Getting the price right


Will we see prices of cars fall? And will the current market turn into a buyer’s one?

One question I regularly ask in car showrooms around Muscat is, “why are your prices so high?” Now I know there are many factors that influence the price of a car and with specific reference to the open market for cars that we have in Oman you can throw in prices set by manufacturers around the world, shipment costs to Muscat, the 5% import duty and the costs associated with running a sales  network, with the advertising and promotions and salaries and extras thrown in.

You can also, in some cases, add in the significant cost of carrying stocks not just through the order lead time of a normal market, but as we have before us now, the costs of stocks that have been bought at a boom time in the world economic order, which people don’t want at the price you need to sell it at, but would consider at what they see as a fair price. I have been asked many times, “when will car prices fall here?” and at the time of writing this piece, they have. At least  in the case of Zubair Automotive’s brands and especially with reference to their 2008 model year stocks. In my opinion they are the thin edge of the wedge here, with an amazing campaign that has ensured that their showrooms are busier than any department store in Oman and that finally car prices are at digestible levels.

Of course the issue with price is that it is only a marker of perceived value. Sometimes a change of badge can alter the price of a car by as much as a thousand Rials. So when you hear rumours of dealers in America throwing in a second free car for a full-price purchase of the first, you wonder why car manufacturers would allow such things. It isn’t as if they are in any sort of control anyway – after years of telling us consumers that we needed to wait six months for getting that new model, now they are happy when they can get us to visit the showroom.

I’ve also had the price discussion with car industry professionals. There have been many occasions when I get asked by these worthies about the price I would put on a particular model of car and what was the basis for such reasoning? 9 times out of 10 the figure I quoted would be significantly lower than they were ready to go, in their wisdom and with their particular policies. Usually, I would be blamed for pricing it like a journalist rather than a buyer – but the fact remains that the minute the car price reached the levels that I had quoted, buyers were buying it in larger numbers (and no, this isn’t confined to the Zubair Automotive brands). Finally, these prices make sense and the sooner car manufacturers and our local dealers realise the importance of not trying to make hay all the time, the better.

I also understand that the demand-supply equation influences these prices and that the packaging of tactical campaigns with long-term price movements for the brand is a major headache. Over the past few years we have seen more than one brand abdicate a price point to move to a higher one, in order to get better value from the market. Hyundai and Kia moved in to fill the gaps at the entry level, while established Japanese brands became slightly more premium. But how tenable is that? Tomorrow, we may see Malaysian, Chinese and Indian brands take the new entry position, but won’t we run out of brands?

In the entire bargain, more than a few lessons are being learnt. First of all, people don’t care about model year if the price is right. Second, that the market is a function of the right product at the right price. And I would add as worthy third that sometimes it pays to pioneer a strategy, as seen in Zubair’s campaign. Obviously someone has to foot the bill, but by moving this much metal at such a crucial time, the market will be changed. As for the brands that haven’t moved yet, those that are waiting to see what happens, the stocks are not likely to move on their own accord – and the accountants just love to add the holding cost back onto the base.

 

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