Auto Companies Show Off '96 Models, But Can Buyers Afford Their Dream Car?
IT'S the car Tim Spill was hoping for, but now he worries it may be out of reach financially.Skip to next paragraph
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The Detroit pharmaceuticals salesman delayed trading in his 1991 Ford Taurus until the introduction of the all-new 1996 model. It went on display this week at the North American International Auto Show in Detroit.
``I love my Taurus, but it's got too many miles on it,'' Mr. Spill says, gazing admiringly at the '96 model spinning on its display stand. ``I'd love to get the new one, but I hear the price might go up another $2,000. That's just more than I can afford.''
Spill isn't alone. While new passenger-car and light-truck sales tipped 15.1 million last year, a six-year high, industry analysts say the figures actually might have hit an all-time record were it not for rising prices. The average new car cost $20,045 during the final three months of 1994. That's nearly double what a car cost a decade earlier, according to the United States Commerce Department.
Even after adjusting for wage increases and inflation, the typical customer must now shell out the equivalent of 27 weeks of wages for a car, compared with less than 23 weeks in 1984.
``We've got to be concerned about affordability,'' acknowledges Robert Eaton, chairman of Chrysler Corporation. To some observers, affordability is, in fact, the single-biggest threat facing the auto industry.
The biggest price hikes are hitting the industry's newest and most popular models, such as Chrysler's Jeep Grand Cherokee. Consumers can also expect a big bump when the automaker's new minivans go on sale mid-year. Ford Motor Company reportedly will add anywhere from $1,200 to $2,000 to the sticker price of the redesigned Taurus when the car reaches dealers next fall.
Ed Hagenlocker, president of Ford Automotive Operations, or FAO, says the numbers are misleading. ``The customer is actually able to buy more content per vehicle,'' he insists.
The 1996 Taurus, Mr. Hagenlocker explains, will come with dual airbags and anti-lock brakes. Air conditioning, cassette stereo systems, and power windows have become standard features on all but the lowest-priced economy cars. Then there are the federally mandated safety and emissions systems, which have added several thousand dollars in cost. Hagenlocker also says the typical 1995 model is likely to run longer and need less maintenance than the vehicles sold a decade ago.
That may be true, says Paul Ballew, chief auto economist for the Federal Reserve Bank of Chicago, but many potential buyers are still being priced out of the market. While the average household income may be keeping pace with automotive inflation, the earnings of ``nontraditional,'' or single-wage-earner households can't keep up.
``They're disadvantaged, and they do not buy new vehicles,'' Mr. Ballew explains. By some estimates, 4 million American motorists have been priced out of the new-vehicle market in recent years. That ``may explain why sales haven't hit record levels, even after three years of recovery,'' he says.
Automakers point to several factors as an explanation for recent price hikes. Steel and other raw-materials costs have gone up significantly in recent months. Union-negotiated wages also have risen. Imports have been hit hard by the weak dollar, forcing double-digit price hikes. The typical Japanese car cost about $2,000 less than its American equivalent a decade ago. Today, it costs $2,000 more.
While auto workers' wages are up, the number of them needed to build the typical US-made vehicle has dropped almost 50 percent since the early 1980s, thanks to productivity improvements. And while steel suppliers may have won a nearly 10 percent price hike, other parts manufacturers are being forced to cut prices.
``The Big Three tell me to cut costs so they don't have to raise prices. Then they tell their customers they're raising prices so they can pay me more,'' complains one supplier executive who asked not to be identified. ``It's all flowing down to the bottom line.''
Indeed, the domestic automakers earned $9.6 billion during the first nine months of 1994. They are expected to report record profits this year.
But some analysts say the greed factor could backfire. The Japanese are starting to constrain prices, notes Susan Jacobs, director of Jacobs and Associate, an automotive consulting firm in Rutherford, N. J. Nissan actually reduced the price on the new 1995 Maxima, and Toyota held prices flat on the redesigned 1995 Lexus LS400 luxury sedan.
``The American manufacturers are laying the groundwork for the Japanese comeback ... once they get their costs down and shift more production to the US,'' Ms. Jacobs warns.
Ultimately, analysts fear, buyers will either hold onto their vehicles longer or trade new cars for used ones. That's precisely what John Moss did. Mr. Moss, who works for a Chicago commercial finance company, recently opted for a used Lexus, which offered not only a lower price, but also a like-new warranty.
``With a program like this, I'll probably never go back to a new car,'' Moss says.