Dealers, analysts find no evidence of a price war among automakers Speculation arose over low-cost leases on Japanese cars


DETROIT -- There doesn't seem to be a price war breaking out on the car lots.

When car sales slumped in February for Detroit automakers, one reason given was aggressive pricing by Japanese car companies.

Some industry analysts even suggested Japan's automakers launched a price war, using low-ball leases to carve more market share from the Big Three.

If there is a price war, it's a quiet one.

"We had better prices on Accords six months ago," said Charlie Pernik, president of a Honda dealership near Detroit.

While some dealers are offering low monthly lease payments, the deals are limited and so far fall short of full-fledged price slashing, said Steve Landau of IntelliChoice, a company that monitors auto dealer advertising in the nation's 12 largest cities.

"Deals are popping up for a weekend here and a weekend there," said Landau, a manager at the Campbell, Calif. firm. "I don't know if we've seen a change of direction in any particular market."

Detroit's Big Three have blamed their poor February car sales in part on the Japanese currency. With Japan's prolonged economic woes, the yen has dropped in value compared to the dollar. The drop means Japanese products are less expensive in the United States.

When February sales figures came out, the weak yen immediately was cited. For example: Robert Rewey, Ford Motor Co.'s top sales executive, said in a statement that "the yen's weakness has enabled Japanese companies to take very aggressive competitive actions, leading to significant share shifts, especially in the car market."

Detroit's Big Three sold only 401,497 cars during the month, down 12.5 percent from a year earlier. The numbers don't include truck sales.

Meanwhile, car sales were up nearly 24 percent at Toyota, 5.4 percent at Honda and 5.9 percent at Nissan.

Toyota touched off speculation that it racked up the impressive sales numbers with aggressive price cuts, especially on its $20,300 Camry, a midsize car redesigned for 1997.

In the Detroit area and throughout the nation, Toyota dealers have been advertising two-year leases on Camry LE sedans with $1,500 down and monthly payments of $169.95.

National publications have hailed the leases as proof of a wave of price cutting by automakers. But IntelliChoice's Landau says the deals may appear better only on the surface.

Last March, for example, a suburban Detroit Toyota dealer advertised a two-year lease on a Camry LE for $239 a month, but the down payment was significantly lower, only $265.

Landau said such deals are often assembled by a dealership and its banker. It's not uncommon for the deals to last a only short time and apply to few cars.

"It's not bait and switch, but it's not always indicative of what the average person is getting," Landau said.

A call to one Detroit-area car dealer showed an advertised low-price lease, arranged through a bank, would be available only for a few days and applied to three or four cars on the lot.

IntelliChoice usually tracks lease deals offered through the carmakers' own finance companies. Those deals usually cover an entire region and apply to hundreds of cars.

In some cases, the leases seem less favorable for consumers, even though the monthly payments have hardly budged, Landau said. What's changed? The interest rate and the required down payment have risen, he said.

In Chicago, for instance, a two-year lease was advertised in April on a $19,285 Honda Accord LX. The terms: $850 down and $239 per month.

In current Chicago ads, a two-year lease on a $19,385 Accord LX carries monthly payments of $239. But the down payment is $1,150.

Moreover, the current lease carries a 10.61 percent interest rate, almost double last year's 5.37 percent rate.

Under current leases, more of the monthly payment goes to cover the higher interest rate, so the consumer could own less equity in the vehicle when the lease expires, and as a result pay more if he or she chooses to buy the vehicle, Landau said.

After the February sales slump, Chrysler Corp. responded with a March special. It offered dealer incentives worth $800 a car. The incentives can be used at the dealer's discretion to negotiate lower prices.

Chrysler was the only Big Three automaker to offer the one-time special, though Ford and General Motors have had other customer-friendly inducements.

Ford dealers this winter rolled out low-price leases on the Taurus, including a $189-a-month lease in the Los Angeles area. Ford also has had a $1,000 winter rebate nationwide on the Taurus.

GM insists it will stand firm and won't turn to rebates. It's launching a wide array of new cars and doesn't want to put incentives on them as they are unveiled.

GM has offered low-interest loans, including a 60-month loan at 4.8 percent interest on the compact Chevrolet Cavalier. It has also tried other perks.

For example, some Cavalier customers can get a prepaid gasoline card for $400 worth of gas. Or they can get a service agreement that covers oil changes, tire rotations, brake pad replacement and other maintenance for three years or 36,000 miles.

Joseph Phillippi, an automotive analyst for the New York brokerage firm Lehman Brothers, said the talk about a price war heated up when the industry tried to figure out why Big Three car sales had slumped.

He said Japanese carmakers have slashed costs to insulate themselves from fluctuations in the yen.

The 1997 Camry, for example, is the first generation of Toyotas re-engineered several years ago to reduce production costs as much as 25 percent.

Pub Date: 3/23/97

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