Chrysler's Tentative Car Prices Too High, Analysts Say
Aug. 18, 1987
NEW YORK (AP) _ Chrysler Corp.'s tentative plans for big price increases on some of its 1988 models could cost the carmaker an opportunity to steal market share from the Japanese, analysts said Tuesday.
But the analysts also said Chrysler might be using the increases - ranging up to 21 percent - to allow it to offer big discounts later.
The No. 3 automaker confirmed Tuesday that it sent bulletins to dealers in early August outlining tentative pricing plans for its cars.
''The new prices we've provided to dealers do not include all of next year's models, and you can be sure that our 1988 lineup will include some products that are very competitively priced,'' Bennett E. Bidwell, Chrysler Motors Corp. vice chairman, said in a statement.
The tentative prices on some of the 1988 models reflect increases of between 4 percent and 21 percent, but the carmaker said its ''1988 passenger cars will increase an average of not more than 1 percent over comparably equipped 1987 models.''
That is because Chrysler is following an industry trend by making more options standard equipment on the new models.
For example, Chrysler has tentatively priced its 1988 midsize luxury New Yorker turbo at $17,373, up 21 percent from its base price in the current model year. But Karen Stewart, a Chrysler spokeswoman, said the 1988 model carries $2,150 in standard equipment that was optional last year. ''Compared to a comparably equipped 1987 model, the price increase is 5 percent,'' she said.
Wall Street analysts criticized the proposed prices.
''We feel very strongly that if the Big Three were to raise prices an average of 3 percent, they would really be hurting themselves,'' said John Kirnan, vice president and auto analyst at the securities firm Kidder Peabody & Co. in New York.
While a 1 percent increase seems reasonable on the surface, ''the question is what kind of options have they added and what does that imply,'' he said.
Bob Arreaga, general sales manager of Bell Chrysler-Plymouth Inc., a Jersey City, N.J.-base dealership, said some of Chrysler's prices already are too high. Some of the tentative increases, he said, would price Chrysler ''out of the market.''
Arreaga said a 2 percent increase for the New Yorker turbo would be more in line. ''I'm already having trouble selling that car,'' he said.
Analysts speculated Chrysler's mini-vans and trucks are likely to be in line for heftier increases because there is strong demand for them.
While Chrysler's final prices will not be announced until October, Kirnan said the tentative figures ''signal that they're going to blow a historic opportunity.''
The increases come at a time when the Japanese have been forced to raise prices on their own cars to compensate for the rising value of the yen against the dollar.
The average American car now is about $2,000 cheaper than its Japanese counterpart, Kirnan said. ''You've got this huge price advantage - take advantage of it,'' he said.
Others echoed that sentiment. ''This is a real opportunity to take market share away from the Japanese,'' said Maryann Keller, a vice president at the investment firm Furman Selz Mager Dietz & Birney in New York.
Higher prices on Japanese cars and continued softness anticipated for the auto market in the coming year are factors that should dissuade carmakers from instituting steep price increases, experts say.
Analysts said the price increases also reflect the cost of incentives and promotions that are likely to continue through the next model year. ''It's built into the price of the cars,'' Keller said.
''The public isn't going to have to pay those high prices - they'll have to get big discounts,'' she said.
A price increase is merely ''one way to hide the fact that incentives are going to be with us for a very long period of time,'' Kirnan said.
Analysts note that 1987 has not been a strong year for the auto industry. ''The market will be down about one million (units) this year, and going into 1988, nobody's predicting it's going to rise,'' Keller said.
General Motors Corp., the nation's biggest automaker, has not disclosed its plans for 1988 models. Analysts said both GM and Ford Motor Co. are likely to wait until labor negotiations are concluded with the United Auto Workers union before announcing their price plans.