progress of market integration at EU wide level.

Price dispersion across car segments
As observed in the previous publication, prices for executive and luxury cars have further converged both at euro-zone level and EU-25 wide (dispersion indicator bottoms out at 4.2 % for these segments compared to 4.9 % in previous report). By contrast, euro zone prices have tended to diverge for cars in the medium-low segments (from 4.8 % to 5.2 %), while price dispersion had remained stable at EU-25 level, even for cars in this segment. In line with these results, car manufacturers selling executive and luxury cars (BMW and DaimlerChrysler) have further lowered their already limited price dispersion. On the other hand, manufacturers selling cars in the medium-low segments have tended, on average, to increase price differences across EU, with Renault significantly outstripping other manufacturers in this respect (from 8.5 % to 9.4 %). It seems that such manufacturers have decreased their prices in high tax Member States such as Finland and Greece in order to reach more consumers in these countries, which implies that no negative conclusions can be drawn from such price adjustments in terms of overall effects on consumers.

Prices still declining in real terms
Between December 2005 and December 2006, the EU price index for cars (reflecting actual prices paid by consumers, including VAT and registration taxes) increased by 0.7 % compared to 2.1 % for headline inflation. The price increase was slightly higher in the euro zone (+1.1 %) but still lower than headline inflation (+1.9 %). Among the high-volume markets, car prices increased somewhat more in Spain (+1.8 %) than in Germany (+1.3 %), France and Italy (both +1.2 %), and in any case always less than headline inflation. Car Prices in UK were virtually unchanged (+0.2 %) Furthermore, Member States with traditionally low pre-tax prices experienced particularly modest increases in consumer prices for cars. Car prices barely increased in Denmark (+0.4 %), and decreased significantly in Finland (-1.7 %) and Greece (-1.1 %) On average, prices for cars decreased in the new Member States (-1.6 %) while increasing for other products (+2.7 %). Car prices for instance decreased in Poland (-0.5 %), Slovakia (-8.2%) and Lithuania (-8.1 %).

These price changes are consistent with the longer-term trend, which shows that, during recent years, prices for cars have tended to increase significantly less than the average prices for other products.

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