It's a small-car world, but prices are going up
If the small-car buyer hasn't been jolted out of his shoes already, he may be in the next year or two. Ford Motor Company vice-president Philip E. Benton predicts sharply higher prices down the road.
The US automobile industry has long found it hard to make money on small cars in the US even though Ford, for example, makes a good deal of money in Europe.
The domestic manufacturers have always been big-car producers -- and that's where the profits lay. But now, with the profits of the industry leader, General Motors, on the skid, Chrysler Corporation in a shambles, and Ford Motor Company trying hard to rebuild its unprofitable domestic-car operations after a massive shift in leadership at the top, the domestic manufacturers are jacking up car and truck prices repeatedly whenever they figure they can do so with the least noise from the public.
Clearly, if the US automakers are going to make any money on cars in the future, they're going to have to get a lot of it out of the small end of the market because that's what people are buying today.
The huge increases in gasoline prices and shortages at the fuel pump a year ago have seen to that.
Indeed, all US automakers, and some of the importers as well, have hust jumped the prices of their new-model cars, the third such increase for the domestic since the 1980 cars went on sale in the fall.
The base-model Chevrolet Chevette subcompact, for example, is up 3.7 percent to $4,057.
The fast-selling Chevrolet Citation hatchback is up 4.1 percent to $5,422 -- almost a $1,000 rise since the X-car debut a year ago.
At the same time, GM held the line on some of its larger-size cars because of the difficulty of selling them.
Everyone else is following the same script.
The industry a couple years ago opted for frequent incremental price increases on its cars instead of a whopping price jump at the new-model launch in the fall. This way, the carmakers reason, the public is less inclined to shout. The industry is counting on a short memory as well.
Even so, in an inflationary economy, and with multibillion-dollar costs continuing to confront the carmakers, including government-mandated improvements in emissions, safety, and mileage performance of their product, the manufacturers say they need the money to pay the bill.
Small cars now account for well over half of the automobile market and the direction is clearly up.
"Some of our success in Europe is not only in the efficiency, techniques, and engineering of our cars," says Mr. Benton, head of the Ford division, "but in the price structure as well. The US auto industry grew up with a price structure which favored the larger cars. Everybody made money in the larger cars.
"When we brought out the Falcon 20 years ago we could never prove it was profitable because the minute it began substituting for the larger cars, it hurt us significantly," reports Mr. Benton, head of the Ford division.
"When I was working in Europe in the mid-1960s on special assignment, the same thing was going on," he adds. "Your couldn't make money in Europe on, say, a Fiesta-sized car. Everyone else was in the same boat. This was a major part of the reason for Ford's two-year lag behind market-leading GM in shrinking the size of its cars. The industry then raised the European price level relative to the cost of other goods and services.
"Now," reports Mr. Benton, "all of the major companies are reasonably healthy , with some notable exceptions."
Ford is making a bundle of money in Europe. Volkswagen is well off today; and even state-owned Renault in France is making a profit, although that is far from its main role in life.
In the 1950s no company could make money on trucks in the US, according to Mr. Benton.Thus, prices were raised.
"I don't beleive it is a volume issue at all," he declares. "We're making more Pintos today than we make Ford LTDs, and yet we make a lot of money on the LTDs."
One analyst says a company needs a volume of at least 400,00 cars of one kind to make a profit. Mr. Benton disagrees, saying: "An assembly plant mght turn out 250,000 vehicles a year and we can make money on one assembly plant. But you have to charge enough for the product."
Even the imports are jumping the price of their cars and small trucks. Mazda Motors of America says it has raised the prce of it cars by $100 to $200 and the price of its trucks from $70 to $100.
Will it hurt sales? Hardly. The Japanese sell every behicle they can cram aboard a ship and unload in the US.