Won’t Join in Rate War, Importers of Japanese Cars Insist
From their safe havens in Southern California, the American executives of the major Japanese auto companies profess a kind of detached scorn for what they see as a silly game of one-upmanship taking hold in Detroit.
While the major domestic auto makers have been falling all over each other in a madcap race to see who can offer the lowest interest rates on car loans, the Japanese importers have refused to join in.
And, when struggling little American Motors gained a burst of publicity on Wednesday by announcing interest-free, two-year loans on its cars and most of its Jeeps, the importers could no longer curb their tongues. It was time for normally staid executives to openly mock Detroit’s panicked efforts to compete.
‘Feeling of Desperation’
“This ludicrous zero-point-zero rate just offered by AMC kind of makes a mockery of the whole thing,” said Al Wagner, national sales manager for Toyota, based in Torrance. “This whole thing denotes a feeling of desperation.” Yet the Japanese industry may not be able to maintain its aloof stance much longer. While a new round of incentives in the last week have flooded showrooms of the nation’s domestic car dealers, inventories of unsold cars at some importers are beginning to mount.
Some import dealers around the country reported Wednesday that their sales rose over the weekend on the strength of spillover customer traffic coming from domestic dealerships. But many others have already started offering their own cut-rate financing programs--with no help from the Japanese manufacturers--in order to remain competitive with nearby domestic dealers.
“We had a 2.1% program last week to match GM when they came out” last week with new incentives, said Marvin Forman, general sales manager of Campus Nissan in Philadelphia. “Everybody in this area has tried it; you see nothing but interest rate wars here.”
Now, some industry analysts believe that rebates and discount financing incentives may soon become commonplace on Japanese cars for the first time since the late 1970s. The ability of the Japanese to raise prices at will and to refuse to bargain with customers may soon be little more than a warm memory for marketing executives at Toyota, Honda and Nissan.
The Japanese dominance in the American small car market is being challenged by new Third World auto producers ranging from South Korea to Brazil. At the same time, the Japanese firms themselves are in the midst of a frenzied building program to expand their U.S. production of cars and trucks in order to skirt the remaining quotas on Japanese imports.
Combined, those trends point to a glut of small cars that should force the Japanese to become more aggressive in their marketing programs despite the continuing rise in the value of the Japanese yen, which has made Japanese exports increasingly expensive.
“I think incentives offered by dealers will be commonplace on Japanese cars in a year or so,” said Ted Sullivan, a sales analyst with Chase Econometrics, an economic forecasting firm.
“With all of the price increases imposed by the Japanese over the past year because of the appreciation of the Japanese yen, the market for Japanese cars has softened,” he said. “I think there may be a feeling developing on the part of the Japanese manufacturers that the dealers should do more to stimulate sales.”
Still, all of the major Japanese importers continue to insist that they have no plans to offer any sales incentives on passenger cars despite the fact that several firms already offer discounts in the fiercely competitive light truck market.
The importers stress that while sales have weakened slightly, demand for Japanese cars is still outstripping supply, and inventories remain well below the levels posted by Detroit.
“Yes, our sales are not quite what they were, but we still have only a 16-day supply,” said Wagner of Toyota. The domestic industry considers anything less than a 60-day supply of unsold cars to be healthy; GM reported a 79-day supply at the beginning of August.
“I’m sure there are some import dealers offering cut-rate financing, conceded Tom Elliott, vice president of auto operations at American Honda in Gardena. “The whole market is more competitive now, so our dealers will react accordingly. But we haven’t had to use any incentive programs, and we don’t have any plans to use incentives, because we don’t have any excess inventory that would require it.”
Elliott added that in the August figures to be released today, Honda will report monthly car sales of about 53,000, an increase of about 22% over last year’s 43,607. (Its new upscale Acura division, which just began selling cars in the United States this year, will report sales of about 5,000 units for August.) “These incentives offered by Detroit haven’t impacted our sales too much at all,” he insisted.
And, despite the increased competitiveness of domestic cars and the coming flood of Third World cars, all of the major Japanese firms acknowledged that they plan to raise prices yet again in October, at the start of the 1987 model year.
Most of the Japanese have already increased prices four times, by a total of about 13%, since the start of the 1986 model year, in order to partially cover the appreciation of the yen. Few are willing to admit that the price hikes have seriously hurt their sales.
“We don’t anticipate that our higher prices (to be announced in late September) will hurt our sales, even when they are up against the incentives offered by the domestics,” Elliott noted.
So far, the only major Japanese importer to experience a serious sales slowdown has been Nissan, which now has a 45-day supply of unsold cars. But even Nissan executives claim they aren’t considering any incentives on cars.
“We are starting to see some softening because of the pressures from higher prices,” admitted Jim Thomas, director of market analysis at Nissan, based in Carson. “All of the Japanese are going to be monitoring these incentive programs offered by the domestics very closely, because we’ve been raising prices. But we’re not considering anything on cars now.”
