Graduation is approaching. Son or daughter has worked hard, gotten good grades and now the folks are planning to reward the offspring with a car.
Not just any car, but an IROC Camaro or Firebird Trans Am or perhaps even a Mazda RX-7 or Toyota Supra.
Despite his or her high hopes and mom and dad`s intentions, the graduate expecting that hot little sports model in the driveway in June may find a Ford Escort, Chevrolet Cavalier or Toyota Tercel instead.
It`s not the down payment or the monthly installments that are turning dreams of a new car into a nightmare; it`s the insurance premiums. In some cases, they`re running as high as $7,000 a year.
The insurance problem caught the industry`s attention at a Chicago Auto Show breakfast in February when Richard Colliver, Mazda`s group vice president of sales, said RX-7 sales have fallen off because of soaring insurance premiums.
The next day Pontiac General Manager Mike Losh cited the same reason for the decline in Firebird and Fiero sales. A few weeks later, Losh announced that Fiero would be dropped after 1988 because of poor sales, in part caused by prohibitive insurance rates.
Pontiac took the easy way out by dropping the Fiero. Chevrolet has reacted to insurance rates by coming up with a new version of the Camaro, called the RS, that has a V-6, not the more powerful V-8, under the hood.
The reasons for sky-high premiums are simple, said Bill Sirola, Chicago regional manager for the Insurance Information Institute in Chicago.
”It used to be that insurance ratings were based on the value of the car, but it`s gotten more sophisticated than that in the last decade,” he said. ”Now rates are based on the frequency and severity of losses by model year of the car, the actual comprehensive, collision and liability claims.”
State Farm Mutual, Illinois` largest insurance company, and Allstate Insurance Co., No. 2, adjusted premiums on cars this year based on actual collision and theft experiences. Premiums went up or down by 10 to 30 percent at State Farm and 10 to 55 percent at Allstate.
Among the models qualifying for lower premiums based on fewer claims were Ford Taurus, Mercury Sable, Chevy Caprice and Celebrity, Buick Century, Toyota Camry and Chrysler mini-vans.
Among the cars with premium increases were Chevy Corvette and Camaro, Dodge Daytona, Ford Mustang, Pontiac Fiero and Firebird, Mazda RX-7, Nissan 300ZX, Porsche 911/924/928/944 and Toyota Celica and Supra.
The names tell the story. The small, sporty performance models cost the most to insure and the larger, family-type vehicles cost the least.
”Let`s face it, insurance companies are profit oriented, that`s no secret,” Sirola said. ”Premiums are the way to judge how the insurance companies can turn that profit. The 21-year-old in a high-powered sports car, the person with the highest frequency and amount of losses, is not a highly sought-after customer.
”No matter what statistics or study you cite, younger drivers have the highest percentage and severity of accidents, which shows up in higher premiums. The 21-year-olds pay higher premiums as a group because they have deplorable loss records.”
Sirola dismissed the idea that such rate-setting might be discriminatory. ”Is that discriminatory or would it be discriminatory to lower the rates for youth and raise the rates for older drivers who have fewer accidents?” he said. ”You can`t charge the 42-year-old driving a station wagon the same as you would a 21-year-old in a sports car.”
A report by the Insurance Information Institute says that in 1986 those younger than 25 accounted for 19.7 percent of all drivers on the road, but 33.6 percent of all accidents and 32.9 percent of all fatalities.
The types of cars young drivers prefer, namely the Camaro, Firebird, Fiero, RX-7, 300ZX, Celica and Supra, also affect premium rates.
An Insurance Institute for Highway Safety report on 1988 low-speed crash tests said the cost to repair damage to a Fiero in such a crash would be $1,935, but $368 for a Ford Escort.
As an example of high rates, Sirola cited sample premium quotes for a single 21-year-old male living on the North Side of Chicago. The annual premium for a Fiero would be $1,893, a Supra $3,008, a Corvette $4,627.
In addition to the frequency and severity of accidents, Sirola said the high initial cost of the sporty cars young buyers favor, the high incidence of theft of those models and the high cost to replace parts on limited production numbers also affect rates.
”The $8,000 sports car of a few years ago now costs $16,000,” he said.
In addition to having the car stolen, he said, the sporty models also are among those with the highest incidence of theft of such items as radio, leather seats and T-top roofs.
”To get at the high-tech stuff, thieves smash windows and tear up the dash so you don`t only lose equipment but also have major repair bills,”
Sirola said. ”The insurance industry never intended for premiums to affect the outcome of a sale, but it`s playing a bigger role because of higher car values.”
Some buyers are passing up the sports model they were eyeing and others are taking a different, but risky, approach, Sirola said. They simply buy liability coverage (for injury to someone else or another car) and not comprehensive (fire, flood or theft damage to your car) or collision (damage to your car in an accident).
Sirola said one other trend is evident:
”We`re seeing parents or the young themselves calling their insurance agent before they buy to find out what the rates are ahead of time.”
NOTES
Give Lee Iacocca credit for: ”If you can find a better car, buy it,” as well as the, ”Buy a car, get a check,” and ”We`re not foolish, we`re confident,” slogans that have helped Chrysler Corp.`s fortunes.
Perhaps he should have added another catch phrase to his repertoire:
”You can`t teach an old dog new tricks, unless the price is right.”
Iacocca took the subcompact Dodge Omni/Plymouth Horizon, added lots of options as standard equipment while lowering the price and gave the car about two more years of life under the America designation.
In the 1988 model year, he did the same with the nearly ancient compact Dodge Aries/Plymouth Reliant, loading them with equipment at discounted prices plus lowering the price and letting them fly under the America flag.
But just as Omni/Horizon`s days are numbered, so, too, are Aries/
Reliant`s.
”We`ll decide this fall if we want to build 20,000 to 40,000 K-cars in Mexico for a five-month 1989 model run,” Iacocca said. ”But we have a new A- body coming on in January (the Dodge Spirit and Plymouth Acclaim, eventual K replacements), and there may not be a need for the K. We either build the K in Mexico or not at all.”
We test drove the Reliant LE America and though few tears will be shed for the passing of the car, let`s hope Iacocca doesn`t let the America discount pricing policy disappear with it.
When introduced in 1981, the K-car was Chrysler`s answer to the GM X-body cars such as the Chevy Citation. Though the X-cars have faded in infamy
(pardon the pun, but those are the brakes), the K-car survived.
Reliant is built on a 100-inch wheelbase and is 178.6 inches. It`s roomy and functional. It gets you from here to there without burning a lot of fuel. There are squeaks and assorted noises, a mushy suspension, abundant body sway in corners and turns, but it holds people and their groceries or luggage.
The real beauty of the car is the sticker. Base price is $6,995, for which you get front-wheel drive; a 2.2-liter, fuel-injected, 4-cylinder engine; 5-speed manual transmission; power brakes; heavy-duty battery;
stainless steel exhaust; dual reclining bucket seats; console; AM radio with digital clock; and intermittent wipers.
Then there are two optional packages and about a dozen options and that`s it.
The popular option package includes automatic transmission, power steering, tinted glass, dual remote side mirrors, body side stripes and sound insulation. The premium equipment package includes those items and adds speed control, tilt steering, luxury steering wheel, power door locks and a light package.
Individual options are air conditioning, conventional spare, electric rear window defroster and 2.5-liter, 4-cylinder engine that has to be ordered with automatic transmission.
The model we drove was equipped with the $1,782 premium equipment package, the 2.5 ($279) and automatic plus air ($782). With $429 for freight, the bottom line read $10,267.
Simplified option shopping, respectable pricing, plus 25 miles per gallon with the 2.2 or 23 m.p.g. with the 2.5. Nothing flashy. Just the basics.
If, when asked for a show of wealth, you reach for wallet or purse rather than the car keys, the Reliant America deserves a look.
Jim Mateja`s Autos column appears in The Tribune Sunday and Monday.
