GM Price Hike an Unexpected Gift to Japan

Here we go again.

From the company that gave us a new executive bonus plan just after wringing concessions out of the union it bargains with, we now get a substantial price increase imposed on a soft market, a glut of inventory and a golden opportunity to whip foreign competition.

The company is General Motors. On Thursday, it announced a 2.9% price increase, the second across-the-board boost in the current model year. Outsiders can’t pretend to know all of the facts that went into the decision, but they can react to the environment into which it was introduced. And they have. Dealers have said they are mystified. Industry analysts say they are surprised. The question is how buyers of new cars will react.

GM says the increase reflects “higher labor and other manufacturing costs as well as the impact of major capital spending and other programs.” Yet the company has shown an ability to get costs down in recent years and has managed to keep wage increases modest in its current contract with the United Auto Workers.

The thing is, GM is putting in the higher prices at a time when its inventory of unsold cars is about 50% above normal. GM has had difficulty moving its cars--as have all the auto companies--without offering special financing deals, in effect another form of price reduction. When those deals have been particularly attractive, the buyers have come around. When the deals have been only modestly good, they haven’t.

That’s not all. The increase comes at the moment that the main rivals of the U.S. auto companies, Japanese car makers, find themselves in a real squeeze. The sharp run-up in the value of the yen has forced the Japanese to boost prices by $1,000 a car or more since last fall. It is the turnaround in the dollar-yen relationship that the U.S. industry had longed for. GM Chairman Roger Smith had commented only a week or so ago that “they haven’t repealed the law” that higher prices mean lower sales, referring to the problems of the Japanese.

Now GM is taking off some of the competitive heat. “This plays right into the hands of the Japanese,” observed Maryann Keller, a widely quoted industry analyst with the New York investment firm of Vilas Fischer Associates.

It plays into more than that. It gives new ammunition to industry critics who have decried giving the industry protection through export quotas. The Japanese government has imposed those quotas on its auto producers to appease protectionists in the United States. Such protection, however, often makes matters worse by easing the pressure on domestic producers to hold down costs. GM apparently is a case in point.

It is true the Japanese so far have gotten away with price increases. The public is still buying. But in part, the public will pay because of the artificial shortage of Japanese cars created by the quotas.

Some experts believe that GM is raising the base price of its cars just to give it more room to offer attractive price reductions in the form of cheap financing or other devices. That introduces unnecessary confusion into the market. Looked at in the worst light, it is a way to mislead customers into thinking that they are getting a better deal than they really are.

What is also troubling about the move is that it is the kind of price increase that was common when inflation was rampant in the economy--increases made because companies thought customers were conditioned to expect them and because it was the easy way to make up for any shortfall in profits. It seems obvious that consumers are a lot more sensitive about prices now, a lesson GM may well learn in the next few weeks.

Moreover, no matter how much justification GM feels it has for the increase, it makes the company look insensitive to the world around it. In some respects, this is a company that has shown the good sense to react to changing conditions; to revamp itself with new attention to the computer age and to position itself for future growth. Yet this is a company that announced that ill-timed bonus plan in 1982 and then had to pull it back because of justifiable public and union outcry.

And now this.