TIME: Almanac 1995

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<text id=93TT0231> <title> July 26, 1993: Motown Turns a Corner </title> <history> TIME--The Weekly Newsmagazine--1993 July 26, 1993 The Flood Of '93 </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 50 Motown Turns a Corner </hdr> <body> Surprise! Detroit is winning back market share from the Japanese, and making money to boot By JOHN GREENWALD--With reporting by Edward W. Desmond/Tokyo and William McWhirter/Detroit Business news is not very good these days. Though the U.S. is technically in its 28th straight month of growth, big airlines are struggling, the computer industry is in the midst of a protracted shakeout, and drugmakers are in turmoil. Last week even Procter & Gamble, the nation's leading household- and personal-products company, announced it will close 30 plants and eliminate 13,000 jobs in an effort to meet the prices of discount and private-label competitors. In times like these, they used to say that a sneeze by the American economy gave Detroit a bout of the flu. Not so this time. Despite troubles elsewhere, the stalled American car industry has suddenly reignited its engines. After a decade of losing ground to their Japanese rivals, Detroit automakers have been recapturing buyers and reclaiming a healthy slice of U.S. market share. The public's growing taste for Big Three cars and light trucks has allowed Ford, Chrysler and General Motors to rack up welcome profits, following industry losses of $39 billion over the past two years. The recovery has also caught the eye of investors on Wall Street, who have bid up the price of U.S. car makers' stock more than a third in 1993. Detroit is doing it the old-fashioned way: by giving good value to those who buy its vehicles. "From a competitive standpoint, I think American autos have surpassed the Japanese," observes Thomas Flagg, a trucking executive in Trenton, New Jersey, who recently purchased a Chevrolet Geo Tracker for his daughter. "On a dollar-for-dollar basis, I think you'll get more for your money from an American car." Thanks to rigorous improvement in the quality of their products, American manufacturers have sharply narrowed--and in some cases eliminated--the gap between their own and Japanese cars. Seven of the 10 most improved autos in the latest J.D. Power survey carried U.S. nameplates. (Three U.S. brands made the Power list of the 10 highest-rated cars in terms of owner satisfaction, up from one model when the survey began in 1986.) Moreover, with the strong yen triggering ticker shock in showrooms that sell Japanese makes, consumers are finding that buying American makes practical as well as patriotic sense. While Detroit used to lose customers by raising its prices in lockstep with the Japanese, U.S. firms are now moving aggressively to hone their competitive edge. General Motors, the largest (though currently the weakest) of America's Big Three, last week unveiled a plan to hold price increases to just 1.8% in 1994. Under GM's so-called value pricing, the company will offer some fully equipped 1994 models for less than what comparable ones cost today. GM hopes that by simplifying buyers' choices it can rebuild a market share that has slipped from 61% a decade ago to 34% today. In announcing the new plan GM stole a march on Ford and Chrysler, which have yet to reveal what they will do. Americans bought cars and trucks at an annual rate of 14 million units in the first half of 1993, the briskest pace in four years. The recovery continued in the first 10 days of July, car companies reported last week, as sales of North American-made vehicles rose 14.6% over the same period a year ago. Virtually all the first-half gains were by U.S. manufacturers, who have raised their domestic market share from 72.5% last January to 75% today, while the Japanese have slipped from 24.6% to 22.7%. "At the moment, the Big Three are eating the Japanese carmakers' lunch," says David Healy, an industry analyst for S.G. Warburg & Co. The meal is a savory one. American carmakers earned a combined $1.6 billion in the first quarter of 1993, and their overall income could match that in the second quarter. Such results are particularly impressive in view of the slump in European car markets that has squeezed profits at Ford and GM. Even the automakers themselves are surprised--and unprepared. As GM shutters eight plants, a feverish demand for light trucks threatens to outstrip the company's capacity to build them. Robert Rewey, vice president for Ford's sales operations, just raised his estimate of industry sales for the third time this year. "We're still trying to assess what's going on here," Rewey says. "While there is still a lot of uncertainty surrounding the economy, we don't think this is a fluke. We're happy to be back and selling autos." What has chiefly brought Americans back to the showrooms is a pent-up demand for new cars. Many consumers who had been waiting for the recovery to pick up steam before replacing their autos now find they can't wait anymore. A record 71% of 10-year-old cars are still chugging along U.S. roads and highways, up from 59% a decade ago. "The bottom-of-the-food-chain cars and trucks are wearing out," says Chrysler president Robert Lutz. "The market is being driven by replacement demand more than by the growth of new buyers." William Pochiluk, president of Autofacts, an automotive-consulting firm, sums it up: "The car's old, it's become a turkey, interest rates are low, it's just time to buy a car." The need for new wheels has given a strong boost to sales in regions still in the economic doldrums. "I'm probably down to a 45-day supply of vehicles," says Timothy Connell, sales manager for his family's Chevrolet dealership in recession-scarred Southern California. "Normally I'd carry a 90-day supply." Flashy brands like Chrysler's LH mid-size sedans have been attracting their share of tire kickers, but small cars for the budget-minded have been moving off the lots. Following the lead of GM's Saturn, whose sales have risen 25% this year, American manufacturers have continued to offer autos in the $9,000-to-$12,000 price range long after Japanese carmakers virtually abandoned the segment. In that thrifty category, sales of Chevrolet's vintage Cavalier have risen 26%, while those of the Plymouth Colt and Dodge Spirit are up 47%. By far the industry's best sellers are the muscular pickups, vans and sport-utility vehicles that are collectively known as light trucks. Their popularity has been especially good news for Detroit because Japan has few entries in the field. According to Autofacts, light trucks accounted for an astonishing 80% of all vehicle sales growth in the U.S. this year. Even Ford's Taurus, the No. 1 selling car in the U.S., has found itself trailing the Ford F-series and the Chevrolet C/K pickup trucks. Not to be outdone, Chrysler plans to roll out a stand-out-in-a-crowd version of its popular Dodge Ram this fall. Designed to resemble a scaled-down 18-wheeler, the truck will come in viper red colors and be equipped with inside pockets and panels for laptop computers. The Big Three's abrupt acceleration has caught Japanese carmakers off guard. "The Japanese never expected that Detroit would get better," contends Maryann Keller, an industry analyst with the firm Furman Selz in New York City. But with the yen now trading around a robust 105 to the U.S. dollar, Japan has been forced to price its cars out of the reach of many American shoppers. "At the yen level we are facing right now, it is difficult for some of our Japanese-made models to be competitive in the U.S.," a Toyota executive says. Some Western observers suspect they are witnessing a sea change. "There is a good chance that Japanese carmakers have passed their historical peak in the U.S.," says Benjamin Moyer, a car analyst in the Tokyo office of Merrill Lynch. The Big Three are certainly acting that way--busily expanding production and calling back laid-off workers. Plants are humming along at 80% of capacity, up from an average of 75% over the past 20 years. U.S. automakers have recalled 41,000 workers so far in 1993. While Chrysler has just 200 workers still on furlough, Ford has begun limited hiring at several plants to help it roll out the 14 new models the company plans to introduce in the next two years. This brave new outlook is hardly lost on the United Auto Workers union, which is gearing up for an industry-wide round of bargaining scheduled for later in the summer. Union bosses are already calling for "an immediate and substantial pay increase," rumored to be in the neighborhood of 18% over the next three years. Such talk tends to stifle executives' natural desire to crow about their turnaround and invites them to downplay prospects as they head into labor talks. But some jubilant carmakers can't help themselves. "As the quality gap ceases to become a factor, what has emerged is a showdown over who is offering the better value," observes Chrysler president Lutz. "The war isn't over, but we've definitely landed on the beaches." </body> </article> </text>