Price cuts are forced on luxury car makers

The price war gripping the luxury car market began as a mere scuffle earlier this year, when the Government demanded price cuts and motorists headed abroad for bargains.

The price war gripping the luxury car market began as a mere scuffle earlier this year, when the Government demanded price cuts and motorists headed abroad for bargains.

Major manufacturers and dealers knew the game was up on 1 August when Stephen Byers, the Secretary of State for Trade and Industry, confirmed that ministers wanted action to end Britain's unfairly high car prices. As he introduced new legal orders forcing greater competition in the supply and sale of new cars, Mr Byers said the price of a car would fall by £1,100 on average, saving buyers roughly £1bn a year.

From 1 September, the day the new X registration plates come into use, major manufacturers will have to offer ordinary buyers the same discounted prices offered to fleet buyers. "These moves will mean a better deal for car buyers," he said.

Vauxhall, Ford and Volkswagen have reacted, but the entire industry was already under pressure from their customers, thanks to the cheapness of similar models abroad. Luxury car makers like Porsche admitted that with the strength of sterling against the euro, potential buyers were attracted by much cheaper prices in Ireland and on the continent.

As a result, Porsche cut prices by 10 per cent across the board in May, claiming to be the first luxury builder to do so. "We want to offer our customers better value and encourage them back into UK showrooms," a Porsche spokeswoman said. "We also wanted to restore customer confidence in the UK, at a time when there was quite a lot of confusion generally."

The cut, which followed selective reductions last August, has led to a 40 per cent rise in Porsche registrations by June compared to last year. The company's entry level Boxster now costs £31,450 while its top-of-the-range 911 Turbo is now £86,000, down from £94,000.

The cuts announced by Mercedes and Chrysler-Jeep were inevitable after Lexus, the executive car brand owned by Toyota, said on Monday it was "realigning" its prices by 10 per cent from 1 September. This action, said a spokeswoman, "was taken to address the highly competitive market and pricing background that exists in the luxury segment." Lexus's decision is commercially risky. It also suffers from the high value of sterling against the Yen, compared to the value of other European currencies.

But, like most in the industry, it had little choice. Given Mr Byers' statement, many potential car-buyers had been holding off new purchases because they expected cuts to be made across all sectors of the market. This forced the manufacturers to take action.

However, the truly elite car makers, such as Jaguar and Rolls-Royce, still believe they can resist the trend. "I would disagree we are a direct competitor with Mercedes," one Rolls-Royce official said. "Our competitors are pieces of art or race horses."