TIME: Almanac 1995

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<text id=89TT3041> <link 90TT2459> <link 89TT1961> <title> Nov. 20, 1989: Running Low On Gas </title> <history> TIME--The Weekly Newsmagazine--1989 Nov. 20, 1989 Freedom! </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 70 Running Low On Gas </hdr><body> Slow car sales and new Japanese "transplants" bring harder times for Detroit's automakers By S.C. Gwynne When Chrysler announced early this month that it will close the aging Detroit plant where workers assemble the last of the Dodge Omni and Plymouth Horizon models, the situation had ominous parallels to the calamitous early 1980s. Only six years after its fabled turnaround, here was Chrysler embattled again, posting losses on its North American operations for the first time since 1982. Amid persistent auto-industry speculation that Chrysler might be forced to merge with a foreign partner, here was Chairman Lee Iacocca declaring that for the company to survive, it must cut at least $1 billion, or $500 a car, from its overhead. To help meet that goal, the company will lay off 6,300 employees in the coming months. As the alarm spread through Chrysler, executives at other automakers -- American, Japanese and European -- were coming to the same conclusion: the next 15 months will bring a bloody battle for sales in a slumping U.S. auto market. With 30 car companies and an unprecedented 600 models on the scene, and with ten Japanese "transplant" factories in North America expected to help create an excess carmaking capacity of 2.7 million autos by 1991, the marketplace is certain to be littered with casualties. A leading indicator of the struggle was the dismal performance of Detroit's Big Three during the July-September quarter, in which they all lost money on their North American operations and posted a 27.5% decline in total earnings. At the same stressful time, Detroit's automakers will be going through a major changing of the guard: all three companies are expected to get new chief executives in the space of two years. Late last week Ford Chairman Donald Petersen, 63, who helped engineer that company's heroic comeback, said he will turn over the posts of chairman and CEO on March 1 to Harold Poling, 64, a vice chairman. Lately the Big Three have been sideswiped from two directions. As the transplants tool up for greater output, total U.S. auto sales are declining, in part because of a slowing economy. Sales of imported and domestic autos in the U.S. fell 3.8% during the first nine months of this year, to 7.8 million cars. This year the Big Three kept sales artificially stimulated by such incentives as interest-free financing and rebates of as much as $4,000. While Chrysler's predicament has some surface similarities to the recessionary days of 1981-82, the current U.S. auto market is an utterly different place. American carmakers have made huge strides in improving production, quality and design. But they face a competitive threat that would have been unimaginable back then. The Japanese transplants account for 14.7% of all passenger cars sold in America, up from 8.9% two years ago. Detroit, which has seen its U.S. market share plunge from 84% in 1978 to 68% this year, is likely to lose another 8 percentage points by 1994, according to a study by the research firms J.D. Power & Associates and Data Resources. The transplants pose a challenge to the domestic U.S. industry on several levels. "Look at the advantages they have: new equipment, new management systems, a well-trained and well-screened work force," says David Cole, director of the University of Michigan's office for the study of automotive transportation. Because the transplants are primarily nonunion, notes Cole, the factories save an estimated $500 a car in benefits alone, compared with American companies. Even so, the Japanese assembly plants have been a boon to the U.S. regions in which they are situated, bringing thousands of jobs and huge infusions of investment capital as the carmakers build new factories. While the Big Three are cutting production 18% during the October-December quarter, the transplants are boosting theirs 41%. The American-made Japanese models have benefited many U.S. consumers as well, bringing them wider choices and competitive prices. The transplants have made their largest inroads in the small-car market segment. But now they are aiming at midsize models, which represent one of the Big Three's most profitable market categories. "The Toyota Camry is a major threat. That's going to cause some real suffering, especially at GM," says Jim Wangers, senior managing partner of Automotive Marketing Consultants in Warren, Mich. Toyota makes the Camry (base price: $11,588) at its Georgetown, Ky., factory. Honda's new, larger Accord ($12,145), made in Marysville, Ohio, is aiming at the same market. Chrysler has considerable company in its cost-cutting efforts. General Motors, which has already undergone a 25% downsizing, probably faces another major contraction in the early 1990s. GM has already announced plans to close plants in Lordstown, Ohio, and Scarborough, Ontario. While Ford has managed to increase market share this year and is operating at nearly full capacity, the company has had to close some plants temporarily because of excess inventory. The burgeoning output from the transplants is hitting the market at the same time as several pricey new imports. Toyota's Lexus models, the ES250 ($21,050) and the LS400 ($35,000), debuted last August to rave reviews in the car-buff magazines and proceeded to outsell rival BMW in September. The Infiniti M30 ($23,500) and Q45 ($38,400), Nissan's entries in the luxury market, hit dealer showrooms last week on the heels of a multimillion-dollar new-age advertising campaign. The demolition derby in the U.S. market has been especially tough on the European automakers. BMW sales have fallen 22.8% over the past two years, Mercedes-Benz has dropped 17.6%, and Saab is down 25.6%. One reason for the decline is that a relatively weak dollar has made imports more expensive, but another explanation is that such U.S. luxury lines as Lincoln and Cadillac have staged impressive comebacks, thanks to improved quality and design. "There's a degree of self-congratulation and complacency among the Europeans," says Robert Lutz, president of Chrysler's automaking division. "Collectively they still look down on the Americans even though there is no reason to do so." Last week Chrysler reintroduced its posh Chrysler Imperial ($25,495) after a six-year hiatus. In some cases the transplants have helped U.S. automakers become more sophisticated competitors. Manufacturing partnerships, including GM-Toyota in Fremont, Calif., and Chrysler-Mitsubishi in Normal, Ill., have enabled American companies to benefit from experience with Japanese management and production techniques. "There was a time when it was so easy to sell our cars in the U.S.," says Yoshikazu Hanawa, managing director of Nissan and head of the firm's U.S. operations. "Our cars were better in quality, cost and fuel efficiency than their American counterparts. Not anymore." Yet the crowded U.S. market is increasingly unforgiving to any automaker, foreign or domestic, that loses its way. After a fast start, sales of the South Korean-made Hyundai Excel have plunged. While Nissan has performed well in 1989 on the strength of higher-priced models like the Maxima, it suffered from poor sales between 1985 and 1988 because of weak marketing and a stodgy product line. Says Laurel Cutler, Chrysler's vice president of consumer affairs: "There's no market for products that everybody likes just a little. Anything that's boring is vulnerable. I would say that the midsize market is rife with vulnerability." Cutler's boss is trying to get the message out that hard times are on the way. Lee Iacocca, who visited Washington last week to lobby Congress for a tougher, more focused U.S. trade and industrial policy toward Japan, said in a recent interview with the trade publication Automotive News, "They don't know there is a war on. They don't have the foggiest idea. Am I saying the worst is yet to come? I don't think we've bottomed out yet. That is what I am saying." No one in Detroit would contest his argument. The outcome is in the hands of U.S. car buyers, who have far more choices than ever before and a lot of anxious auto executives hanging on their decisions. </body></article> </text>