American Carmakers Face Up to Customer `Sticker Shock'
ANGELA HANNA wants a new car. But like a growing number of American motorists, she cannot afford one.
With 135,000 miles on her Toyota Corolla, the Michigan social worker knows it is time to trade it in. But a recent trip to the car dealer brought an unpleasant surprise: Today's new cars cost 70 percent more than they did a decade ago.
"I have a mortgage note and children and utilities and taxes and I can't afford a car payment" that could run $400 to $500 a month, Ms. Hanna complains. "The auto industry needs to realize that prices have to go down."
New car sales are leading the economy out of the recession. So far this year, passenger-car volume is up about 3 percent, while light truck sales have risen 18 percent. But industry officials acknowledge that the pace of their recovery may not be as robust as in the past because of "sticker shock."
"Affordability is one of the most important strategic issues for the 1990s," says William Pochiluk, chief automotive analyst with the consulting firm Autofacts Inc. The average 1993 model costs $17,692, according to federal statistics. In 1983, the figure was $10,640. In 1973, the sticker price was just $4,052.
"People 55 or 60 years old look at the price tag of a Chevrolet Caprice and they tell me they didn't pay that much for their house," says Jim Roche, general sales manager at Howard Chevrolet-Geo, in West Roxbury, Mass. Mr. Roche says he loses one of every six likely sales because the customer cannot afford the monthly note.
THE Big Three are facing up to their pricing problem, however. General Motors Corporation's new "value pricing" policy, for example, will limit the average price increase of its 1994 models to 1.8 percent. "That's less than half what we think the inflation rate will be," says GM Vice President J. Michael Losh. "That works out to be a price decrease."
GM will cut prices on a number of "special edition" models as well. These cars are equipped with popular features such as air conditioning and power windows. A 1994 Special Edition Chevrolet Caprice will be priced at $18,995. An equivalent '93 version ran approximately $20,042.
The Ford Motor Company has its own "one-price" program for several popular vehicles. Customers can order any of five different body styles of the Ford Escort for the same price. And last September, Ford slimmed down the number of variations of its sporty Ford Thunderbird and Mercury Cougar lines, cutting prices by more than $1,500. Since the "one-look" program debuted last fall, T-bird sales have risen 114 percent and Cougar volume is up 83 percent. "It's what the customer has told us they want," says Ro ss Roberts, general manager of the Ford division.
The industry's new pricing strategy may not be quite the bargain customers would expect because carmakers also are trying to phase out rebates and other sales incentives. In recent years, these promotions have translated into discounts of $1,000 or more. "No one believes the sticker any more," says Carl Fischer, a Buick dealer from Troy, Mich. "Hopefully, this will get us back to where the consumer believes the sticker price is actually what he has to pay."
United States automakers have picked a good time to get aggressive on pricing, says auto analyst Maryann Keller of Furman Selz in New York. "From a competitive standpoint, this is a wonderful action."
The weak dollar has forced up the price on Asian and European imports. In 1983, the average Japanese compact cost about $2,000 less than a comparable American product. Today it is about $2,000 more. And pressed by the strong yen, the Japanese continue to raise prices 5 to 10 percent a year. That is showing up on the sales charts. "They're losing share in a market that's growing," GM's Mr. Losh says. Japan has lost about four points of market share in the last 18 months, boosting the Big Three's share to about 70 percent.