Detroit's Road Is Still Rocky

By Alexander Taylor

Big sticker prices and sky-high interest rates strangle sales

Detroit's auto executives have hoped for months that the arrival of new fuel-efficient small cars in dealers' showrooms this fall would end the industry's nearly two-year-long sales slump. So far, that has not happened. Sales of U.S.-made cars in November declined 8.3% from 1979's depressed levels, and they were down 17% for the month's final ten days.

The automakers' hopes for a sales surge have been dashed against the rocks of high sticker prices and staggering interest rates. Only five years ago, $5,000 would have bought an option-packed Oldsmobile or Buick station wagon. Today, that amount is barely enough to pay for a stripped-down two-door Chevette. The same Buick wagon would cost nearly $11,000. The Big Three have been forced to hike the price of their fuel-efficient models mostly to pay for the $80 billion that they are spending to design and produce them. But Detroit may have pushed prices up too far and too fast. Says Marvin Alpern, a New York City Chevrolet dealer: "People come in and look at the prices, and they are shocked."

Jumping interest rates are definitely pushing potential customers out of the market. Last year a new car buyer in Michigan would have paid an average 12.68% interest for a 48-month new car loan. Now the interest rate is 16.05%. That can add as much as $50 to a car payment every month. Says Detroit Ford Dealer Mel Farr: "People want to buy cars, but they can't because of the basic high cost and the interest rates. Showroom traffic has just died. It is really depressing."

In better times, Detroit's new smaller cars might have been runaway successes. Surveys conducted by both Ford and Chrysler show that 80% of new-model buyers are happy with their purchases.. "I love my Ford Escort," says Judy Siotto, a San Francisco medical assistant. "It has lots of room and great pickup on the hills." Adds William Consavage of West Yarmouth, Mass.: "My Plymouth K-car gets good mileage, and I like its looks."

In fact, Chrysler's sales in November rose by 6.9% over the same period last year. But behind that figure stalks a lot of bad news. Chrysler is staking its survival on the success of its new compact K-cars, the Dodge Aries and Plymouth Reliant. Despite the company's constant references to its "record-breaking" introduction, however, the two models are not doing well. Only 16,000 K-cars were sold in November, as compared with the company's target of 40,833. Gone with the poor sales figures are

Chrysler's projections for making a profit in the fourth quarter. Instead, the company may face a loss of $100 million or more.

Part of Chrysler's difficulty has been a decision to load early K-car models with such expensive options as luxury interiors and air conditioning, thus pushing the price up to $9,000 or more. Similar price-boosting tactics have hurt Detroit for years. Chrysler is now building no-frills models that sell for less than $6,000, but dealers are placing few new orders because sales are slow and high interest rates have made their carrying costs on unsold models exorbitant. Warns Chrysler Chairman Lee Iacocca: "Our biggest problem is getting the dealers to take the three weeks of December production."

Ford's new front-wheel-drive subcompacts, the Ford Escort and the Mercury Lynx, are selling better. Ford has orders for 180,000 of them, and is expected to meet projected 1981 sales of 345,000. But Ford's larger cars, such as the Granada and the Mercury Cougar, continue to gather dust on show room floors. The company has already shut down plants in Atlanta and Chicago to reduce inventories of the slow-selling cars.

General Motors, which did not introduce any totally new models this fall but will put out its subcompact J-cars next spring, is likewise suffering a sales falloff. In November it sold 7.1% fewer cars than in the same month last year.

So far this year, its orders have dropped 15.7%. Nevertheless, the Chevrolet Chevette and the Chevrolet Citation are among the country's bestselling models.

Sales at tiny American Motors Corp.

dropped 19.1% in November. The company has sent letters to stockholders warning that it could go bankrupt if they do not approve next week a plan for French-owned Renault to acquire as much as 59% of the company. Even if the deal is accepted, AMC faces at least three years of heavy losses before a new line of Renault-designed cars can be built at AMC's U.S. plant in Kenosha, Wis.

Foreign automakers are also having trouble selling in the U.S. market.

Volkswagen's Rabbit faces tough com petition from new American subcompacts like the Ford Escort, and sales of the U.S.-made Rabbit dropped 26% in November.

Buyers are also shunning the Scirocco and Dasher models, which cost up to $10,000. During the past two months, Datsun and Toyota sold fewer cars than a year ago, but Honda has sold more. Imports in November accounted for an estimated 24% of the U.S. market, as compared with nearly 30% earlier this year. The continued large number of imports led the House of Representatives last week to authorize the President to negotiate curbs on Japanese autos.

In an effort to ease the sting of high finance charges and to help sales, both Ford and Chrysler announced last week that they would cut the effective price of many models through interest-rate subsidies. Ford said it will charge customers no higher than 12% interest; Chrysler will provide cash rebates that will vary in size depending on the prime rate.

Iacocca denounced the Federal Reserve Board's high interest policies as "madness" and conceded that his company will soon have to go back to the Government's Loan Guarantee Board for perhaps $200 million in federal-backed loans. Chrysler has already borrowed $800 million of the $1.5 billion that Congress agreed last spring to guarantee. Once again, Chrysler's continued existence is seriously in question.

-- By Alexander Taylor. Reported by Christopher Redman/ Detroit

With reporting by Christopher Redman

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