Cars follow electronic goods downmarket

It's what might be called 'the flatscreen argument'. When the government recently raised the Luxury Car Tax (LCT) from 25 to 33 per cent for vehicles priced above $57,180, the car industry countered with this argument that all 'luxury' items should incur an additional tax if cars were to do so; items such as yachts, gold-plated bathroom taps -- and flatscreen televisions.

The argument was futile -- never mind the carbon-fibre fishing rods or heated toilet seats (and notwithstanding the whole rationale smacks of a 'what about him?!' approach to conflict resolution) the plasma is most definitely not a luxury item these days.

Prices of widescreen televisions have plummeted in recent years and even the unemployed and old age pensioners can afford them. Don't write in, that's a joke!

But still, desktop computers are more affordable -- and they run four times faster for half the price of a computer from five years ago. These days, there are inexpensive little gadgets that allow you to take your music with you and listen to it anywhere. Budget-friendly digital cameras that can literally record hours of video footage as well as stills... The list goes on.

While the technology of the modern car has not necessarily progressed as fast as consumer electronics, the cost of a car is coming down constantly -- and to a large extent, prices are dropping from the top down.

Mercedes-Benz is a prime example of how finding efficiencies in production and development can lead to significantly lower cost to the consumer, over time.

Take for example the S320 models from the 1990s. According to pricing information supplied from The Redbook, the price new for the bloated W140 S320 from 1993 was $181,538. Six years later, when the new W220-generation S-Class was introduced -- an altogether better car -- the price for the S320 variant fell to $170,300. And prices for the S-Class range had dropped across the board too.

Mercedes-Benz initially attracted criticism for cutting corners (and quality) to keep prices low, but the company appears to have struck a better balance between cost-effective manufacturing and acceptable build quality in recent years.

David McCarthy, Senior Manager for Corporate Communications at Mercedes-Benz in Australia, is the first to admit that pricing for models from the three-pointed star is on a constant slide.

"Everything we buy -- plasmas [televisions], whatever -- it gets cheaper and it gets better," he says.

"Cars can't be any different from other consumer products. Everywhere in what we do with a car -- whether it's at the design level, the factory level, the distribution level -- you're looking to improve your productivity. Now, you pass that on to the customer, because you have to. You can't operate the way you might have 20 or 30 years ago."

And 20 or 30 years ago, Benz was very much charging their buyers premium prices for cars. That has changed though and McCarthy points to the pricing of the current (W204) C-Class as an example of that.

"Other manufacturers were surprised by our C-Class pricing. They were surprised by the C 63 pricing [but] we don't sell a car at a loss. We're in this business to make a profit -- it's not a dirty word, that's what it's about."

Looking to the near future, McCarthy hints that the next (W212) E-Class from Mercedes-Benz may provide further headaches for the product planners and finance people working for competitors.

"The new model E-Class will be a very different car from the current car and the value that that will offer customers will be even better again. That's the way it is. We don't [just] say 'that's what's going to happen' -- that is what happens."

Constant improvement in the price/value balance (more features for less money) drives the prices down for competitive cars. In the automotive food chain -- and thanks to the whimsical buying habits of consumers -- the lower-priced Mercedes-Benz C-Class may well force a company like Peugeot to reduce pricing or up the specification of its 407 model -- even though neither company would see each other as direct competitors in the marketplace.

It's a trickle-down effect that, over time, places pressure on the local manufacturers and their large cars, importers of SUVs and even the distributors of the $15,990 shopping trolleys, to scrutinise their respective prices and specifications. A novated-lease buyer might be drawn to a Peugeot 407 or a Holden Calais or a Toyota Prado.

The trick is to market your cars at a price that's more enticing, without cheapening the brand as a whole. It's a process that has to be conducted from the manufacturing and product development end of the spectrum, not the retail end -- and it has to be done in a way that's sustainable for the factory. On that point, McCarthy has a message for the local manufacturers.

"[If] We sell more cars, you might accept a lower margin on them -- but you've got to get a return on your investment. If you don't get that... you don't get the money to reinvest. Then you don't have a product.

"And then you have what's happening to some manufacturers in this industry. [They] simply don't have the product -- or can't afford to develop it."

As for Benz, the company is happy with its image and where it has positioned itself in the local market. McCarthy admits that Benz appeals to a different demographic today, than it did in the past. Better value for buyers introduces younger buyers to the brand and changes the brand's image by osmosis.

"People's perceptions of our brand changes," McCarthy says.

"There are people who buy a C 63 and they've never considered an AMG before. Now there are people who've bought a C-Class who've never bought a Benz -- and it's the same for BMW. So the perception of the brand changes, but the biggest challenge for the industry is to continue to improve our green credentials [and] continue to improve value for the customer."

Maybe the future -- as foretold many years ago by former union leader, the late John Halfpenny -- will unfold as predicted, with everyone driving a Mercedes-Benz...