Getting Pounded in the U.K.

Typically viewed as one of the most stable markets in the world, the U.K. is giving automakers one huge migraine.

"The whole market's in disarray at the moment," says Patrick Farrell, director-U.K. sales and marketing for Daewoo Motor Co. Ltd.

One of the reasons is the strong pound that makes building cars in the U.K. an ever-toughening proposition.

After whining long and loud about the currency pressures, Nissan Motor Co. Ltd. got the U.K. to kick in u40 million ($58.5 million) toward the launch of a new Micra at its Sunderland plant.

But others, such as Toyota Motor Corp., haven't sought government aid, opting instead to buy more components for their British-built cars from the Continent.

"We know what needs to be done," says a chiding Tadashi Arashima, senior vice president and chief coordinating executive for Toyota Motor Europe, who vows his company will remain a producer in the U.K. To help lower costs, Toyota will source transmissions from a new plant on tap in Poland for 2002.

Honda Motor Co. Ltd. also has forged ahead, adding CR-V production at its Swindon plant and pouring in another u130 million ($196.6 million) to make the facility more flexible. Next year the automaker will open a second plant at Swindon to build a new small car it hopes will boost its European sales from 250,000 this year to 320,000 by 2002.

Also pressuring both manufacturers and importers is an ongoing government campaign to cut new vehicle prices. Earlier this year, British Trade and Industry Secretary Stephen Byers confirmed what consumer watchdogs had been saying for months - car prices are significantly higher in the U.K.

That simple statement tipped off a consumer strike of sorts that left automakers gasping for air. Although most blame the higher U.K. prices on the strong pound and costs of manufacturing for right-hand drive, many saw no choice but to cut stickers.

So far, those automakers that have rolled back prices have been rewarded. Sales of the Renault Megane, discounted up to 30%, jumped 21% in September, and Land Rover demand shot up 35% following a 13% price cut, according to Car Price Check, an Internet site that allows consumers to compare prices. Deliveries of the revamped, aggressively priced new Mercedes C-Class shot up 233%.

A casualty in all this is MG Rover Ltd., the last British-owned volume carmaker in the U.K. Fresh from breaking its ties to BMW AG, MG Rover can ill-afford the estimated u150-million ($226.9-million) hit it is taking to lower prices up to 19%. And it remains far from certain whether the rollbacks will enable a still-sputtering MG Rover to raise its paltry 3.7% share of home market sales.