Although the declining dollar has raised the price of small Japanese cars sharply, Ford Motor Co. told Congress yesterday it has been unable to increase its share of the subcompact market.
John Deaver, Ford's chief economist, told the Senate Subcommittee on Foreign Economic Policy that the company must sell a certain number of its subcompact Pintos to remain in compliance with federal fuel economy standards for the fleet of cars it sells.
"We're pushing very hard to sell those cars," Deaver said. But he told Sen. Frank Church (D-Idaho), the subcommittee chairman, that the company loses money on each Pinto it sells.
"You mean you're not pricing your Pintos to enlarge your market share, only to sell as many as you are required to sell to make your average mileage requirements?" Church asked.
"That is correct," Deaver said.
Under federal fuel requirements, United States auto makers must meet specific fuel economy requirements based on the average fuel consumption of its entire fleet of cars. This means each company must sell enough fuel efficient cars to offset the poor performance of the large "gas guzzlers" it manufactures.
The subcommittee is holding a series of hearings to explore the impact of the declining value of the dollar on the economy. Since December 1976 the dollar has fallen 23 percent against the Japanese yen and 13 percent against the West German mark, William Nordhaus, a member of the Council of Economic Advisers, testified.
That has contributed about 0.5 percentage points to the overall inflation level, Nordhaus said. The dollar decline has made imports of many products more expensive, triggered "sympathetic" increases in domestically made competing products and triggered demands for compensating wage increases among American workers.
Deaver said that it is "probably the common perception that Ford simply followed import prices up and ignored the opportunity to become more competitive with imports. That is far from true."
In the all of 1976, when the 1977 Pintos were introduced, the Ford subcompact cost about $400 more than the principal Japanese competitors, he said.
"Because Japanese prices then rose more than ours, by the end of the 1977 model year, the Pinto was only some $200 above the Japanese models.For the 1978 model year, Ford actually lowered Pinto prices putting them about at par with the prices on Japanese cars. Since then, Japanese car prices rose about 10 percent compared with only 8 percent for the Pinto, so that today, the Pinto is priced about $100 below the imports," Deaver testified.
"The sum of all these changes since the 1977 model year introduction is a $500 reduction in Ford prices relative to those in competing Japanese cars," Deaver said.
Yet the domestic auto maker has not been able to gain any ground on the Japanese imports.
"It's a good question, why we haven't," Deaver said later in an interview from Detroit. "One possible answer, is that if it hadn't been for this shift in relative pricing that we would have been priced out of the market entirely."
Furthermore, he noted, the Pinto is and "old" car from the auto industry's perspective, little changed since it was first introduced in 1971. During the same period, the Japanese have made several model changes.
But, Deaver told the subcommittee, in the early 1980s, the company will be introducing new subcompact cars because of the fuel economy standards and will make aggressive attempts to sell them.
In another development, Robert Crandall, a Brookings Institution economist, who headed the Council on Wage and Price Stability in the early days of the Carter administration, said that despite the decline of the dollar and minimum prices for the steel imports, the outlook for the U.S. steel industry is still not good.
He said that the U.S. industry has lost the raw materials advantages it used to have in the 1950s and that labor costs in the American industry are much higher than other countries.
Crandall, who helped devise the trigger price program the administration put into place to prevent low-cost imports from being "dumped" in the American market, said that there do not appear to be any major labor-saving technologies on the horizon that would permit the U.S. industry to suddenly become competitive again.
Even Japanese steel producers, the world's most efficient, are worried that as their labor costs grow Japanese makers will lose competitively to countries like South Korea which have much lower labor costs.