Cracks in the Price Wall

The U.S. auto industry has a long way to come back if it is to help lead the general recovery that the President's economic advisers hope will begin at midyear. Sales totals released last week confirmed the obvious: 1974 was the biggest lemon the automakers have had since the recession year of 1958. The 7.5 million cars sold by the four U.S. automakers added up to a chilling 23% drop from 1973, a record year; even imports, which have survived past slumps in relatively good shape, were off 20%.

As the new year began, moreover, the American manufacturers were surrounded by doleful statistics: 14 assembly plants shut down; almost 300,000 assemblers, clerks, accountants, designers and middle-level managers--20% of the industry's work force--laid off; 1.7 million unsold cars sitting in factory and dealer lots; and sales lurching along at 25% below the December 1973 pace.

The recovery, when it comes, is likely to be slow and sluggish at best. Many industry observers predict a generally flat year ahead, with no really significant upturn until August or September. The range of forecasts for total domestic sales is wide: Wall Street Analyst David Eisenberg believes that Detroit will sell no more than 6.5 million autos in 1975, but General Motors Chairman Thomas A. Murphy talks of a 9-million-car year. Though that would be well short of 1973's alltime high of 9.7 million new cars, it would be comfortably ahead of 1958, when only 4.3 million cars were sold.

Rising Prices. The automakers have blamed their recent problems on a number of villains: high car-loan interest rates, costlier gasoline and a shattering of consumer confidence by anti-inflation pronouncements from the Ford White House. But automen have not said much about one obvious sales deterrent: high prices for new cars. On the average, the sticker prices of the 1975 models are about $450 higher than the 1974s. Since the end of the 1973 model-year just 15 months ago, car prices have risen by an average $1,000.

For months the automakers stuck to these increases in the face of falling sales on the argument that the rises represented only a partial catch-up with past hikes in the cost of labor and materials. But now Detroit's price wall is beginning to crack. This week Chrysler is launching an unprecedented "Car Clearance Carnival" that industry experts describe as one of the most intriguing Detroit sales experiments in years.

Every week for five weeks, Chrysler will announce selected models on which buyers will receive cash rebates of $200 or $300 directly from the company. This week's specials, Dodge Dart Swingers and Plymouth Dusters, qualify for $200 rebates. In addition, the company is offering a $100 bounty to customers who trade in certain cars made by its competitors. This week, for example, a motorist trading in a used Chevrolet Vega or Ford Pinto for a new Swinger would get a $300 check from Chrysler, regardless of what kind of markdown he was able to get from the dealer on the car's basic sticker price of $3,518. In this case, the rebate would in effect cut the list price of the Swinger to $3,218--a reduction of 8.5%.

Dealer Bonuses. Ford and GM have no plans as yet to follow Chrysler's lead. For the moment, the two biggest carmakers are promoting sales through standard cash incentives. These are bonuses awarded to dealers for selling a certain number of cars per week or month; they enable dealers to quote bargain prices well under list to customers yet still make a respectable profit. But if Chrysler's variation helps the company cut down its 127-day stock of unsold cars--by far the largest in the industry--other carmakers might be tempted to cut prices or offer rebates.

In the meantime, the nation's fourth automaker, American Motors Corp., is making an even bolder play to increase showroom traffic. Despite the dismal sales climate, A.M.C. is bringing out a brand-new car. Called the Pacer, the new entry is a two-door subcompact aimed primarily at the urban market.

Just over 1 in. longer than A.M.C.'s Gremlin and designed with a sloping front that cuts aerodynamic drag, the Pacer has more headroom in back than a Continental Mark IV. The door on the passenger side is 4 in. longer than the driver's--an innovation aimed at facilitating entry to the back seat. The car's most striking feature is an abundance of glass: it has more window surface than the Cadillac Eldorado. But its main selling points will be low cost (base price: $3,299) and high fuel economy (25 m.p.g. on the highway).

If the Pacer goes over well, the company plans an entire series of lightweight, economical cars designed on similar lines. A.M.C.'s think-small strategy has served the company well in the past. Its 15% sales decline last year was considerably less painful than the ones suffered by the Big Three: GM (down 27%), Ford (17%) and Chrysler (21%). While luxury cars held their own, middle-size cars did poorly, and the economy segment of the market in which A.M.C. has specialized grew from 43% to 45.3% of total sales. Thus the Pacer, A.M.C. President William Luneburg believes, "is something that will get people looking at cars again."

This file is automatically generated by a robot program, so viewer discretion is required.