M.B.
My main objection relates to the 'value added' aspect of many garage charges and other (e.g. restaurant) services. By explicitly stating an inflated cost for items like oil - when most people are aware of the 'Halfords price' - garages invite accusations of 'taking the Mickey'.
It might even be more palatable for dealers to increase the labour element (whether by number of hours or the hourly rate), rather than include overpriced 'sundries'.
Neither did I suggest that 'Johnny Foreigner' was averse to good ol' Capitalist principles..........
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MB, I have no idea what you do for a living but it seems to me that you must have a vested interest in this somewhere along the line. Are you seriously suggesting that it is acceptable for dealerships to charge £7+ per litre for oil when they are already charging £60-70+ for the labour involved in doing the work?
I have lived in the US for a year and Germany for a year; in both cases the cost of servicing a car (not to say general living costs too) were considerably lower.
You talk about 'capitalism' and the 'market'. Well, I have an MBA, I've read all the books by Michael Porter, Milton Friedman etc., and I've been involved in the running of large companies. The notion that the automotive industry operates as a free market is ridiculous. Free markets (with so-called 'perfect frictionless competition') require a multiplicity of vendors, low thresholds to entry and perfect consumer information. The only time you'll get near to this is at your local fruit-and-veg market.
The car business is tightly controlled (in the UK) by the vendors and they currently operate under 'block exemption' which means that in most cases they have a total monopoly on most parts and technical information for your vehicle.
Many VM's operate punitive restrictions on the dealers (e.g. selling a car at below a certain price, selling other brands, selling out of a specified area). Most parts and services are also priced centally by the vehicle manufacturer, eliminating the possibility of competition from other dealers. The lack of competition in car retailing actually makes it more akin to the supply of products in the communist countries that you mention. Many of the operating practices employed in the UK would be illegal under the competition laws that pertain in other Western countries.
We now know that for several decades we have been paying far too much for our cars. I remember way back in 1983 my father bought a new VW Scirroco from a dealer in Aachen, Germany; he saved 30% on the list price. Remember Octav Botnar, the guy who became one of the richest men in Europe (a multi-billionaire) by importing Datsuns from Japan? These are not the characteristics of a competitive market.
You might be interested to know that, taken as a whole, the net profit on retailing in the UK is 8%, that compares with an average 2% in the Europe and the US. Maybe one of the reasons the UK is so 'good' at retailing but so poor at manufacturing?
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Remember Octav Botnar, the guy who became one of the richest men in Europe (a multi-billionaire) by importing Datsuns from Japan.
Are but where would he be now, if he wasnt where he is?
;)
pmh (was peter)
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he's a REAL Arther Daily character, just with more zeros, after his name.
VB
PS Did they lock him up yet?
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Aprilia: I'll keep this to motoring. There are many flaws in your thesis above, which with an MBA you must be able to spot. As I have said before, rather than waste time on circular economic arguments, there are options available to all those who whinge about motoring costs. What you are basically saying is that a Socialist Labour Government allows uncompetitive motor businesses to thrive in the UK.
For example,
1. before you ask a main dealer to change oil in your car, ask them how much it will cost for parts/oil/labour and then if you can't afford it, either DIY, or go to an independent, or go to a fast-fit place that does it cheaper if you wish.
2. go and whinge in the right place - eg. the main-dealer, or the manufacturer who forces you to go the main dealer. failing that, whinge to the Office of Fair Trading or Trading Standards or Competetion Commission or your MP or the responsible Minister. If enough people did this, then any real uncompetetive practices might get sorted.
PS - if the car market was not free but was a monopoly, how did Octav Bonar get in to "compete" in such a market, unless he also controlled all the other players in the market?
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For the benefit of those who do not have MBAs:
Bank Base rates, and hence capital borrowing costs, in EU/USA/Japan are much lower than UK. In UK you can get 4% interest on savings if you shop around. In the other countries, savings rates are virtually zero. In the UK, companies pay dividends at rates that compete with the savings rate. In the other countries, they can get away with paying no dividends as the savings rate is also virtually zero.
Businesses price their goods/services in the round, based on annual forecasts and plans. Some items may be sold as loss-leaders, but others will be priced to recover the cost to aim for a profit at the end of the year.
As for the reason why your local corner shop will sell oil at a lower price than the big high street chains - leaving aside the costs of setting up shops to corporate standards of design/service/legalities/etc., the local shop usually forgets that the owner's family ought to be paid for their time/overtime spent in the business. Many of these small owner-operators work all hours, including after closing the doors, which they do not cost in their profit/loss accounts.
However, at the end of the day, the consumer has the choice to take his/her business where the price and service suit them. If you want plush reception areas with coffee lounges and a chain of people from receptionist/service-manager/mechanic/invoice-clerk/parts-order-clerk/
stock-controller/M.D.
so that the oil and filter for your car can be changed, well you pay for it. If you say that "warranty" reasons force you to go to a main dealer, then that should have been a factor in your pricing the car when you purchased it.
On the other hand, you can go to the person who does all this as a one or two person business. It is your choice. You pays your money and takes your choice.
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Its still a rip-off!
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Its still a rip-off! >>
And whose fault is that? Is it the mugger's or the mug's?
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Its still a rip-off! >> And whose fault is that? Is it the mugger's or the mug's?
Either way, its still OTT.
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Bank base rates are lower in other countries; although at 3.75% here, they are not extortionate. Businesses still borrow money in pounds though, because if their profits are denominated in pounds, the extra interest rate spread is worth it to offset the currency risk by borrowing in dollars or euros.
There are good tax reasons why people may pay a dividend here but not in other European countries. Paying a dividend means that it is taxed twice as income, whereas reinvesting in the business means there may be a different, more favourable, capital gains tax regime.
In either case, dividends are paid out of PROFITS and in both the UK and abroad, businesses maximise profits, not income. If they could do so abroad by setting higher prices, it's safe to assume they would. If no dividend is paid, the profit is simply reinvested in the business or even left as cash and the shareholder benefits from profits because of capital appreciation. If they can't benefit in that way, then surely they should be investing in this country and pushing down the cost of our capital.
As for the Halfords (to choose an admittedly not very profitable example) then firstly, MB, you appear not to have heard of elasticity of demand. Secondly, I find it hard to believe that a small shop pays less than Halfords for its stock. My local Halfords typically has six people there, all earning about a fiver an hour, and with employer's NI and other expenses, it probably costs Halfords about £50 to have them all there for an hour. It's a largeish store though and, with proper marketing, brand positioning and pricing, could easily turn over (gross) a couple of thousand in that time. When I worked retail, a sales person would earn 1-2% of his gross sales though not on a commission basis. Forget about distribution costs; someone has to get the stock to the store and whether it is done in house (large stores) or priced into the wholesale cost (small stores) is irrelevant.
If a business like Halfords isn't making money because of economies of scale and whatever brand goodwill it has, it is either because there is no market at all for a car parts store, or someone, somewhere along the line, is choosing the wrong suppliers, store locations, or employees.
Maybe small businesses don't pay the full cost of their labour but surely, as a small business owner, you would notice that earning £25k for an 80 hour week is only £6 an hour and that maybe your quality of life would be better elsewhere. If not, then someone should behave like a rational producer or consumer and go elsewhere. That's your frequent point - that business owners are put upon individuals like Stalinist worker heroes only running businesses out of the goodness of their heart. I agree that people do have a choice but branding distorts it - which is fair enough, although I also believe that society has an interest in free competition and not simply the kind of capitalism that only applies to those who have made it already.
With margins like that though, either they are raking it in, or they're not as good at their jobs as they should be. I know of a couple of garage owners who provide good service at a reasonable price and have excellent reputations; funnily enough, they seem much more prosperous than those who squeeze out the last penny on each individual transaction and then wonder where the repeat business went.
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As I reported elsewhere recently, I bought 7.5 litres of Mobil 1 at my local Kwik-Fit for £44 recently -- about £20 cheaper than at Halfords -- and got the dirty and awkward job done too at no additional cost (I did supply the filter). In the past I have supplied my own oil, but could never quite shake off that slight uncertainty as to whether it had actually been used (nasty suspicious mind thinks "A £30+ four-litre pack of Mobil 1 is a tradable item . . ."); at Kwik-Fit I watched them putting it in.
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As I reported elsewhere recently, . .... at Kwik-Fit I watched them putting it in.
Roger - exactly, that advice has been posted by many others here. But they still complain that they have no choice but pay "rip-off" prices.
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DavidHM - this forum isn't the place to debate economic and business theories, although some of your points actually support my case. There are always exceptions that prove the rule.
All I can say is it is clear that you are in the position you are for obvious reasons, rather than in a position to own, run or advise Halfords on how to run their business. I am where I am because of sound principles which have proved their worth and which still help many struggling businesses to turn around their fortunes. I first tasted success when as a fourteen year old, I persuaded my Family to take on the Taxman - against the advice of my Family's lawyers and accountants and MBA qualified business advisers. I have first hand knowledge and experience of these matters; I am not a theorist or an employee or an armchair-business-expert, unlike many of the contributors here.
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Okay... I actually think you're right about consumer choice and you obviously know how to make a profit. I also think that choice is distorted, which is not necessarily a bad thing compared to the regulation that would be necessary to eliminate distortion altogether. Where I disagree with you is when you say that it's so hard to make a profit even if you get everything right and seem to resent success for anyone who doesn't behave exactly like you.
You say that "it's not the place to debate" this subjcet - which is fair enough, yet you regularly come in with an explanation which you then say cannot be debated. (Are your theories not worth questioning because of the job you do?) If the fact that something is already being done is proof that it's the right thing to do (i.e., not an 'armchair' theory) then we'd still be sending small boys up chimneys - a slightly facetious example I admit but you've got to draw the line somewhere.
There are "obvious reasons that I'm not in a position to advise" - well I'm getting there but that's not really the point. If they're obvious to you, perhaps you'd like to enlighten me? And what position are you in, if you don't mind my asking?
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Where I disagree with you is when you say that it's so hard to make a profit even if you get everything right and seem to resent success for anyone who doesn't behave exactly like you.
I don't resent success at all - whatever gave you that idea - in fact quite the opposite. I am all for consumer choice, rights, and a free market (free for people to charge what they like, to buy or not buy what they like, at a price they like). Above all, I would like to empower people to speak up and stand their ground and improve the life for all (rich or poor, motorist or not) people of this country.
>>And what position are you in, if youdon't mind my asking?
No I don't mind you asking, but I cannot give a full answer as I have to preserve a little anonymity. I have owned and run succesful businesses, have taken "early" retirement (which is why I have the time to visit here) from actual day to day operations to enjoy the fruits of my success. I give my advice to small businesses free of charge so that the business-owners, employees, and their customers, can mutually benefit from the success of that business. I regularly pester decision makers as well as opinion formers (such as the people who visit this site); to try and get them to see that there are usually at least two sides to every story. Everything is not as black&white or clear-cut as some people try to make out. To make my point, I will frequently raise an extreme opposite view, at the risk of antagonising someone or even appearing arrogant.
The thrust of my argument here is that if enough motorists did not allow themselves to be "fleeced" or "ripped-off", they would help market forces: to get the "bad" businesses either forced out of business, or to improve service/prices to survive.
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MB,
A (not too well) veiled insult to DavidHM there after what I thought was a pretty well argued case! What you do not explain is that whether your great success in the business world is built upon the principle of "rip-off" Britain. It's ironic that it is a fact that has been admitted by the present government (didn't we recently have a member of the gov inviting us to write to him with examples of rip-off Britain?) and has been conceded by the much more reasonable car prices recently. If it didn't exist, why did anyone bother setting up car importing businesses to get round "rip-off Britain" pricing? You criticise others for not offering "evidence" but constantly quote cheaper rents abroad without offering evidence and seem prepared to defend all high prices as necessary despite the best efforts of our wonderful entrepreneurs to keep prices as low as possible (but isn't maximising profits also a business aim?).
However, I have no doubt that had we a common land border with France, Belgium, Netherlands (incidentally, despite our crowded nation how do you explain the much cheaper prices of car accessories, oil etc in Holland which has twice our population density??) or Germany then prices would drop markedly. It's only because we have to pay a vast amount to cross the channel (prices of which compared to other ferry prices in Europe is a topic visited before) that British prices remain high. There is competition within Britain but not international competition. By the way - why do you assume that anyone complaining about this wishes to live abroad?
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>>MB, I have no idea what you do for a living but it seems to me that you must have a vested interest in this somewhere along the line.
Please don´t get personal. M.B. has valid points, shows no particular bias and gives valuable information. You may disagree, that has no bearing on his motives nor should you cast aspersions on them.
And an MBA, in common with most educational certificates derives its value from how the knowledge is used, not the piece of paper saying you were taught. And before you ask, yes I have.
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>>All I can say is it is clear that you are in the position you are for obvious reasons,
Lets not carry on with these comments.
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Lets not carry on with these comments. >>
Mark and DavidHM - my apolgies. Mea Culpa. I will try harder next time to avoid geting personal.
>>M.B. has valid points, shows no particular bias and gives valuable information.>>
Mark: Thanks for the support.
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