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The Minivan Free For All


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THE MINIVAN FREE-FOR-ALL

Denver auto dealer Jack Terhar Jr. can hardly wait until early next year to get the snazzy new Ford Windstar minivans into his showroom. Right now, Chrysler Corp. minivans outsell Ford Motor Co.'s aging Aerostars 8 to 1 in Terhar's area. Terhar hopes the roomy, front-wheel-drive Windstar, derived from Ford's best-selling Taurus sedan, will finally put Ford dealers in the running in one of the industry's most profitable market segments. "It's critical to us," says Terhar.

Welcome to the minivan free-for-all. Chrysler has virtually owned the minivan market ever since the company invented it 10 years ago. But two formidable rivals are poised to nab some market share. Ford's Windstar promises to be the most car-like minivan yet. And in 1995, Honda Motor Co.'s first minivan, based on the Accord sedan, is due to arrive. Their entrance has Chrysler girding for a fight. "This could get to be a very nasty competitive battle," predicts Shearson Lehman Brothers Inc. analyst Joseph S. Phillippi.

FAT MARGINS. There's good reason for one. Minivans comprise one of the fastest growing markets in the U.S. and Europe. This year, about 1.1 million U.S. consumers will purchase a minivan, and sales should rise to almost 1.3 million annually by 1995, figures Bernard G. Campbell, an analyst with DRI/McGraw-Hill. Moreover, with sticker prices ranging from $14,000 to $28,000, the boxy people-haulers carry fat margins: In the U.S., the average gross profit is about $4,000 per vehicle. The strongest U.S. players will also have a leg up on Europe, where the minivan craze is just gathering speed. Analysts expect sales there to jump 230%, to 400,000, by 1996.

Chrysler has dominated the minivan market with a simple formula: no-nonsense utility coupled with car-like handling. In the U.S. this year, it will sell 500,000 minivans--about half the industry's total--on which Chrysler will make more than $2 billion in gross profit.

But Chrysler suddenly looks vulnerable. Its minivans, based on the K-car platform introduced in 1980, are starting to age. In the first six months of this year, Chrysler's market share has slipped two points, to 46.8%. Meanwhile, Ford has begun discounting the Aerostar heavily, and the company's Mercury dealers have a sleek, new, small minivan to offer, the Villager. This has helped Ford increase its market share from 17% to 22%. Ford's gains might be even larger if annual capacity at its factory in Avon Lake, Ohio, weren't limited to a total of 110,000 Villagers and Nissan Quests, the Villager's twin. "We wish we could be building more," says Robert L. Rewey Jr., Ford's vice-president for North American sales.

The Windstar shouldn't have that problem. Ford spent $900 million to retool its Oakville (Ont.) factory to build 275,000 of the new minivans annually. That's important because, unlike the shorter Villager, the Windstar is aimed at the heart of the market--the long-wheelbase minivans now dominated by Chrysler's Grand Caravan. At 201 inches, the Windstar is 10 inches longer than the Grand Caravan, slightly wider, and has a bit more cargo space.

Moreover, Windstar promises to deliver the car-like amenities many minivan buyers crave. As with the Taurus, dual airbags will be standard. The minivan will ride low to the ground, for easier entry and exit. Powered by a 3.8-liter V-6 engine, the new van--unlike the Aerostar--will have front-wheel drive, sure-footed in snow. "It has a real stable feel to it," says Terhar, who has driven a Windstar prototype.

AD ATTACK. To launch the new van, Ford plans to pull out all the stops. The company will crank up training sessions for its 4,370 Ford dealers, so salespeople will know precisely how Windstar stacks up against the competition. Ford's Lincoln-Mercury division successfully used the same tactic to prepare its dealers to sell its first minivan, the Villager. In addition, Rewey promises a "very aggressive advertising launch."

Meanwhile, Chrysler is moving quickly to protect its turf. The company spent millions to redesign its van interiors for the 1994 models due in October--a scant three years after a similar redo. It's adding a standard passenger airbag and side-door guard beams to meet all federal passenger-car safety standards, though minivans don't have to comply with most of them until 1998. That's a boast Windstar won't be able to make. Chrysler also heeded suggestions from current minivan owners, such as moving the radio and heater controls 2.5 inches closer to the driver, and adding a reclining back for built-in child seats.

Chrysler will exploit some potent marketing advantages, too. Its buyers are among the most loyal in the industry. This year, 76% of the people who traded in a Chrysler minivan bought another one. That compares with an industrywide brand loyalty of about 40%.

Before Windstar arrives, Chrysler will likely launch a direct-mail campaign offering attractive deals on new Chryslers to many of its current 4 million minivan owners. Also, look for a nationwide promotion, a tactic Chrysler used in 1991 just as General Motors Corp. was reaching full production with its new APV minivans. Chrysler trumpeted the first $1,000 rebates on its minivans--and set an all-time monthly sales record of 68,000 minivans in January, 1991, handily blunting sales of the APVs. "I expect Chrysler to do a gigantic minivan sale so there aren't any buyers out there left to buy anything," says Tom Dukes, director of competitive assessment at J.D. Power & Associates Inc., a market researcher based in Agoura, Calif.

IN THE WINGS. That's for the short haul. To handle the long-term threat, Chrysler will start making an all-new minivan in January, 1995, just 11 months after Ford begins producing the Windstar. The new Chrysler van's rounded styling will be much more striking than the company's current boxy versions. But officials promise the new design won't compromise the practicality and car-like features today's buyers like most. And Chrysler will follow suggestions from current owners, such as offering sliding doors on both sides.

About the same time Chrysler's new van hits, Honda will launch its first entry, a hybrid cross between a minivan and a Jeep-like, sport-utility vehicle. It will be based on the same platform as Honda's new Accord, which bows in September. Initially, the company plans to build a modest 70,000 minivans a year. One possible holdup: Executives are still debating whether to build them in Japan or at Honda's plant in Marysville, Ohio.

BOOM DEMAND. These newcomers should help expand the market. Demographic trends also favor strong sales. Baby boomers are the biggest purchasers of the vehicles, and they'll be in their prime minivan-buying-years until at least the end of the decade. According to J.D. Power, the average minivan buyer is 40 years old. The most booming of the baby-boom years was 1957, making those folks 36 now. As their families and incomes grow, they're more likely to buy a minivan. Moreover, the vehicle is becoming popular with retirees, who like its roominess and good driver visibility.

As the competition heats up, Chrysler will likely give up some share of the expanding market, analysts say, even as it fights to keep volume steady. The big loser, however, could be GM. Its plastic-bodied, long-nosed APVs--the Chevrolet Lumina APV, the Pontiac Trans Sport, and the Oldsmobile Silhouette--are the weakest-selling domestic minivans. GM had gambled on futuristic styling to stand out against Chrysler's models, but drivers complained that the radical design hindered forward visibility. That's one reason GM's share plunged four points, to 22%, in the first half of the year. And that was after GM had propped up sales by unloading more than a third of its APVs in low-margin fleet sales, according to Automotive Fleet magazine.

GM officials hope a minor nose job that trims the APV's snout for 1994, and the addition of a driver's airbag, will rejuvenate sales. Don't bet on it. "GM's got a bigger problem than that," says Russell M. Darrow Jr., who owns a half dozen car dealerships in Wisconsin, including a Pontiac store that sells GM vans. Without major changes, he says, drivers may still have visibility problems during cornering and parking, for instance. DRI/McGraw-Hill expects GM's share to continue to decline, to 19% in 1995. And an all-new, front-drive van won't arrive until 1996.

Two once popular Japanese minivan models are likely to feel the crunch, as well. Sales of Toyota Motor Corp.'s Previa and Mazda Motor Corp.'s MPV have already skidded drastically because of big price hikes in the past two years. Each company is expected to sell only about half of the 52,000 and 48,000 vans this year that they respectively sold in 1991. Both are imported from Japan, and the strong yen will keep prices high. At those low volumes, neither company can afford a major redo anytime soon.

The real winner in this tussle, of course, will be consumers. Thanks to all the new competition, minivan safety is finally matching tougher passenger-car standards. There will be better deals out there, too, as carmakers settle for thinner margins in the fight for market share. That's fine with Jack Terhar Jr.--and hundreds of dealers like him--who would welcome anything that can help lure today's reluctant buyers into the showroom.David Woodruff in Detroit


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