TIME: Almanac 1995

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<text id=91TT1021> <title> May 13, 1991: Detroit's Big Three are Seeing Red </title> <history> TIME--The Weekly Newsmagazine--1991 May 13, 1991 Crack Kids </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 40 Detroit's Big Three Are Seeing Red </hdr><body> Sorry sales and breathtaking losses have left domestic carmakers worse off than they've been in decades. The silver lining? Well, it's a fine time to buy. By JOHN GREENWALD--Reported by Joe Szczesny/Detroit and Paul A. Witteman/San Francisco The crunch followed a long skid, and the damage looks heavy. Battered by recession and increasingly stiff competition from Japanese rivals, General Motors lost $1.2 billion in the first quarter of 1991, while Ford lost $884 million, and Chrysler dropped $341 million. Total: an astonishing $2.4 billion, the largest three-month deficit in automotive history. Worse, the Big Three have accumulated $4.5 billion in red ink since last fall, when the gulf crisis shattered consumer confidence, and the companies seem certain to remain in the red for the rest of 1991. Detroit's troubles are far from new, and they're remarkably tenacious. Despite a decade of cost slashing and a $110 billion drive to upgrade factories, U.S. carmakers keep losing ground to such relentless powerhouses as Honda and Toyota. Japanese-based automakers roared from a 12% share of the U.S. car market in 1979 to 25% in this year's first quarter. And while the recession has clobbered many Japanese firms too, their U.S sales fell only 11% in the first quarter, vs. a whopping 21% decline for American companies. And the gap is growing: Japanese makers last week reported April sales down 7% compared with a year ago, while Detroit's sales were off 20%. The automotive depression has cast a gloomy shadow across the country's showrooms. "In 40 years, I've never seen people so unwilling to buy," says Gerry Oste, whose Boston Chevrolet dealership sold 2,000 cars a year during the 1980s, but now is moving only about 500. Concurs nearby Ford dealer Fred Muzi: "There's a total lack of consumer confidence out there." Detroit's prolonged crisis comes at a time when even critics concede that U.S. autos are gradually catching up to Japanese standards. "American cars have improved tremendously in the past 10 years," says Robert Knoll, director of the auto test division of Consumers Union, which publishes Consumer Reports magazine. He notes that certain American models, such as the four-cylinder Plymouth Acclaim-Dodge Spirit twins or the full-size Buick LeSabre, are on a par with average Japanese quality. Yet Detroit, overall, "still has a ways to go, because the Japanese keep improving too," he says. For example, Consumer Reports noted in April that new U.S. cars had only a third as many problems in 1990 as in 1980. Great news--except that it still left American autos with nearly 2 1/2 times as many problems as their Japanese counterparts, down from about three times as many in 1980. What Detroit needs most right now is a break from the recession, since auto profits so closely follow the economy's ups and downs. Prospects of that remained cloudy last week. U.S. banks made an encouraging start by cutting their prime rate from 9% to 8 1/2% after the Federal Reserve lowered its discount rate. But while cheaper money should help restore consumer confidence, it will have little direct impact on car loans. That's because the Big Three's finance subsidiaries had already been offering such loans at below-market rates, as low as 5.9%. "The only way to gain sustained increases in auto sales is with real wage growth," says Jean-Claude Gruet, who follows the industry for USB Securities. Wage gains seemed a bit closer last week when the government reported that U.S. unemployment took a surprising tumble in April, falling to 6.6% from 6.8% in March. Many experts view this recession as the start of a bruising battle for survival between U.S. and overseas carmakers. The problem is simple: with 58 American and foreign-owned plants producing a bewildering array of some 350 models, the U.S. market has become saturated with automotive offerings. "The U.S. is not a very profitable place to try to sell cars anymore," says Maryann Keller, vice president of Furman Selz, a Manhattan-based brokerage. In this case, what's miserable for manufacturers is marvelous for consumers. "If you have any money, it's a great time to buy a car," says Thomas O'Grady, president of Integrated Automotive Resources, which tracks industry trends. "In many cases, you can get the car at or below dealer cost." Even Hondas and Toyotas, which once commanded premiums over sticker prices, are now widely available with rebates or other incentives. The Big Three have staked their future on winning back buyers by rushing new, high-quality cars to dealer showrooms within the next two years. GM, whose share of the U.S. market has dropped from 43% in 1981 to 35.5% today, will introduce redesigned full-size Cadillacs, Buicks, Oldsmobiles and Pontiacs this fall. By then, the company hopes, the recession will be over. That aggressive stance represents a sharp break from GM's past habit of throttling back development during slowdowns--and then watching rivals drive off with its customers. "We've got more new product coming than at any other time in the company's history," says GM president Lloyd Reuss. "We're not holding anything back." General Motors is also taking a leaf from its profitable European division's book by pruning the company's top-heavy white-collar staff and streamlining manufacturing operations. GM plans to eliminate 15,000 salaried positions by 1993, or 15% of the white-collar work force. At the same time, GM has assigned more than 100 engineers to the delicate task of improving the company's prickly relations with its army of suppliers. The jury remains out on the most ambitious effort by GM to overtake the Japanese, the $3.5 billion Saturn line that it launched last November. Production glitches and poor-quality parts have restricted Saturn to building only 20,000 of the roughly 40,000 cars it had planned to assemble by May and have slowed the spread of Saturn dealers, limiting sales to just 12,000 vehicles. Still, Saturn added a second shift last week, and plans to have 106 showrooms open nationwide by the end of the month. Many shoppers seem pleased by what they have seen of the front-wheel-drive compact. Says Michael Russell, 28, an Atlanta sales-display manager, who was on the verge of buying a Saturn last week: "It's the most car for the money." Chrysler is back at the brink of disaster a decade after the government rescued it by guaranteeing $1.5 billion of the company's loans. Now Chrysler is desperately seeking to raise $500 million to help it hold the road. To do that, the struggling automaker may sell Mitsubishi an increased stake in the Diamond-Star Motors joint venture that builds Plymouth Laser and Mitsubishi Eclipse models in Illinois. Chrysler has also boosted its cost-reduction target from $1 billion to $3 billion by 1993. The company's real test will come when it rolls out an ambitious new lineup of vehicles starting later this year. First up will be the much touted Viper sports car (price: $50,000), due by December. Next will come a new Jeep in January and a line of sleek, mid-size sedans, code-named LH, in the summer of 1992. Such offerings have persuaded some experts that the company will scrape through its latest crisis. Says John Casesa, who follows the company for the securities firm Wertheim Schroder & Co. in Manhattan: "I think Chrysler's going to make it." Ford, the Big Three's most profitable member in the late 1980s, has adopted a calm, steady-as-you-go approach to regaining momentum. Ford plans to roll out two new vans and a modestly restyled Taurus over the next 12 months. Meanwhile, the company intends to slash North American salary costs 20% by the end of 1993. "Our strategy," says financial vice president David McCammon, "is to keep improving quality, to keep improving productivity and to keep our costs as low as possible." Detroit is hardly alone in its struggle. The coming shake-out could well include such Japanese weak sisters as Suzuki, Subaru, Isuzu and Daihatsu, which lack deep pockets and far-flung distribution networks. "The smaller Japanese makers are doing absolutely atrociously," says Ron de Vogel, sales manager for the San Francisco Auto Center, a hypermarket that offers 11 American, Japanese and European makes under one roof. Concurs analyst Keller: "We're going to have to stop talking about Japan Inc. and start talking about individual Japanese companies. Some are going to shrink and maybe give up." But can Detroit stem the onslaught of Japan's strongest competitors? That depends on how well the Big Three learn the lessons of lean and efficient manufacturing that those competitors have to teach. Among them: treating workers like people rather than parts and catching defects before they occur rather than trying to fix them afterward. "The hope of the U.S. industry is to recognize that lean manufacturing is superior to mass production and adopt it," says Daniel Roos, an M.I.T. professor and co-author of The Machine That Changed the World, a five-year study of the worldwide car industry. "Detroit has extraordinarily good and talented people," Roos adds. "There is no reason why it can't compete effectively." Demonstrating that statement's truth will be the Big Three's biggest challenge for the rest of this century. </body></article> </text>