The Truth About European Car Prices; Discounts Up To 42%
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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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.
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.