Ford Motor Co., which only six days ago began offering $500 rebates to entice customers into showrooms to help dispose of unsold cars, said it will increase prices this fall by an average of more than $500, or 3.2 percent, as well as raise transportation charges.
In the midst of declining auto sales and never-ending incentive programs to spur what little movement there is in the market, Ford`s decision to extend $500 with one hand and retrieve it with another surprised and angered industry experts.
Ford`s move might appear contradictory-usually, prices go down when sales are soft. And just Tuesday, mid-July domestic new-car sales reports showed a 13.3 percent decline, to 191,779 units from 221,231 sold in the year-earlier period. On a seasonally adjusted basis, the annual sales rate slumped to 6.8 million units from 7.6 million a year earlier.
”The first thing you have to ask yourself when you hear that Ford is raising prices by $500 in this market is: `What the hell are those people doing?` ” said Phil Fricke, analyst with Prudential-Bache Securities in New York.
But what Ford is doing is nothing new. In fact, it`s a longstanding practice in the industry, one designed to lure reluctant buyers onto the lots to dispose of bulging inventories. In the past, this tactic has proved successful.
Once again, inventories are high and sales are low, a formula that typically leads to temporary plant shutdowns and layoffs if left unchecked. Plant shutdowns and layoffs wouldn`t sit well with UAW workers, who are negotiating a new contract this fall and who look over their shoulders and see Japanese transplants in this country running at or near capacity.
While the practice of scaring people into buying now to avoid paying higher prices later predates running boards, the question is whether 1990 will be different. Buyers might have good reason to believe the announced price boosts won`t hold up.
”Those sticker prices are never going to stick,” Fricke said. ”Sticker prices are fiction in an era in which the standard marketing scheme is to offer incentives to sell cars. That`s why sticker price means nothing, and that`s why sticker prices will not go up that much this fall. The market won`t allow it.”
The Ford increases come less than a month after the Big Three domestic automakers boosted prices on existing 1990 models. In June, Ford boosted prices on its 1990s $58 to $123, GM raised stickers $66 to $220 and Chrysler $60 to $160. GM also upped freight by $10 and Chrysler $15 to $30.
The `91 price hikes are ”presell” numbers that allow dealers to begin taking orders now on the cars coming out this fall. If the final prices to be announced Sept. 27 are higher, then the customer pays the difference. If the final `91 prices are lower, the customer gets a refund. It`s standard operating procedure in Detroit.
Since the prices announced by Ford are presell, it still has ample time to roll them back, perhaps as soon as early September, after consumers who rushed out to purchase the remaining 1990s help clean out bulging inventories. It also has become traditional for the automakers to raise prices late in the current model year and again at the start of the new model year. That strategy allows Detroit to pass along a big increase in two stages to make it appear smaller, such as 1 percent in June and 4 percent in September, which is roughly the pattern followed this time.
Since $528 is Ford`s average increase, several prices will go significantly higher.
The Mustang LX hatchback will go up by $643, to $10,663; the Continental by $850, to $30,395; the Thunderbird LX coupe by $875, to $18,199; the Taurus L sedan by $1,016, to $13,717; the Mustang LX 5.0 liter V-8 by $1,048, to $13,270; and the Mark VII LSC by $1,147, to $30,738.
The 1991 subcompact Ford Escort Pony model, on the other hand, will go up by $359, to $7,924. As expected, price increases were highest on big and luxury cars and lowest on small cars that contribute to the automaker`s compliance with federal fuel-economy standards. The subcompact Probe GT goes up by $271, to $14,997, for example, while the compact Mercury Topaz GS goes up by $383, to $10,605.
Ford said the $528 average increase on the `91s applies to comparably equipped models. The phrase ”comparably equipped” doesn`t tell the the full extent of a price increase that more realistically approaches 5 percent, or about $700, because of the way Detroit prices cars.
For example, a 1990 car priced at $15,000 offers optional automatic transmission for $700. For 1991, if automatic becomes standard on that same car, the sticker is raised to $15,700 to take the change into account. By automaker calculations, there was no price increase since the automatic would have cost the `90 buyer $700 anyway.
In addition to raising 1991 sticker prices, Ford said it will boost freight charges by $10 a car this fall. It also kicked up the price of one option-non-glare mirrors-by $11.
Both GM and Chrysler have yet to release their 1991 presell prices to dealers.
