The new Ford Taurus is a dazzling car, but can it be profitable at 100 yen to the dollar? Strange as the question sounds, it goes to the heart of the strategy Ford has used in designing its successor to the wildly successful original Taurus.
Here's the analysis. The Taurus competes with the Toyota Camry and Honda Accord. In recent years, it has had a price advantage of $2,000 per car because of the sky-high yen. In designing the new Taurus, Ford decided that American consumers liked Camrys and Hondas because of their great engineering and features. So it set out to match the Japanese. This, however, boosted costs. Meanwhile, the Japanese set out to "de-engineer" their cars, simplifying them to get costs out. The result? Detroit's price advantage is shrinking fast. A new Taurus with popular options will sell for about $1,000 less than comparable models from Honda and Toyota. But in late 1996, a new Camry comes out that Toyota promises will cost 20% less to make. There goes the price advantage.
The dollar, weak for so long, may be poised to rise. If Congress does make progress toward a balanced budget and the U.S. does trim the trade deficit, the dollar could go to 100, cutting the value of the yen by about 15%. That might allow Toyota to price the new Camry below the Taurus, unless it decides to pocket the cash as profit.
Bottom line, the new Taurus will succeed or fail on the level playing fields of quality, design, and features. Fair enough. But if Ford wants the Taurus to be a best-selling family car, it can't let prices drift much higher.