Looking for US-made car? It's time to wheel and deal
A new-old struggle is shaping up between consumers who need new cars and manufacturers who need a profit.Skip to next paragraph
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When the domestic car manufacturers pulled the plug on rebates and subsidized interest payments at the end of May, car sales plunged to their lowest June level in 24 years and the worst six months since 1961.
Clearly, consumers were saying: ''We won't buy if the price is too high.'' In response, carmakers are changing their tactics and forcing the car dealer and the buyer to slug it out - the way they always have.
In addition to holding the line on most of its '83-model prices, General Motors is providing its dealers with a $400 factory-incentive bonus on its '82 compact and subcompact automobiles. If the dealers pass that on to buyers, sales of slow-selling automobiles can be expected to go up. If dealers pocket the money to boost their own profits, however, the factory's effort to prod the marketplace will fail.
Arvid Jouppi, a veteran Detroit-based market analyst with Rooney, Pace Inc., sees a big plus for the motorist.
''With the price incentive to dealers, the automobile industry now has returned to a more normal selling pattern,'' he asserts, ''and the rebates, which began in January 1975, very probably will not be used again for some time.'' Rebates are painfully expensive to factories and can cloud the kind of deal the car buyer actually gets.
What Detroit has to face up to is a persistent ''rebate mentality'' among potential new-car buyers. Wary consumers may still wonder whether, by waiting another week or two, they might not get a better deal. Multiply that by a million or two - and Detroit is in deep trouble.
''This is the big problem with rebates,'' Mr. Jouppi says.
With the $400 price-incentive program announced last week, GM dealers now have more room to ''deal.'' Thus, it pays for the motorist to shop around.
''Now,'' Jouppi concludes, ''the consumer can play one dealer off against another, trying to squeeze out the best deal.''
''If we think in terms of victories, it is a victory for both the dealer - and the customer,'' he says.
Yet others aren't so sure.
Carmakers are clearly walking on eggs when it comes to pricing their products.
One indication of the price-sensitivity of US motorists is the fact that the domestic auto industry last spring was well on its way toward recovery from the pits - from a domestic 5 million-car year last December to 6.3 million in May. Then the industry dumped the rebates and GM dropped its 12.8 percent interest-support program.
Consequently, imported cars grabbed 30.6 percent of the US market in June, the highest import market ever for that month. Domestic car sales fell 12.8 percent and continued the plunge in the first 10 days of July. Early domestic car sales were off a drastic 15 percent from the same period a year ago.
Inventories of unsold new cars hit a 79-day supply, in contrast to a 52-day supply at the end of May. A 60- to 65-day level is considered by the industry to be normal.
There are two schools of thought on pricing '83-model cars, says John Hammond of Data Resources in Lexington, Mass.
One says that demand is already at rock bottom and it doesn't matter how much the industry raises its prices, because the core of demand will be there nonetheless.
The other school says that any recovery would be fragile, and an increase in car prices would abort recovery as it clearly did in June.
''At the moment the latter group is winning,'' Mr. Hammond says.
If GM incentive plans to dealers do not boost sales, carmakers will have to further slash their scheduled third-quarter car production.
In 1983, with the industry retaining 1982-model prices plus no more than a 2 percent increase on other selected models, the average increase will be almost indiscernible - no more than about a 1 percent.
This, plus the GM bonus to dealers and the fact that the US auto industry did not overproduce in 1982 should allow an orderly cleanup of leftover '82 cars. In the first six months of this year, Detroit carmakers built some 900,000 fewer cars than in 1981.