Big 3’s Price Hikes Exceed Asian Rivals’ : Analysts Say Detroit Lost Chance to Boost Share

Detroit’s Big Three have raised 1989 model car prices on average more than their Asian competitors, and auto industry analysts warn that by doing so they have lost a chance to further increase their share of the market.

Despite the increased value of the Japanese yen against the dollar, Japanese auto manufacturers are doing a better job of absorbing costs and holding down prices this fall, the analysts agreed. Often, an increase in the relative value of a nation’s currency translates into higher prices for its exports and a resulting loss of sales.

The analysts also note that this is the first model year since the yen began strengthening in 1985 that the U.S. auto manufacturers have raised their prices more than their foreign competitors.

“The Asian auto makers as a group raised their prices less than the domestics as a group,” said Maryann N. Keller, an auto analyst with Furman Selz, a New York investment firm.

The auto makers have not released any official figures showing industrywide averages for this fall’s price hikes by the imports and domestics. But Chris Cedergren, an analyst with J. D. Power & Associates, an Agoura Hills research firm, estimates that for the 1989 model year, General Motors, Ford and Chrysler raised their prices by an average of 2.6%.

Meanwhile, he says, the Asian auto manufacturers, including both Japanese and South Korean companies, have raised their prices an average of 2.4%. The European auto manufacturers raised their prices an average of 3.2%, Cedergren said.

GM has announced that it is raising its prices an average of 2.9% for the 1989 model year, which began Oct. 1; Ford reported a 2.6% price increase, and Chrysler raised its prices 2.3%.

Years of Restraint

Toyota, by contrast, reported that its 1989 prices have been boosted by an average of just 2%, and Honda said it had imposed increases averaging 1.7% for its Honda division vehicles and 2.6% for its upscale Acura division automobiles. Nissan raised prices an average of 2.8%.

The Big Three’s sharpest price increases showed up at the higher end of the car market, with less dramatic changes at the small car end. For example, Ford’s Probe GL was increased 2.7% to $10,943, while the price of its Lincoln Continental was increased 5% to $28,032.

The average price increases for 1989 were determined by measuring the base prices of the new cars against those of similarly equipped 1988 models.

The domestic auto manufacturers said their recent price hikes are reasonable because this year’s increases follow several years of restraint. They say they need to adjust their prices to cover rapidly rising labor and material costs.

Chrysler, for instance, said this is the first significant price increase the company has instituted in at least three years. “Chrysler’s pricing strategy was to hold the line for three years,” Chrysler spokesman Tony Cervone said. “With costs going up, we can’t keep holding the line on prices.”

“We believe that our prices are very competitive,” said Terry Sullivan, a spokesman for GM. He added that at the start of the 1988 model year, GM raised prices by just 1.9% and that some prices actually fell during the model year as a result of promotional campaigns, including discount offers on optional equipment.

Still, the American price increases this fall were not dramatic by historic standards. In addition, the domestic firms are accurate in saying that the increases followed several years in which Detroit’s hikes have lagged well behind those slapped on by the Japanese. Indeed, most Japanese cars now cost substantially more than comparable domestic products.

Since 1985, the Japanese have raised prices by an average of nearly 30%, while the domestics have raised prices just 10% to 12%, according to David Healy, an automotive analyst with the New York investment firm of Drexel Burnham Lambert.

Indeed, Ford defended this fall’s increases by saying that its price boosts in recent years have lagged well behind those of the Japanese. Ford spokesman Dave Krupp added that Ford’s small cars are still very competitive with the Japanese in the subcompact segment.

“Our best-selling smaller cars are still priced well below comparable Japanese cars,” Krupp said.

‘Could Do Better’

Such price gaps have helped Detroit retake some market share from the imports over the last two or three years. Yet this fall’s larger hikes could be troublesome, the analysts say, because they could limit the domestic industry’s ability to eat further into the Japanese share.

“(The Big Three) appear to be doing well now. . . . The problem is, against the imports, they could do even better,” said Thomas O’Grady, an auto analyst with Integrated Automotive Resources, a research firm in Wayne, Pa. “This is the best year ever for them to make progress. Here they have an opportunity that they never had before. We expect that opportunity is going to start disappearing.”

It may already be vanishing. Despite the soaring value of the yen--and dramatically rising production costs--Toyota and Honda, the two most successful Japanese companies in the U.S. market, have both increased their shares so far in 1988. Toyota has posted a 6.5% share, up from 5.3% a year ago, while Honda’s market share rose to 6.8% in 1988, up from 6.7% last year.

Part of the continued success by the Japanese auto makers has come because they have been absorbing roughly half of their higher production, administration and distribution costs, while passing along the rest of it to consumers, analysts say.

“The Japanese have been forced to be more prudent because of the slide of the dollar,” Cedergren said. “One of the ways they have buffered themselves is by cutting the costs in operations . . . and also by moving more product lines upscale to make more profits.”

Japanese auto manufacturers will become an even bigger threat to Detroit’s auto manufacturers in the future, industry analysts warned, as their U.S. assembly operations expand. They will then not be impeded by either import quotas or the higher-valued yen in the pursuit of a larger market share in this country.

The domestic manufacturers are well aware of that threat, Cedergren said, and realize that they must avoid very large price hikes on a sustained basis in order to retain their present portion of the market.

“The domestics realize that, in the longer term, they are going to have to continue to cut costs to be competitive,” Cedergren said. “They realize the Japanese won’t be totally stopped (by the lower dollar). The domestics are starting to go after both greater market share and profitability.

“But let’s face it,” he added, “manufacturers are in the business for profit. Domestic manufacturers could be doing a lot more to increase their market share.”