Cars in crisis – prices rise anyway

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Aaargh! I lost 33% on my car in a year

The Yengeni-mobile Mercedes 4X4 hol...

Moneyweb looks at price rises over one to four years.

JOHANNESBURG - The world auto industry was close to collapse last year and sales in SA fell 26% to a six-year low - but that didn't stop SA manufacturers from raising their prices across the board.

After slumping in the first half, the rand became one of the world's mighty currencies in the second half of the year - but that did not stop SA car makers from pushing up prices.

Honda, Mazda and Nissan led the car price race last year, jacking prices of their popular lines on average by more than 5%.

Honda raised prices, in some cases by 10% even though the rand hardened against most currencies in the second half of the year.

BMW, Volvo and Audi were the most restrained, raising prices respectively by an average of 1.5%, 2.3% and 3.1%.

The biggest individual model price hikes last year were 11.8% for the Ford Focus, 10.8% for Honda's Jazz and 10.75% for the Ford Fiesta.

The stronger rand in the second half of 2009 should have reduced imported costs but manufacturers and importers say they had not been compensated when the rand fell before October 2008. They claim that because of competition there is a lag between a fall in the rand and their price increases.

Moneyweb has plotted the list prices of all 350 cars in SA that sell more than 100 models a month over four years (see table).

To the credit of the industry and reflecting currency trends, most price increases over one and over four years compounded are lower than the equivalent rise in the consumer price index.

By our reckoning inflation in the cars we have monitored from 2005-2009 has been just less than 5% pa, except in the cases of VW (5.7%) and Toyota (5.2%)

The survey was complicated by the introduction of new models and the withdrawal of old ones, hence several gaps in the table, which attempts to compare apples with apples. We extracted the data from list prices in the Auto Dealers' Digest and supplemented that with some end 2009 prices from Car magazine.

The Japanese car makers have raised prices the most. Brent McDonald of Toyota has provided a table to show that the yen has softened against the rand less than the euro, the won and the dollar in the past year.

In January 2008 it cost ¥15.44 to buy a rand. The yen strengthened to ¥9.29 to the rand (that is nearly 40%) by April 2009. Since then the yen has weakened by 25% to ¥11.62. The currency has therefore increased imported costs for Japanese manufacturers by 33% since January 2008 and 19% since October 2009.

The South Korean won has weakened more (from 141.48 to the rand in January 08 to 158.73 in October last year), which means Korean manufacturers have actually enjoyed 12% cost decreases since January 2008 and 10% since October 2008.

European manufacturers have seen currency-based imported costs rise by 10% since January 08 and, since October 09, a fall of 2%.

"While we have seen some strengthening of the rand recently, the improvement against the yen has not been as significant, meaning Japan-based imports/parts remain at some disadvantage," says McDonald.

Mercedes-Benz of SA marketing head Ekard Mayer was surprised that his marque's prices last year were, on average, fourth highest.

"We have upgraded models and put more into them. For instance towbars are now standard on the M class."

Mayer blamed currency movements for the bulk of price rises. He said prices have just been raised 2.9% across the range. He hopes that, provided the rand holds, Mercedes will not have to increase prices again this year.

Honda marketing boss, Graham Eagle said that, as a pure importer, Honda was most vulnerable to currency fluctuations. SA manufacturers had an advantage as they pay no import tariffs on their local production and also receive export incentives. The yen has depreciated against the rand lately - but less than the euro.

Eagle said Honda's increases last year might have been the biggest but he says other manufacturers have subsequently increased prices, so that Honda's cars are competitive with the nearest equivalents.

The average price increase of the cars we monitored in 2009 was only 3.9%. This could be an understatement. According to statistics from Econometrix, car price inflation, as measured by list prices, last year leapt ahead by 12.4% in spite of a rand that strengthened all year.

Moneyweb's average four-year price increase of 5% is not much different from that of Econometrix's 5.8%.

Tony Twine said that for its calculation Econometrix has indexed a selection of vehicles by price bracket and by source of origin in the luxury, middle and entry markets with 2 000 as a base year.

Write to David Carte: davidcarte@moneyweb.co.za

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