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No more ‘Treasure Island’

Long seen as a place for the dealers and manufacturers to reap high margins and generate significant profits, The Insider wonders if the UK is still the motor industry ‘Treasure Island’ it once was.

Advertisers’ Heaven

The Dire Straits hit, “Money for Nothing”, whilst not aimed at the motor industry, seemed like a very appropriate observation of the Eighties and Nineties. It was a great time to be in marketing though. Audiences were beguiled by super-slick, artistic productions funded by huge TV advertising budgets.

Many of us will remember perhaps the best of that breed, the late Nineties’ Guinness black and white ‘surfers’ ad featuring the dramatic white horses crashing down leaving just one, wily & strong surfer to make it through the onslaught, all to a pulsating, crescendo of music from Leftfield. It was reported to be one of the most expensive ad campaigns in the UK.

Maybe the car industry couldn’t quite match that ad, but it certainly had a good go. I still remember the Peugeot 405 launch ad from the late Eighties with the blazing field of maize and the 405 powering through, to the soundtrack from Top Gun, Berlin’s “Take My Breath Away”. Made my Dad buy one anyway…

Another one was for the Vauxhall Corsa launch in the early Nineties featuring five supermodels – Naomi Campbell, Linda Evangelista, Christy Turlington, Tatjana Patitz and a very young, Kate Moss. An ad that reputedly earned each of them £500,000.

“Rip-Off Britain”

But that relative decadence didn’t last. By the late 1990s, the UK media were throwing their collective weight behind a “Rip-Off Britain” campaign highlighting the cheaper cost of cars on the continent. The Consumer Association claimed at the time that the UK car industry was operating “a £6bn rip-off” with prices “up to 45% higher” than the cheapest EU countries. In response, the SMMT said, “the EC price survey did not reflect the true cost of cars because it took no account of elements such as part-exchange, finance deals, discounts and warranties. A large chunk of new car revenue went on retailing, distribution and marketing”. Hmm, what was that I was saying about expensive car ads?

Consumer and media pressure saw car list prices tumble going into the new millennium. As a direct result, there was much more focus at motor manufacturers on costs and profitability. Dealer margins were cut, consumer offers like 0% finance were slashed and ‘decontenting’ of car specification at model year change (deleting items of previously standard equipment) became more commonplace. Even at this challenging time, for most in the motor industry other than the finance director, a knowledge of foreign exchange rates was only really required for the family summer holiday.

Belt-tightening

Roll forward about 20 years and there will be precious few folks at UK car manufacturers who don’t know the exchange rate on an almost daily basis. Of course, the referendum result in 2016 to leave the European Union had a dramatic impact on the value of sterling. One estimate was that the decision to leave the EU has cost approximately £2,000 per unit, possibly more. That is a big hit to any profit and loss account.

No wonder company car drivers are noticing their new replacement car has no longer got that additional USB slot that their previous car had. Or that the leather trim is now ‘man-made’ leather.

And there have been other headwinds for manufacturers to contend with over this same period: additional costs to comply with CO2 and NOx emissions legislation. Plus, costs for the latest automation technology to exceed the latest NCAP safety tests. And no-one wants to lift prices in such a hyper-competitive market.

Money’s too tight to mention

So, Treasure Island has long gone for manufacturers in the UK. The uncertain economic climate giving us a weakened pound, together with the high costs of complying with the (correct) legislation to protect the environment and all road users, puts huge pressure on profits (and marketing spend).

These days, MDs and FDs at motor manufacturers & importers in the UK might feel more empathy with the note from the Labour Chief Treasurer intended for the incoming Coalition minister in 2010 – “There’s no money left”.

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