Costly crossovers

When you see how costly a typical SUV (sports-utility, crossover class) can be around the world, then you will appreciate that popularity, opines Iain Robertson, does not always spread better value but enables carmakers to profiteer greedily and draws their marketing lies into true focus.

In general, when consumer goods first hit a market, they often carry a premium price tag. It was not so long ago that a 40-inch digital television would cost around £1,000 but, today, you can acquire the same TV for around £300, in the process proving a long-held belief that domestic goods can provide exceptional value for money, as a market grows towards a natural saturation point. Then, along come the technologists, such as Apple, or Amazon, which introduce methods of linking communications devices and a fresh market grows to fill every room in an abode with a TV set…thus, the opportunities grow in line with the market and consumer goods become ‘fast disposal’ items that perpetuate a waste culture. Oh dear….!

Yet, the automotive scene has a tendency to operate to its own rules, some of which may be established elsewhere but most of which work on the basis of increasing what the industry has often referred to as ‘slim profit margins’. A few years ago, I carried out a cheeky exercise with Vauxhall, when the company used to produce the Astra model at its Luton headquarters’ factory. Armed with a cost accountant, a slew of computer-printed price lists and a member of the media relations team. to ensure that the firm’s official secrets were not being exploited, we strolled the length of the production process, from raw metal sheets to driving the car off the end of the production line to establish as close to the actual manufactured unit cost as was feasible. It was great fun and included the prices of every nut, bolt and trim fixing. On a mid-range Astra GLS that retailed, at the time, for around £4,500, the actual total cost was what seemed like a good value for money £1,475.

On top of that, marketing costs, dealer margins, warranty allowances and advertising revenues needed to be factored in, the final figure being the profit-on-return for the carmaker. It is worth highlighting that Vauxhall was also attempting to reign-in runaway dealer margins, which it capped subsequently at 15% (dealer staff were told that it was 10% but the dealer principal held back the extra 5% should it be needed), although retrospective discounts and trade/fleet deals could see the margins creeping upwards to around 23% off list price. Already, the retail buyer was starting to lose out to the corporate sector but, with hyperactive trade bodies and fleet consultants arguing the toss, Vauxhall found itself having to acquiesce all concerned in a competitive segment, where Ford was only too willing to present BOGOF deals to its ‘fleet’ customers, where the constituting factor was often as little as ten cars, without proof provision. Being ‘competitive’ could also be self-destructive, unless some form of illegal pan-manufacturer agreement was reached…which might lead to an investigation by the monopolies’ bodies; one heck of a dichotomy that government often elected to ignore, allowing the carmakers to get up to their shenanigans and sort out the mess, only until too many complaints were received.

The real bottom line for carmakers was that margins on the most popular models could be squeezed to less than 3%, from which upgrades and future model demands needed to be met. Even selling millions of model examples could wreck model replacement cycles, which were tending in Europe to follow the Japanese programme of six years, with three year upgrades. Whacking up list prices was the only way to obtain some form of equilibrium, thereby setting a pattern that remains pretty much in place today. Of course, all the nattering about the list prices of EVs and BEVs dropping to those of outgoing fossil-fuelled stocks, before the 2030 ‘switch on’ date, is patent bullshit, as carmakers in a reduced volumes scene attempt to balance their books. Only by raising costs of outgoing model lines to close the gap with the electrified alternatives is going to have any hope of retaining the much sought after equilibrium. It is little wonder that carmakers are more than a little disgruntled behind the scenes.

Thanks to the efforts of zutobi.com, which has meant that I did not have the chore, an international survey of new car list prices has proved most revealing. The model, a Toyota RAV4, is one of the most popular SUVs worldwide but, while the UK prices are steep, at more than twice the price of largely the same model being sold in Canada, we are trounced by both Singaporean and Norwegian markets, thanks to their horrendous import duties. Yet, third on the list is not something about which we should be proud, especially as the UK market has swallowed all the guff about SUVs/crossovers and taken them emotively to our hearts.

The first table deals with current list prices starting with the most expensive:

The second table has the perspective of looking upwards from the least expensive in the world:

Japan’s position in the table is understandable but I would love to know if a right-hand drive RAV4 can be imported from Canada to the UK….probably not and the old chestnut about manufacturing and trim differences would be wheeled out by Toyota quick-sharp as a defence mechanism, whether there exists much truth in it, or not.

While Singapore and Norway have valid excuses for steep pricing, the UK has a long-standing deal known as the ‘JAMA’, or Japanese Automobile Manufacturing Agreement, with Japan, which is supposed to maintain competitive pricing with the supplying nation. On this evidence, I do not see it being exercised at all. Caveat Emptor (buyer beware) has as much relevance today as it has ever done.