GM Announces Tentative Price Hikes for ’89 Models

General Motors Corp. joined other U.S. auto makers Friday in announcing moderate price increases for the 1989 model year, saying it tentatively plans to raise car prices by an average 2.9%.

Chrysler Corp. last week said it tentatively plans to raise prices 2.3% in 1989, while Ford Motor Co. has told dealers to expect increases averaging 3.2% on some models. Ford has not yet released price information for its most popular car models.

The 1989 model year begins in October.

GM’s price increase was based on a comparison of prices of typical 1989 models versus comparably equipped 1988 models. The 2.9% is not calculated on the base price of those cars.

GM spokesman Terry Sullivan said such a comparison was not valid this year because GM made such popular equipment as air-conditioning standard on some of its 1989 models. He acknowledged that the base-versus-base prices of some cars will rise more than 2.9%.

For example, the base price of the auto maker’s most popular model, the Chevrolet Corsica, will increase by 4.3%, from $9,555 to $9,985.

President’s Statement

In a statement, GM President Robert Stempel claimed that because GM made some optional equipment standard, prices of GM models actually went up only 1.7% when fully equipped 1989 models are compared to similar 1988 models.

GM is widely considered the industry’s pricing leader. Because sales for the U.S. auto makers have been so strong this year, running about 8% above 1987 levels, the auto maker might in other years have been expected to announce a larger price increase.

But GM saw its market share slump by 5 percentage points in 1987 to 36.5% of the market. This year, it is struggling to keep its share at 37%, compared with the 45% it held at the start of the decade.

Auto makers hinted throughout the summer that they planned to raise prices for 1989 by about 3%. For the most part, the companies skipped the usual April midyear round of price increases in an effort to keep sales strong.

The tentative increases for 1989 fall within the traditional range for the auto industry at the beginning of a model year, analysts said.

“This is right where we would expect them to be. It’s consistent with the past and not highly inflationary,” said analyst Douglas Laughlin of Bear, Stearns & Co, New York.

Costs Increase

He said the auto makers this year face the pressure of increasing costs of raw materials such as steel, and have seen their profits squeezed by continual incentive programs.

“Clearly, there is more wage and cost pressure in 1988 than in the past four or five years,” Laughlin said. “There is a desire by the auto makers to capture that in pricing.”

In a break from previous years, none of the Big Three U.S. auto makers has announced price reductions on their cars. Last year, for example, Chrysler lowered prices on almost half of its auto lineup.

Import auto makers, who have had to raise prices significantly in recent years because of the rise in the value of foreign currency against the dollar, have not yet indicated where their prices for 1989 will fall. Some analysts think Japanese auto makers in particular will not have major price increases at the start of the model year in order to hang on to their share of the market.

In addition to hinting at price increases, auto makers also have been saying they would like to eliminate rebate programs at the start of the 1989 model year. The costly rebates, which average several hundred dollars per car sold, have eaten into the profit margins of each of the auto makers. The situation is worst at Chrysler, whose second-quarter profits declined even though the industry collectively posted record earnings.