News: Analysis & Commentary: AUTOS
PRICES LIKE THESE CAN'T LAST
When Charles Suritz heads out to replace one of his two Ford Tauruses next year, he won't be shopping for Fords. The Buffalo Grove (Ill.) marketing executive, who paid about $13,000 for his 1991 Taurus, is put off by the sticker on the restyled 1996 model. "When I think of $20,000, I think of the next level of cars," says Suritz. "The Ford Taurus is not a luxury car."
Suritz is not the only Taurus owner shocked by the price of Ford Motor Co.'s updated family sedan. The curvy new model's styling is eye-catching, but its price, which starts at $19,150 and climbs to $24,850 for a fully loaded LX model, is turning off many tire kickers. Sticker shock helped send Taurus sales plummeting more than 16% in October, the car's first full month on the market. Anxious dealers already are pushing Ford to begin discounting the new model with rebates and lease deals.
Talk of price-cutting on the Taurus has Wall Street jittery. In addition to the costs of launching the Taurus, Ford's earnings are under pressure from the introduction of its redesigned F-series pickup and a new Fiesta in Europe (box), as well as Mexico's peso crisis. The auto giant's third-quarter net plunged by 68%, and analysts are slashing fourth-quarter earnings projections. Morgan Stanley & Co.'s Stephen Girsky says Ford may net just $300 million for the period, 80% less than last year, on sales of $27 billion. Even worse: The company's global auto business is likely to post a loss. And the outlook won't improve soon. Ford is warning that weak results will continue into 1996's first or second quarter.
If consumers turn a cold shoulder to the Taurus redesign, it would only add to Ford's woes. The company has $2.8 billion riding on the reinvention of what Chairman Alexander J. Trotman calls "the family jewels": the Taurus and its sibling Mercury Sable. Through October of this year, Ford sold 397,000 of the two models, 78% of them Tauruses. The Taurus, the U.S.'s top-selling car, generates more than 10% of Ford's $73 billion in U.S. auto revenue. But, says John B.T. Campbell III, who just sold his Garden Grove (Calif.) dealership: "They priced this car too high and people are resisting it. It's time for Ford to adjust."
The Taurus got off to a slow start when it first came out in 1986. And for now, Ford executives are resisting national price promos beyond the $250 cash incentive offered to Taurus leaseholders who upgrade to a 1996 model. "We're not worried," says Ross H. Roberts, general manager of Ford Motor's Ford Div. Roberts blames the Taurus' sluggish debut on a soft auto market--down 2.2% this year--a short supply of Taurus station wagons, and fewer sales to car-rental agencies. Still, he doesn't expect Taurus sales to be as strong in November and December as they were last year. "Look at us in January," he says.
RIVALS ON THE ATTACK. Dealers don't want to wait that long. They are struggling to persuade buyers to pay $1,000 more for the new Taurus than for the old one--or $3,000 more counting the $2,000 rebate that has helped clear out the old model. To many, the Taurus' new styling isn't worth the extra bucks. "I didn't like the different body design, and I didn't want to pay the higher price," says Michael C. Trocheck, a retired schoolteacher in Denver who just bought a discounted 1995 Taurus.
What would it take to jump-start Taurus sales? Dealers hope for a discounted lease that drops the monthly payment under $300, without a big downpayment. Right now, it takes a stiff $2,000 down to secure a monthly payment of about $280 on a basic Taurus. Owners coming to the end of a two-year lease are confronted with a jump of $50 to $100 in monthly payments if they want to upgrade. "People who are turned on by the styling come in and see the sticker and say `whoa!"' says Morristown (N.J.) dealer Peter Jarvis.
Dealers already are undercutting the new Taurus' sticker price. Roberts says the average transaction price of a base model is "in the $18,000 range." If that's still too much, "we sell T-Birds to people who priced a Taurus," says Downey (Calif.) dealer Jim Graham. "The T-Bird is a screaming buy for between $15,000 and $16,000 loaded." Meanwhile, Ford is quietly reassuring dealers that it may offer deals on the Taurus eventually. Without them, competitors may begin picking off buyers. Honda Motor Co. is covering the first month's payment for Accord owners who upgrade to a '96 model. And Chrysler Corp. is offering a $269-a-month lease deal on its new Plymouth Voyager minivan. "Every manufacturer is attacking our car," says Roberts. "We're trying to figure out how to keep our dealers competitive."
If Ford doesn't soon come up with a price as alluring as the new Taurus' look, more owners may do what Suritz plans to do: take their business elsewhere.By Keith Naughton in Detroit