More car scrappage tomfoolery

From the BBC:

Ford is to raise its UK prices by an average of 4%, blaming the move on the weakness of the pound against the euro. It is the third time this year that Ford has raised prices. They rose by 4.7% in February and by 3.75% in April. The list price of Ka, Fiesta, Focus and Mondeo models will rise by between £600 and £650 while an S-Max will cost £700 more and a Galaxy will go up by £800.

Ford conceded that raising prices, in a recession with a scrappage scheme in place, "may seem counter-intuitive".

Counterintuitive? Well, duh, as I pointed out here when the scheme was first announced,

... with a huge overcapacity in car manufacturing and a lack of credit, it is a buyer's market - any new car buyer can easily haggle a discount of fifteen or twenty per cent off list price, so even if there were a notional £2,000 subsidy, it begs the question, what is the base price from which the £2,000 is to be deducted?

All your comments were most helpful, but top marks must go to Adrian Wrigley, who commented thusly:

"The Government is trying to offer £1000 to split between the car buyer and car seller. What effect will this have on the price in the market? Presumably the price will fall between £0 and £1000 depending on elasticities, frictional costs etc... I suggest the market price will fall by less than £300... Just a hunch."

That was a bloody good hunch, is all I can say.

Ford will first reduce the 'haggle' discount by £1,000, to soak up the taxpayer-funded voucher. These discounts are informal, so there is no way that anybody can ever prove one way or another that they did it. This leaves the £1,000 manufacturer's contribution to play for - if the list price goes up by £600 - £800, and buyers end up saving between £200 and £400 (compared to what they'd pay if there were no scheme).

Plus the buyer has to hand in a second hand car, that may be worth less than the £2,000 (the face value of the scrappage scheme voucher + discount), but in most cases worth more than the £300 average saving.

Ah well.