Correspondents' Correspondence Auto Motives
GEWEN, BARRY & GOODMAN, WALTER
Auto Motives New York-the decline of the dollar on the international money markets, which has everyone so worried, was eventually expected to produce one positive result: The price of foreign goods...
...one out of every five cars on American highways was a Toyota, Volkswagen, Mercedes, Fiat, etc...
...Following the leader, Ford declared a $91 price rise and Chrysler a $90 hike...
...GM is, presumably, still looking out for Number One, and after a winter hardly marked by restraint, it probably concluded it can live with the Carter guidelines while pulling in a comfortable profit (assuming labor doesn't make the price hikes an issue...
...Thomas A. Murphy, General Motors' chairman, even committed himself to holding total increases for the year under 5.5 per cent, a figure that is in keeping with Carter guidelines (6 per cent for the auto industry) and apparently satisfied Administration officials...
...The chairman of General Motors surely did not leap to the Carter call before making a few precautionary checks on his pocket calculator...
...What will happen if GM's costs increase by more than 5.5 per cent during the year...
...workers down to 19th-century sweatshop levels...
...What went wrong...
...No explanation was given for singling out compacts, and no mention was made of that other possible strategy: keeping prices down to sell more cars...
...American companies have sold 40,000 more cars this April than in April 1977, a 9.2 per cent rise and a bonanza that exceeded predictions by the Big Three car companies-general Motors, Ford and Chrysler...
...In 1974, after a series of price rises during the year and a large new-model increase in the fall, demand dropped drastically...
...Some economists have suggested that car buyers may not accept the auto increases...
...Push would produce pull...
...General Motors also stated that it was ending the policy of setting overall prices each fall when it presented its new models...
...Will it stick by its pledge...
...Chrysler was less specific, saying "any pricing action in the future will continue to depend on the competitive situation and other factors...
...So far, so good...
...But it has become clear in recent months that at least two companies?Ford and General Motors-are willing to sacrifice some of that advantage by raising prices and enlarging profits on their small car models...
...But the most likely sanctuary is foreign car showrooms -which will send imports up again, deepen our trade deficit and tighten the screws on the economy one more notch.-barry Gewen...
...Best of all, the entire process would be self-regulating...
...This, company spokesmen said, "was made necessary to partially recover continually increasing costs...
...action would lead to reaction...
...In particular they upped small car prices, since this was where foreign companies had made their greatest penetration...
...Last December General Motors raised the tags on its Chevettes by $100 to $110, and Ford followed with $89 hikes on its Pintos, Bobcats and Mustang IIs...
...Where will consumers turn if they decide this year's increases are too much for them...
...Not to be left out of the fun, in late April Chrysler announced $98 increases on its subcompact Plymouth Horizons and Dodge Omnis...
...Strong sales were also predicted for May...
...Their increases, they said, merely reflected new costs...
...In the case of low-wage, labor-intensive industries, they neglect the fact that nonunionized, unprotected labor in Third World countries drives the wages of U.S...
...As for the President's pleas for restraint, all three companies insisted they supported them...
...Toyota, for instance, has raised its prices four times since introducing its 1978 models, with the most recent increase totaling a considerable $253...
...Once again GM led the parade...
...Chevrolet was doing 14.4 per cent better than April '77...
...Toyota's sales are down 12 per cent...
...Deliveries are off 9.4 per cent from last year...
...car purchases had risen to 46.2 per cent, 1.7 per cent higher than last year...
...trade deficit would fall and our international ledgers would return to normal...
...Only Murphy knows for sure, but two facts do stand out as worthy of attention: 1) the new policy announced in late April makes it easier for the auto makers to cover rising costs as they occur...
...to make up the exchange-rate loss...
...equilibrium would prevail and with it general prosperity...
...No one in Washington, it appears, bothered to ask the Big Three why they raised their small car prices as soon as the dollar's troubles sent foreign car prices soaring...
...The dollar has fallen, the prices of foreign goods have risen, yet our trade deficits have kept right on growing...
...This year, as the dollar has declined in value, foreign car manufacturers have been forced to charge more in the U.S...
...But it has not worked out that way...
...Last year foreign cars sold at record levels, taking 20 per cent of the U.S...
...The company sold 9.6 per cent more cars than the year before...
...And, true to the theory, foreign car sales have been dropping dramatically...
...In March GM treated consumers to a reprise, boosting Chevette by another $75-95 a car, and in April Ford returned the compliment with a $94 rise on its compacts...
...Meanwhile, inflation was becoming worrisome again, and President Carter began calling for voluntary restraints...
...Ford made a similar change in its pricing policy...
...Thus, with foreign car prices way up and American autos selling at a faster clip, the Big Three acted quickly -not to meet consumer demand and improve profits by producing more cars from their new competitive position, but to increase their profits by raising prices...
...Push doesn't produce pull here, only more push...
...We can get an idea by looking straight at the top-at the automobile industry...
...Unfortunately, the economists who formulate the equations on international trade leave out too many things...
...2) unlike GM, neither Ford nor Chrysler made pricing commitments for the year...
...Well, the moped craze may revive again, and jogging is more popular than ever...
...Cadillac 27.3 per cent better...
...From now on, the company announced, it would increase prices across the board whenever a raise was "appropriate...
...The Wall Street Journal of April 14 reported: "If prices of the competing models were left unchanged, some of them would enjoy huge price advantages over some of the best-selling imports...
...Robert Strauss, the President's special inflation fighter, took a moment off from the fight to proclaim the auto increases "reassuring...
...In the case of highly concentrated, capital-intensive industries, they ignore the pricing policies of oligopolistic corporations, controlled by the dictates of marketing managers and not market equilibrium...
...Nor is it clear what Murphy's commitment to a 5.5 per cent limit really means...
...Auto Motives New York-the decline of the dollar on the international money markets, which has everyone so worried, was eventually expected to produce one positive result: The price of foreign goods would rise because of the new exchange rates, making American products more competitive, then the U.S...
...But by now the auto companies were really feeling their oats...
...On April 28, General Motors announced it was raising prices on all of its models an average of $100 a car -despite a spring that should have brought contented smiles to the men running the company..(GM's share of U.S...
Vol. 61 • June 1978 • No. 12
