Big sticker prices and sky-high interest rates strangle sales
Detroit's auto executives have hoped for months that the arrival of new fuel-efficient small cars in dealers' showrooms this fall would end the industry's nearly two-year-long sales slump. So far, that has not happened. Sales of U.S.-made cars in November declined 8.3% from 1979's depressed levels, and they were down 17% for the month's final ten days.
The automakers' hopes for a sales surge have been dashed against the rocks of high sticker prices and staggering interest rates. Only five years ago, $5,000 would have bought an option-packed Oldsmobile or Buick station wagon. Today, that amount is barely enough to pay for a stripped-down two-door Chevette. The same Buick wagon would cost nearly $11,000. The Big Three have been forced to hike the price of their fuel-efficient models mostly to pay for the $80 billion that they are spending to design and produce them. But Detroit may have pushed prices up too far and too fast. Says Marvin Alpern, a New York City Chevrolet dealer: "People come in and look at the prices, and they are shocked."
Jumping interest rates are definitely pushing potential customers out of the market. Last year a new car buyer in Michigan would have paid an average 12.68% interest for a 48-month new car loan. Now the interest rate is 16.05%. That can add as much as $50 to a car payment every month. Says Detroit Ford Dealer Mel Farr: "People want to buy cars, but they can't because of the basic high cost and the interest rates. Showroom traffic has just died. It is really depressing."
In better times, Detroit's new smaller cars might have been runaway successes. Surveys conducted by both Ford and Chrysler show that 80% of new-model buyers are happy with their purchases.. "I love my Ford Escort," says Judy Siotto, a San Francisco medical assistant. "It has lots of room and great pickup on the hills." Adds William Consavage of West Yarmouth, Mass.: "My Plymouth K-car gets good mileage, and I like its looks."
In fact, Chrysler's sales in November rose by 6.9% over the same period last year. But behind that figure stalks a lot of bad news. Chrysler is staking its survival on the success of its new compact K-cars, the Dodge Aries and Plymouth Reliant. Despite the company's constant references to its "record-breaking" introduction, however, the two models are not doing well. Only 16,000 K-cars were sold in November, as compared with the company's target of 40,833. Gone with the poor sales figures are
Chrysler's projections for making a profit in the fourth quarter. Instead, the company may face a loss of $100 million or more.
Part of Chrysler's difficulty has been a decision to load early K-car models with such expensive options as luxury interiors and air conditioning, thus pushing the price up to $9,000 or more. Similar price-boosting tactics have hurt Detroit for years. Chrysler is now building no-frills models that sell for less than $6,000, but dealers are placing few new orders because sales are slow and high interest rates have made their carrying costs on unsold models exorbitant. Warns Chrysler Chairman Lee Iacocca: "Our biggest problem is getting the dealers to take the three weeks of December production."