COPENHAGEN - Volkswagen Group is raising prices in the most expensive market in Europe, and executives are happy about it. The approaching Euro is going to be medicine they hope will cure the Denmark price headache.
Denmark has taxes on car purchases that result in consumers paying twice as much there as in Germany. A Volkswagen Golf 1.6 Basic that costs about DM29,000 ($16,300) in Germany costs DM52,000 in Denmark.
To keep the market going most manufacturers have subsidized sales to Denmark's dealers, because lowering the wholesale price by 1 krone lowers the sales price by 3.50 krone. Danish Renault dealers, for example, have been paying only 80 percent of what French dealers pay.
Now Volkswagen is leading the way in raising its wholesale prices to be closer to those in neighboring countries. It will mean much higher retail prices, which will cause sales declines. That might put pressure on the government to lower taxes, especially if other makers follow.
Joergen Christiansen, managing director of Skandinavisk Motor Co. (VW-Audi-Porsche importer), expects that VW/Audi prices will rise 20-25 percent. In August, VW raised prices 7 percent.
He said VW is tired of the problems with re-export from Denmark. When buyers from Germany, for example, buy a car in Denmark, they do not have to pay the tax. The factories don't like the situation, but they can't do much about it. Volkswagen was fined ECU 102 million ($94 million) for interfering with sales in Italy to non-Italians.
Denmark did not join the Euro but is affected by the growing single market of Europe. Christiansen said Volkswagen has started to equalize prices on the cars sold in Denmark, Spain, Holland, Italy and Greece.
New Danish laws also contribute to higher prices.
A law raised the minimum legal profit margin from 5 percent to 6.7 percent. Some manufacturers, including Toyota, had trimmed margins below 6.7 percent to keep retail prices down.
Toyota raised prices to meet the law, said spokesman Rene Mouritzen.
'We of course do not know the future,' he said, 'but there are no indications of higher prices on Toyota cars in the light of EU legislation.'
At Ford Motor Co. A/S, Managing Director Kenneth Joergensen said he expects price rises of 10-15 percent over the next few years.
BMW wants more margin.
'We want our dealers to have a profit of 10 percent,' says Henning Hansen, managing director of BMW Import A/S. But he said some dealers reduce their margins to the legal minimum so they can lower the sales price.
Fiat Automobiler Danmark A/S does not intend to follow VW's example, said Sales Manager Torben Nohr.
Still, said, Nohr, VW's move signals 'a trend which has started, and perhaps some more importers will follow.'