Facing Gas-Mileage Crunch, Ford to Hike Prices

Hoping that the action will dampen demand for big cars and bring it into compliance with federal fuel economy standards, Ford Motor Co. said Friday that it will raise its car prices by an average of 1.7%, or $200, with virtually all of the increases coming on popular large models.

At the same time, Ford said it will begin offering 8.8% discount financing to buyers of its Ford Tempo and Mercury Topaz compacts, which have not been selling well lately, and will also freeze prices on its subcompact models. Ford said the cut-rate loans will be available immediately, while the price hikes will go into effect Monday.

Although the surge in demand for big cars and sluggishness in small-car sales have been good for Ford’s profits, the same trends have made it impossible for the company to meet the government’s required corporate fuel economy average.

The government’s ratings of each auto maker are based on the average mileage of all cars sold by a company during the year, and so can be influenced by changes in consumer demand.

Ford, like General Motors Corp., failed to meet the fuel economy standards in both the 1983 and 1984 model years and has told the government that it doesn’t expect to comply in 1985, either.

In the 1985 model year, the federal standard is 27.5 miles per gallon, but Ford’s fleetwide average is expected to be only 25.9 mpg and GM’s is projected to come in at just 25.1 mpg.

Both Ford and GM have so far avoided paying huge government fines for violating the mileage rules by using credits built up during earlier years, when both firms exceeded the standards.

But now GM and Ford are running out of credits and are beginning to borrow future credits for 1986 through 1988, when they have promised the government that they will again exceed the requirements.

Ford’s price increases will range from a low of 1.5%, or $104, on the Ford Mustang LX two-door to a high of 2.1%, or $538, on the Lincoln Continental four-door Givenchy model, the company said.

Prices on some options are also being raised, with the largest such increase coming on Ford’s optional V-8 engine, which gets a low mileage rating. Prices of Ford’s V-8 engines will rise 25%, or $100.

Other option price increases include the cost of air conditioning, which will go up 2.7%, or $20, while the price of tinted glass will rise 4.5%, or $5.

On the other hand, Ford said its discount financing on the Tempo and Topaz could save consumers up to $1,800. Tempo and Topaz sales were down 2% in January while industrywide car sales were up 3%.

Ford said the hikes were the company’s first price increases since the beginning of the 1985 model year last fall, and added that Ford’s price changes have remained “substantially below the rate of inflation” during the year.