Some Analysts Predicting a Price Increase in 1989 Model Year : Auto Inventory Levels Spell Trouble for Bargain Hunters

Car buyers who have become used to waiting until the end of summer to make their best deals may be in for a surprise this year, auto analysts say.

Inventory figures at the start of the summer are among the best for the industry in recent years, signaling that companies correctly balanced their production schedules to match the pace of sales.

The key reason for the bright inventory picture is the U.S. industry’s stronger-than-expected sales performance so far this year.

While some deals will be available on certain models that have not sold well or that are about to be discontinued, there is not likely to be the August “fire sale” that has been a feature at car dealers for the past few years.

“We’re not going to see any 0.0% financing deals,” said analyst Ronald Glantz of Montgomery Securities, referring to no-interest loans. “The industry right now is in pretty good shape.”

The auto makers consider a 60-day supply the ideal level of inventory. As of June 20, Ford Motor Co. had a 60-day supply of cars; General Motors Corp. had 61 days of cars on hand, and Chrysler Corp. had a 70-day supply.

A year ago at this time, Ford stood at 67 days, GM at 83 days and Chrysler at 59 days.

“The industry is going to end June with about 230,000 cars fewer than they had last year, and they ended May with about 300,000 cars fewer than they had last year,” Glantz said.

Sales Up 8%

At the start of the year, with the October stock market crash still resounding, the auto makers forecast that sales would barely reach the levels of 1987. Accordingly, they made dramatic cuts in production schedules and sat back to wait for the worst.

But sales of domestic cars are up about 8% in 1988. The eight U.S. companies are expected to sell about 7.8 million autos this year, up from 7 million last year.

Analysts say consumer confidence began to climb in late winter, interest rates stayed at reasonable levels, and the auto makers offered nonstop incentive programs. The factors combined to make cars appear more affordable and brought customers to showrooms.

Said Chrysler chief sales analyst Steve Torok: “The only thing that will change the sales picture is a fairly dramatic turn in the economy that would make people decide they don’t want to buy any more.”

While they do not expect an industrywide summer selloff, analysts warn that there are trouble spots for some of the companies. Thomas O’Grady of Integrated Automotive Resources noted that GM in particular is faced with clearing inventories of a number of cars that it plans to discontinue in 1989.

These models include the Chevrolet Monte Carlo, Pontiac Fiero, Oldsmobile Firenza and two Cadillac models--the Cimarron, which is being dropped, and the Eldorado, which will be replaced in 1989 with a longer model.

Chrysler also will have to clear away inventories of the M-bodies--Plymouth Gran Fury, Dodge Diplomat and Chrysler New Yorker Fifth Avenue--which are to be discontinued when the auto maker closes its Kenosha, Wis., plant in December, O’Grady said.

“Overall, the companies are in good shape, but they really do have a lot of product to get rid of,” he said.

The sales success that the companies have had in the first half of 1988 is leading many analysts to predict that car prices will go up in the 1989 model year. Both GM Chairman Roger B. Smith and Chrysler Chairman Lee A. Iacocca pledged in February not to raise prices for the rest of the year, and Ford in effect followed suit.

But Chrysler Motors President Bennett E. Bidwell already has said he would like to raise prices by no more than 3% in 1989, mainly because continual incentive programs are eating into the company’s profit margins.

O’Grady said Ford, which is at record profit levels, may pull a fast one on its competitors.

“The question is, if the other two raise prices, will Ford refuse and go after market share?” O’Grady said. “GM’s margins are getting squeezed and Chrysler is getting squeezed, but on the other hand, Ford is making lots of money.”