Ford calls for harmonised tax to level prices

Date: 02/12/1999

By Peter Chapman

LEADING car manufacturer Ford is calling for radical new tax measures to bring the EU's wildly-divergent car prices into line.

Ford Europe president Nick Scheele claims that huge differences in value added tax and registration charges in individual member states are the main culprit for the price differentials which are driving motorists across borders in search of cheaper cars. The highest rates range from 218% of a car's pre-tax price in Denmark to 94% in Greece and 90% in Finland, compared with just 17.5% in the UK and only 15% in Luxembourg.

Scheele, who visited Brussels last week for talks with Competition Commissioner Mario Monti, told European Voice that companies such as his maintained demand for their products despite these huge levies by absorbing much of the tax burden -ensuring that on-the-road prices after tax are "roughly comparable" for customers in different member states. This means that pre-tax prices in high-tax markets such as Denmark are far lower than in low-tax countries such as the UK, giving British customers a bonanza when they travel to these countries to buy their vehicles.

"Cars are unique in that you pay in the country of registration rather than the purchase site. You can buy a car in a country where the taxes are 200%-plus and register it where they are only 17.5%," explained Scheele.

He argues that tax harmonisation would wipe out most of the price differences, leaving currency fluctuations between the euro and non-euro member states as the only remaining problem.

But he concedes that this is "not going to happen tomorrow" and argues that as an interim measures, motorists should be required to pay taxes on their purchases in the country where they actually bought the vehicle instead of that where they registered it. This, he claims, would force countries with high taxes to lower their rates or lose revenue as their citizens shopped abroad. "You would, for example, get Danes crossing the border to buy cars in Germany. In the long-term, that would lead to tax harmonisation," he said.

The Europe-wide car industry lobby ACEA echoed Ford's claims that variations in tax regimes are to blame for most price differentials. But while the organisation is lobbying the European Commission for harmonisation of member states' tax regimes, it does not agree with the interim solution proposed by Ford. An ACEA spokesman said this could lead to harmful tax competition between EU countries vying for a bigger slice of the car market.

However, both ACEA and Scheele, who directs Ford Europe's operations from the company's Cologne headquarters, insist that differences in car prices have little to do with the heavily-criticised 'block exemption' from EU anti-trust rules which the car industry currently enjoys.

Critics claim this waiver, which allows firms to run exclusive regionally-managed dealerships to distribute their cars, allows firms to isolate individual markets, discouraging manufacturers from narrowing the gap between the price they charge for their vehicles in different member states.

But Scheele argues that the alleged abuses of the block exemption have not involved dealers in those countries which would be most attractive to foreign buyers.

The Commission is currently reviewing the block exemption, which is due to expire in 2002, but competition officials this week refused to give any details of the institution's likely approach. They said anti-trust experts were still absorbing the wide range of comments they had received as a result of a massive consultation exercise on the issue.

Meanwhile, Scheele said there was no end in sight to the current round of mergers and acquisitions in the auto sector. "There are few people who are not talking to each other," he added.

He said mergers and acquisitions helped firms to achieve the economies of scale needed to reap an adequate return on the huge investments they make in new models. Just one new model typically costs €1.5 billion to develop and has a product life cycle of less than seven years.

He added, however, that cultural differences between firms from different continents, such as the widely-reported problems encountered by newly-merged DaimlerChrysler, could slow this trend.

Leading car manufacturer Ford is calling for radical new tax measures to bring the EU's wildly-divergent car prices into line.