Tax and Pricing in the car industry
It is a common knowledge that car manufacturers find their inspiration amongst competition. Reproducing best in class practices is an art in car manufacturing. Groups of engineers are expert in examining every aspect of the newest competitive product to get inspiration for a future successful launch.
When it comes to Pricing strategies the game is the same. Observing the neighbour is a must. When governments announce new tax legislations, all car manufacturers ask themselves how competitors will manage their pricing. Pricing is not about sticking price tags on cars. It is a complex exercise in which tax rules play a major role. The tax element, in the final price of a car, can range from a simple VAT rate up to 180% -made of complex formulas, mixing number of airbags and fuel consumption - of the price before tax. Since a couple of years the trend in Europe is to include CO2 as a parameter to determine the level of taxation of a vehicle. Belgium – as an example – introduced this factor for company cars in 2010. Only two years later a new tax legislation was voted, bringing once again extra Pricing challenges.
In this article we use the change in the Belgian company car taxation scheme to illustrate how pricing tactics and strategies can be used to respond to changes in taxation regulations, avoiding serious impacts on your customer base.