BRUSSELS - Volume carmakers that depend on the lucrative German market will be hardest hit by the pressure for price harmonization caused by Europe's common currency, according to industry analysts.
Most companies price their cars high in Germany, Europe's richest and biggest auto market. Germany is 'systematically about 5 percent higher priced than the rest of Euroland (the 11 countries that will soon convert to the euro),' said analyst John Lawson of analysts Salomon Smith Barney in London.
That excludes the UK, which won't join the European single currency next year, and where high prices partly reflect the strong pound.
Monetary union officially begins on 1 January. Even the most conservative estimates say car price convergence resulting from the new transparency will take no more than two years.
In Spain, Portugal, Holland and Denmark, where high car taxes have forced manufacturers to price lower, wholesale prices are expected to rise. But prices in Germany will fall and move closer to the European average, Lawson predicted.
That could mean a substantial loss of revenue for makers with high German sales, including Volkswagen Group, Opel and Ford, the top three sellers in Germany.
Assuming a 3 to 4 percent price retreat in Germany, VW alone stands to lose at least DM1 billion ($585 million) in annual revenues, said Lawson.
In the European Commission's latest national price comparison study, German prices averaged 5 percent higher than Italy and 4 percent higher than France.
Rick Yarrow, an analyst at research firm JATO Dynamics in the UK, said Germany's high volumes make it unlikely that prices will drop more than about 2 percent.
'But even a 1 percent decrease would be very critical for VW in Germany,' he said.
Volkswagen spokesman Kurt Rippholz said the company isn't worried. 'We can't say now what will happen with prices in Germany or other countries,' he said. 'They will not naturally go up in Germany. We can't say what will happen.'
Wolfgang Schneider, director of European affairs at Ford of Europe, said if currency differences disappear, carmakers will raise prices in high-tax markets like Denmark and Holland rather than dramatically lower them in countries like Germany and France.
'Prices won't collapse to the lower end,' said Schneider.
Automakers argue that varying prices - excluding tax differences - reflect national tastes. They say customers demand equipment like dual airbags, ABS and sport suspensions in Germany but may not pay for it in Italy, France and Spain.
'Ultimately, the euro will be a benefit,' said David Hopkins, director of economic and monetary policy at General Motors Europe. 'It will lead to a greater understanding of the national preferences of the various markets.'
One cynic is Yarrow of JATO, who is studying car prices before taxes on identically-equipped cars in the 15 European Union nations. He has found price variations as high as 40 to 50 percent between the most and least expensive markets.
'There is a theory that a lot of the differences are caused by specifications and taxes,' he said. 'My analysis shows that is a bit of a myth. There are some significant differences without those factors.'
Yarrow says generalist makers have the biggest price variances among countries. He says his research confirms what European Commission studies have shown - that luxury makes have steadily closed the price gap for the past several years, keeping it within an 11 percent range.
The EC has allowed car manufacturers to keep their tightly controlled dealer and distribution networks until 2003 in exchange for holding price variations under 11 percent among EU countries.
The variations are monitored in the EC's study of prices for the same fully equipped vehicles. Makers have criticized the EC study, saying the models included don't represent what is actually sold on the market.
Insiders at DGIV, the European Commission directorate general for competition, say proving that automakers are controlling prices in individual countries would be difficult. The EC is instead waiting for the price transparency they believe the euro will bring.