Tough Times For Detroit? No, Just Bad Decisions

Production cutbacks. Rising inventories. Warnings from Chrysler Corp.'s economist that more interest-rate hikes could cripple auto sales. Recent headlines from Detroit have been unsettling. Is the industry driving into a slowdown?

Maybe. More likely, though, Motown is just grinding gears a bit, thanks to lousy short-term decisions. Indeed, auto executives expect a better 1995 than '94--once, that is, "we get through this bubble of January and February," says Ford Div. General Manager Ross Roberts.

Last year, U.S. car and light-truck sales hit a vibrant 15.1 million. As 1995 began, though, some auto watchers began warning that sales would be hurt by greedy pricing. For instance, by eliminating the base version of its Lincoln Continental, Ford Motor Co. effectively raised the model's price by $7,000, to $41,375.

ROCKY START. But ill-thought marketing and production strategies will likely take more of the blame for 1995's rocky start. Witness Ford's difficulties in small cars. Sales of its subcompact Escort were sideswiped by sweet lease deals Ford offered in December to ensure that the midsize Taurus would outsell Honda's Accord. Buyers jumped at the chance to lease a Taurus for $259 a month, just $60 more than the Escort. "We're not talking about a monumental jump in payments to get a lot bigger car," says Jack A. Terhar Jr., president of Sill-Terhar Ford in suburban Denver.

Trouble is, even as Escort sales dove, Ford's factories kept churning them out. Ford wanted a stockpile because it plans to shut Escort plants this summer for a model changeover. But Escort inventories soared to 96 days worth at yearend, and Ford recently had to cut production. It doesn't expect the glut to be depleted until the end of March.

Ford isn't the only company to make miscues. In recent weeks, shoppers searching lots for the $9,500 version of Chrysler's Neon came up empty: Trying to boost margins, the company made way too many loaded-up Neons selling for $12,000 or so. Belatedly, Chrysler offered $400 rebates to move the metal while boosting production of the low-end Neons consumers wanted.

Still, Ford seems to be having the most problems. Competition from the Taurus also cut into Thunderbird and Contour sales, prompting production cuts for both. The Contour suffered from a recall and consumers' unexpected predilection for a $14,665 version of the car with a V-6 engine. Ford doesn't expect to be able to build all the V-6's it needs until the fourth quarter.

Another example: Late last year, Ford built up stocks of its Aerostar vans, knowing production would suffer in December and January when the plant responsible for building the vans also began making the Explorer. But then dealers, who had loaded up on Aerostars, balked at ordering the high-margin Windstar. That idled the Windstar plant for at least a week.

When will auto sales pick up again? Analysts expect the January numbers to be depressed by a change in reporting methods. But by the time the first quarter is over, Ford and Chrysler should be back on track--and the great auto-sales slump of 1995 could be winding down.

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