By on January 20, 2010

up to 42% off

Update: It’s obvious I’m confusing as many or more folks with this post as I am enlightening some. As an addicted Economist reader, I enjoy unraveling the myths and stereotypes that Europeans pay $30k for a basic Ford Focus or pay $9 for a gallon of gas. We do, if we go there with our dollars. They don’t. The information below is intended as a set of tools to better understand the issues, but will not explain them all perfectly. I’ve run out of time to respond to comments, so I hope this helps. Or pick up an Economist :)

European new car prices can be as confusing to us Yanks as ordering from a menu in Latvia. We’re always hearing about tiny $29k econoboxes and the like. List prices are typically converted to US dollars, and the results can be very misleading. MSRPs are assumed to be more solid than ours. And the 19% VAT (value added tax) is not factored in. The result often is an assumption that European car manufacturers are getting ginormous prices for their little hatchbacks. Lets pull back the curtain of confusion and seek some truth. Like the Audi A3 shown above: if you factor in purchasing power parity, remove the (included) 19% tax, and factor in the 29% discount being offered, the equivalent US price is: $12,353. Allow me to explain:

Lets start with the MSRPs: Discounts are rampant, especially in the wake of Europe’s Cash for Clunker programs, with only high-demand models exempted. Obviously, slower sellers get higher discounts. The biggest, 42%, was for a Citroen Xsara. But if you follow this link here; it will take you to a (slow) slide show from Auto, Motor und Sport that shows a large spectrum of cars like the Audi above. It’s in German, but you’ll be able to figure out the two prices at the bottom of each screen and the percent discount.

VAT tax is included (by law) in all advertised prices. That means for our purposes, and to get a feel for the prices manufacturers are getting, reduce all prices by 15.966%.

Currency conversion: The dollar has swung by huge amounts in the last ten years versus the euro. But unless you personally are buying with dollars, its largely irrelevant to this exercise. Europeans are paid in Euros, and buy in Euros, and the general rule of thumb is to use a purchasing power parity ratio of 1 euro to 1 dollar (as per the Economist). So if you want to know what a car actually costs European buyers, don’t convert it to dollars. And as the European manufacturers exporting to the US have long known, the currency fluctuations can not drive their pricing; the market does.

They either hedge, make less profit until the dollar comes back up, or have US plants that ship some of their cars back to Europe, like BMW and Mercedes do, to offset the imports. Any way you look at European prices, converting their MSRPs to dollars will get you…confused. Yet it’s done all the time.

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48 Comments on “The Truth About European Car Prices; Discounts Up To 42%...”


  • avatar
    Cammy Corrigan

    I covered part of this issue in this article:

    http://www.thetruthaboutcars.com/ford-of-europe-a-paper-tiger/

    The discounts you can get on cars in Europe are insane. The ones on Ford are pretty good, but the ones on French cars are unbelievable. You can buy a Peugeot 308 1.6 HDi for £14,451 (saving of £4741), that’s the price of a top Ford Fiesta.

  • avatar

    Ah, if you want to get to the net price after 19% was added, you need to deduct 15.966%
    There is considerable discussion in Germany about the quoted discounts, they usually are regarded as exaggerated.

  • avatar
    Disaster

    The huge discounts might be valid but since when can you ignore the exchange rate!?!  If I fly to Europe to go on vacation, I can guarantee they won’t accept my dollars as equivalent to their Euros.  You are right about one thing.  Just because Euros are higher, doesn’t mean you can sell a vehicle in the States for the same price as in Europe.  The exchange rate does, however, tell you whether you can price the car competitively in the U.S.
     
    If you want to understand it better look into China and why they lock their currency to the dollar, keeping their price advantage. By the way, exchange rates also reflect wage differentials. Chinese workers pay for their jobs, by sacrificing income.
    http://whatmatters.mckinseydigital.com/currencies/china-s-exchange-rate-policy-and-what-it-means-for-the-dollar
     
    The current exchange rate is $1.41 to the Euro so that Audi would cost $16,800, in the U.S., which doesn’t sound unreasonable.

    • 0 avatar
      Paul Niedermeyer

      You ignore it selectively, as I pointed out in the post. You’re not very likely to fly to Europe and buy a Euro-spec car with your dollars, are you? So for the purposes of our understanding of what Europeans are paying for their cars, the exchange rate is of limited relevance.

    • 0 avatar
      Disaster

      It isn’t relevant at all without a income frame of reference.  Does a typical European earn the same salary, in Euros, as a U.S. citizen does in dollars?  Would you compare a Mexican vehicle price to a U.S. vehicle price by equating Pesos to Dollars?
       
      Car manufacturers, have to consider all this when they attempt to sell cars in a particular market.

    • 0 avatar
      200k-min

      I’m not so sure exchange rates matter, but income does matter.  Saying to someone in America that a car costs X euros across the pond means nothing unless you know just how easy that vehicle can be purchased on an average income in Europe.  

      Years ago I was looking at a potential job offer in England.  It started at 35k pounds.  At the time the UK pound sterling was worth about $1.50 USD.    Back stateside the offers were right around $50k even.  So the wages were indeed pretty close, disregarding the much higher cost of living in the UK. 

      What I don’t understand is why vehicles in Canada cost immesurably more than in the USA.  Something like a $50k Lexus in the US would go for $80k or more in Canada…I know as my in-laws overpaid in Canda.  There is not a huge exchange rate difference right now to warrant it….and you can drive an American purchased vehicle across the border pretty easily (gov’t hurdles not withstanding).

    • 0 avatar
      bchamp

      Maybe a more reasonable comparison would be to figure out how many hours your average European must work to buy the vehicle versus how many hours your average American must work to buy a comparable vehicle.

  • avatar
    Mr Carpenter

    I think, Disaster, that the object of the exercise is to compare “purchasing parity to parity”.

    Say you have two identical twins who went to university and studied the same thing.  One marries a visiting WAF and returns with her to America, and goes to work in his chosen field, the other twin marries a European wife and goes to work in his chosen field. 

    The two brothers buy new cars and when they compare them in the manner that you describe, it makes the American brother think he’s getting a hell of a deal.  Until the brother in Europe says “well, yes, but what you get paid in dollars, I get paid in Euros”.

    See?  Parity. 

    • 0 avatar
      Disaster

      The only way to really know parity is to know what their wages are and their cost of living.

    • 0 avatar
      Paul Niedermeyer

      Depending on the country, fairly similar to slightly less; in euros, that is of course. Converting to dollars, they’re obviously much higher now.
      The whole point that you’re missing, is that the purchasing parity is about one-to-one; that means intrinsically that they’re making approximately equivalent amounts. That’s why they call it “purchasing power parity”.

    • 0 avatar
      tulsa_97sr5

      A useful way to compare might be the “average person buying average car needs 26 weeks salary to pay for it” method.  I’ve never seen that statistic published for anywhere but the US.  Thats always seemed like a good way to quantify how expensive a purchase feels to me.

    • 0 avatar
      Ernie

      There’s no such thing as “average pay” in the US – there is a HUGE cost of living difference here, even in the same state.
       
      It’s sort of a joke that cars cost the same in 13676 and 11010 .  . . except 13676 it may be higher from lack of competition.

  • avatar
    Stingray

    So according to this, european cars are cheaper in europe? then why they don’t drive better stuff?
     

  • avatar
    Contrarian

    So does Audi make a profit selling an A3 for 12.35k Euros?

    Unpossible! So whatever is going on it’s not sustainable. That alone points to a problem with this analysis.

    • 0 avatar
      Paul Niedermeyer

      Audi has been posting record profits of late. Ask them.

    • 0 avatar

      $12,350 EUR is actually US$ 17,439.44 (per Google – just type in “12350 EUR in USD” and it will do the conversion for you.)
      Prices in Europe include VAT, which is similar to our sales tax.  However , the rate is much higher, about 15%.  To get an equivalent price from the USA, then, take the price and multiply it by your local sales tax rate (which varies all over the place in the USA).  My rate is 7%, so a $20k car would cost $21,400.  You can compare that directly to the European price after VAT, as quoted in advertisements.
      D
       

  • avatar
    stroker49

    In Sweden the VAT is 25%! Stingray: We do drive better stuff! Also americcan cars are twice as expensive here as over there, but very few buys them.

  • avatar
    Ernie

    1) Why did I think that Carpenter was talking about twin girls? Brainwashed by wrigley’s I gues!
    2) Paul, I think stingray was thinking of some of the LOWER end cars . . . 007′s citroen 2cv sorta sticks in my mind :D
     

  • avatar
    jmo

    Have you seen the price list for Golfs in Denmark with their 200% tax on cars?

    A 1.6L Diesel Golf starts at $56k dollars.

    http://www.volkswagen.dk/pdfgen/vw-pdfgen_person.aspx?strModel=Golf&orientation=l&url=http://www.volkswagen.dk/pdfgen/pdfcontent.aspx

    To convert DKK to USD  multiply DKK x 0.19.

  • avatar
    SunnyvaleCA

    It would be better to give the example using a car model we can actually buy here in the USA.  Instead of a 1.6L non-turbo stripper A3 2-door, how about a 2.0L turbo loaded A3 4-door.  I’ll bet that would come to at least $20k.

  • avatar

    @ Paul Niedermeyer: As an end-user, you cannot deduct VAT from the prices you pay in Europe. It is a mandatory tax and you have to pay it, provided you buy something for business purposes and you have a business where you can deduct it from the VAT you have received via your own bills. So, add the 19% in your German end-user example again.
    VAT varies from country to country. As far as I know, it is Denmark where you have pay the highest taxes. They combine it with a luxury tax there.
    A 1:1 exchange rate for US$ vs. € on basis of purchasing power is certainly correct, however.
    And the rebates here are really “ginormous”, currently. They are desperately trying to fight the hangover from C4C, I presume.  Last week I bought my first new car after more than ten years. I was looking for a used car but couldn’t resist the rebate. The more you buy, the more you save…

    • 0 avatar
      Paul Niedermeyer

      @herb; I know that. I’m just giving information to try to make it easier for our readers to understand what the true transaction prices are on cars in Europe. The information I gave needs to be used appropriately depending on one’s purpose. There’s a tendency to think European manufacturers get huge prices for small cars. I’m trying to shed some light on that.

    • 0 avatar
      Fusion

      But does it make sense to collect these prices? They are not what the customer pays. In Europe, nobody thinks of a car to cost “12.000€ + tax”. It just costs 14.400€.

      The price you calculated is the money the dealer has left from the sale of a car, after forwarding the included tax, but before subtracting his own expenses for it. Is that a number you should be comparing?
       
      The different VAT rates are calculated into the prices by the manufacturer. That is one of the reason why reimports to some countries are a lot cheaper than buying the car directly. The manufactures offsets some of the high VAT and car taxes by lowering the profit he makes. However, the (not reimporting) customer does not feel that – the car is expensive for him. ;)
       
      I am not arguing that your calculations are wrong (though a 1:1 purchasing power ratio might be something to discuss…) – I just think the number you are comparing is meaningless to almost everyone. ;)

      EDIT: According to the CIA’s Factbook, the German GDP is overvalued by 24% due to current exchange courses. That would mean that a “real” exchange course would be araound 1,13:1 – meaning that all your prices are 13% too low.
      IIRC the Economist bases its PPP on the price of a McD Hamburger… ;)

      (Correct me for any math mistakes. :) )

    • 0 avatar
      Paul Niedermeyer

      We’re both close enough. No need to quibble in order to make the point.

  • avatar
    Fusion

    The article also states that the discounts of more than 20% can (in Germany) mostly be achieved only by buying a “Tageszulassung” – a car that has been registered to the dealer for a single day.  Usually, those are brand new cars, not driven at all, that were registered just for the purpose of being sold with a higher discount.
    The buyer gets a cheaper car, that still is brand new – however the guarantee started on the first day the car was registered, not the one he bought it. Also, the resale value is down, since the buyer now is the second owner of that vehicle.
     
    The dealer gets the car of its lot. Usually, this is done with cars that were on the lot for several months and are therefore pre-configured.
    Since european car buyers usually want to option out their own vehicle, they don’t get those rebates. Seriously, if you do not accept Tageszulassungen and Re-Importe (cars that have been exported to another country and then imported back), it probably will be hard to find someone in Germany getting more than 10% discount on an A3.
     
    French MSRP’s are highly overblown. Always have been, at least in Germany. The french cars usually have MSRP’s higher than comparable german cars – but then you always get a manufacturer paid discount before even starting haggling with the dealer. That is what is disqualifying them from the german company car market, since both leasing rates and taxes are calculated from MSRPs…

  • avatar
    Hank

    Thank you for mentioning this, Paul.  I had to figure this out on my own (no Economist subscription) years ago through the school of travel and experience (more expensive, but more interesting than the Economist).  Drives me nuts when people start yakkin’ ’bout $30,000 Focuses.

  • avatar
    Martin Schwoerer

    A Focus for thirty grand? More like an Alfa 159 for 16k €. Yes, that’s what you pay for a well-equipped,  gorgeous new four-door, ESP, stereo, electric-everything equipped Alfa in Germany if you go to one of several consolidators.
    http://suchen.mobile.de/fahrzeuge/search.html?isSearchRequest=true&editSearch=&scopeId=C&lang=en&export=ALSO_EXPORT&sortOption.sortOrder=ASCENDING&damageUnrepaired=ALSO_DAMAGE_UNREPAIRED&sortOption.sortBy=searchNetGrossPrice&makeModelVariant1.makeId=900&makeModelVariant1.modelId=10&maxPrice=&minFirstRegistrationDate=&maxMileage=5000&fuel=&ambitCountry=&zipcode=
     
    But then you have the 19% VAT. If you are a business owner or if you’re self-employed you can get refunding for at least half of that rather quickly.  So it’s cheaper for practically everybody who buys a car that can be used for business. (Nobody buys an executive car from what’s left over from their net paycheck).
     
    Cars are so cheap in Europe! You can get a Dacia like the one I reviewed for under 8k€. Or a good Fiat Panda, or a Toyota Aygo, or whatnot. 
     
    Ford Focus: here are the prices for a well-equipped one with auto trans: more expensive than a manual executive Alfa, which goes somewhere in explaining why Ford is healthy and Fiat is sick,
    http://suchen.mobile.de/fahrzeuge/miniSearch.html?isSearchRequest=true&minPrice=&maxPrice=&minFirstRegistrationDate=2009-01-01&maxFirstRegistrationDate=&minMileage=&maxMileage=5000&ambitCountry=&zipcode=&export=ALSO_EXPORT&damageUnrepaired=ALSO_DAMAGE_UNREPAIRED&__lp=3&scopeId=C&sortOption.sortBy=searchNetGrossPrice&sortOption.sortOrder=ASCENDING&makeModelVariant1.makeId=9000&makeModelVariant1.modelId=20&makeModelVariant1.searchInFreetext=false&makeModelVariant2.searchInFreetext=false&makeModelVariant3.searchInFreetext=false&vehicleCategory=Car&segment=Car&transmission=AUTOMATIC_GEAR&siteId=GERMANY&customerIdsAsString=&lang=en
     
     

  • avatar
    Syke

    I believe Paul’s point is that the price the manufacturer is collecting is roughly the same whether the car is sold in the USA or in Europe.  Where the price inflation steps in is due to the price that the GOVERNMENT is collecting.  Yes, the purchaser pays a lot more.  However, our advantage is that the US Government hasn’t started implementing a VAT . . . . . . . yet.

  • avatar
    werewolf34

    Interesting article.
    Things to remember
    1) European tax on cars (owning them, running them) vary a bit.
    2) Europe doesn’t have as much straight-line highway as the US. You actually want a smaller car better able to handle the twisties and navigating thru a 18th century village street.
    3) Parking is a pain in the ash.
    4) Europe is dense on population and public transport is really good. The need for a car is not great for most people.
    5) The French are excellent drivers. Bonus factoid

    Also the Euro Focus is a good car really. It is a mid-sized hatchback and it is not the same as a US Focus.

  • avatar

    Since nobody’s mentioned it… who pays MSRP for a new car in the US anyway?

  • avatar
    Paul W

    For someone who is European but not German, TTACs tendency to simplify matters (which is understandable) by going “Europe = Germany” is getting slightly… annoying.
    In Scandinavia, many cars are nearly twice as expensive as they are in the US, and that’s compared to US MSRP, which is often higher than what you actually pay. And the insurance premiums for a man under 30 for anything sporty are INSANE, not to mention gas prices.

    • 0 avatar
      Paul Niedermeyer

      Good point; let me keep that in mind for the future.

    • 0 avatar
      srogers

      It’s not a Europe only thing. In Canada, citizens of different provinces can pay different provincial sales taxes. Plus we all pay a federal sales tax. Don’t some US states have sales tax on cars? And a gas guzzler tax?
      So is Paul now supposed to account for every market’s tax before he can compare prices?
      My interpretation of the subject is that it compares the price of the product, not the associated taxes.

    • 0 avatar
      AlexD

      They tax on engine displacement right? Is tax built into the sticker price in these high cost regions or as a % calculated at point of sale?

  • avatar
    vww12

    I disagree with ignoring the VAT/sales tax. Over here of course you are quoted a price to which you mentally need to add about 7% (in Florida).
    Just because you are buying in € at “all inclusive” prices, you are still paying about 10% more tax than you do in the USA.
    No-one will reimburse you that money lost to taxation whether 7% Florida, 19% Germany, 25% Sweden, or 180% Denmark.

  • avatar
    Dimwit

    Canada is the tricky one. More niggly taxes, but the best is that the cars/trucks are NOT the same. Sometimes it’s an option package that’s “standard”. Some models are just not offered (usually that base version that’s the basis for the “Starting From” that’s in the ads.

    For an example: the Ford Raptor, a funky, limited edition option for F150 buyers. Base price in the States is about $38,000 but in Canada it’s $50,000! But in that is the luxury package and additional addons that jackup that pricing and are not negotiable. A baser model just isn’t available in Canada.

    • 0 avatar
      AlexD

      Yes, Canada is frustrating. There is for the most part little difference between US/Canada base model pricing.   Canadians  get crucified when purchasing cars with a higher level trim. You can jump to a 10K difference because you want to sit your ass in a leather seat up here .  Taxes are about 13% on top of the sticker price up here as well.

  • avatar
    Michal

    Although this article is about European cars, I always thought car prices in the USA were incredibly cheap.  Either manufacturers are gouging the rest of the world, or are happy to run on razor thin margins to squeeze into the second biggest car market in the world (hello China!).
    Take for example, the Subaru WRX.  In Australia we pay “from AU$43,950″, where as USAsians pay from $24,995.  And the USA model doesn’t come with fewer features, or less power.  The Australian dollar buys US91c right now, so we’re paying $40,000 for a car that costs you guys $25k.  Outrageous.
    Even better, Japan drives on the left like Australia so USA Subaru needs special models for the US market.  The Australian and US models come out of the same factory, so there are no excuses for the huge price difference.  We have a 5% import tariff, so make that $38k versus $25k.
    62% more money for the same car.  People in the US don’t know how lucky they are.

  • avatar
    TomH

    No such thing as a European price.  Prices are set by the national sales companies in each country and there is wide variation due to local tax differences.  (e.g. Denmark has no auto industry, so they have high taxes.  The OEM price to the dealer is lower to keep cars affordable.  Germany is the opposite, they have a vital auto industry, lower taxes and thus higher wholesale prices.)  The net price is closer, but there is a mini-gray market exploiting the efforts of the OEM to normalize affordability between the high/low tax countries.  The EU is trying to eliminate the country ifferentials, but they’re not there yet.

  • avatar
    european

    im sorry to say this, heck i even logged on to post a comment,
    but this article is just a POS.

    what logic is that, that europeans dont pay more? and equaling
    1 $= 1euro. wtf?

    take this path of logic: a carcompany, vw for example, is making money on a carmodel for $11k in the us. lets say they got 10% profit
    incorporated in that price. that makes the total production cost of
    a single car of $10k.

    they sell the same car in europe as well. why dont they sell it for $10k = 7-8k euros, but 11k euros as well. hmmm???? how about that???
    so the profit the carcompany makes in absolute (dollars or euros) is far off. no matter if americans and europeans work the same amount of time for the same car. vw could and should be selling that car for less in europe.

    EUROPEANS DO PAY MORE! 30% more.
    some europeans pay even more then their neighbouring countries.
    look at mercedes-benz.at und ~.de. prices differ 20-30% !!!!

    and btw, that citroen xsara u used as an example, well i bet many readers dont know, but thats an old old freaking OLD model, mid-late 90s, now sold as an used-car. sure the rebate would be 42% or something, its so hideous i wouldnt take one for free.

  • avatar
    european

    see, im so pissed at ttac’s journalistic skills that im doing a repost:
    so ive done some research, and got the following result

    Mercedes CL550 cost in the US $110,400 (mbusa.com)
    Mercedes CL550 costs in Germany from EUR114,755 ~ $161,963.19
    Mercedes CL550 costs in Austria from EUR140,990 ~ $198,590.38

    same car, assembled in Sindelfingen, Germany (wikipedia), same production cost. yet price-difference is HUGE!!!

    so ok, you say, germany/austria have VAT. sure, lets say its 20% (20 for austria, 19 for germany to be exact) on top of the base-price, and
    lets take the US selling price as the vehicle-base-price.
    $110,000 + 20% = $132,000, which means the german buyer pays at least $30,000 MORE ($162,000-$132,000) than the US customer does (VAT or noVAT). HOW IS THAT FREAKING EQUAL???? …wont even go into the fact that austrian suckers have to pay almost the double :(

    as Ingvar in his comment said
    (http://www.thetruthaboutcars.com/lancia-chrysler-rebadging-imminent-stand-by-for-sticker-shock/#comment-1584414)

    “It’s not a European markup. It’s an American markdown. In effect, the rest of the world subsidizes lower prices in the US with higher prices just about everywhere else.”

    you want to know the real truth why GM/Chrysler/FORD fooked up?
    no, its not coz of the crappy plastic dashes, bad reliability or unionworkers.
    NO! its coz they’ve been selling their cars primerely in the US market, and they had to sell them cheap, because fatazz americans want the biggest, baddest, mofo car – for pennies. but they had no other markets they could really “milk” to offset the losses they made in the US market. lets see: presence of Chrysler in Europe (all three brands chrysler/dodge/jeep) neglectable. presence of GM in Europe (cadillac, saab, opel), while cadillac/saab are neglectable, only opel was doing some volumes. guess its now clear why GM didnt let go of opel huh?
    and yes ford. ford had volvo/landrover/fordeurope. only fordeurope is doing ok, consequently they didnt go belly up. huh? now things are getting clearer.

    Shoutout to all the manufacturers:
    PLEASE GROW SOME BALLS, AND DONT LET EUROPEAN OR OTHER CONSUMERS SUBSIDISE THE FAT AMERICANS. SHOW THEM FATTIES THE MIDDLE FINGER AND CHARGE THEM ACCORDINGLY.


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