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Thursday, 02 April 2009

Increasing motor vehicle prices now is lunacy

The South African car industry is under severe pressure with sales dropping through the floor. Year-on-year sales, 2009 compared to 2008, are down by approximately 30%. Dealerships are closing. People working in the industry are losing their jobs.

If you believe that the law of supply and demand applies to the motor industry too, clearly the demand for motor vehicles has collapsed entirely. Nobody is buying cars. When demand is rising, sellers of products can increase their prices, because people want their goods. When demand is falling, however, it is very difficult to raise prices without exacerbating your falling demand.

Yet this is exactly what car dealers are doing. I have been receiving emails throughout March from BMW South Africa "warning" me about the coming price increase in April. BMW is not the only dealers raising their prices – Mercedes, Toyota and the others are doing the same. In Sunday's Rapport newspaper, it was reported that a new model 1.3 Toyota Corolla would set the idiot buyer back R195000 (approximately $20,000.) This is an insane price for a 1.3 liter runabout, and I don't care how many bells and whistles it has. It's still a 1300cc pissant.

Do the motor manufacturers such as BMW perhaps not know about the law of supply and demand? Were they not paying attention in Economics 101? Apparently not. To increase prices during such a severe international downturn, is utter madness, if not stupidity.

Expect more demands from the motor industry, nevertheless, that government (i.e. the taxpayer) should bail their industry out.

Expect the taxpayer, in turn, to have absolutely no sympathy for their lot, a fate which the car industry has brought upon itself because of its continuous gouging of the public. BMW should not warn me, Joe Public, about an increase in its prices. It should send out warning mails to its board of directors, informing them about how ludicrous increasing prices right now would be.

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