Detroit tools up for long-haul sales race with Japan
Traverse City, Mich. — At this time of year, US auto companies are normally getting ready to launch a new model year. The air in Detroit is filled with managers' boasts about new model performance and optimistic sales forecasts.
Domestic auto companies will certainly sound the marketing drum for 1983 models this fall. But auto executives are preoccupied with shaping the industry's future so it can cope with the challenge from Japan during the rest of the decade.
The industry's crystal ball has been badly clouded in the past. But managers say a sharply different industry will emerge by 1990. Management methods will change to include greater use of Japanese-style inventory control, closer and longer-term links with suppliers, greater use of worker ideas, and expanded application of new quality-control methods.
The cars produced with these new methods will come in fewer sizes but will be more tailored to individual preferences through greater use of electronics. Some will be powered by alternative fuels like propane and methanol. And the often disagreeable process of buying a car will be aided by the use of home computers.
Auto managers see the challenge ahead in unvarnished terms. ''We are plagued by uncertainty over economic growth . . . we have a long way to go in reducing costs to the levels enjoyed by our Japanese rivals,'' admits David Collier, a vice-president at the General Motors Corporation. ''We face an enormous challenge in getting the younger generation to buy American.''
Unlike some investment analysts, many auto executives still believe the US industry can become fully competitive with Japan even on subcompact models. But the timetable managers now use for pulling alongside the competition is years, not months.
''My assessment is we can catch (Japan) in this decade,'' says Ford vice-president James Bakken.
The following is the view of the auto industry's future which emerged last week at a three-day meeting of several hundred auto company and supplier executives; the conference was sponsored by the University of Michigan and the Michigan State Chamber of Commerce: Demand for cars:
Automakers expect to slug it out in a market that will not set any volume records for a while. For 1982, industry sales will be about 8.0 million, down from last year's 8.5 million pace and well below the 11.3 million cars sold in 1978, according to Maryann Keller, a vice-president at Paine Webber Mitchell Hutchins Inc. Sales in 1983 will probably be 9.0 to 9.3 million units, she says.
Because of the effects of recession, unemployment, and high interest rates, ''US vehicle sales probably won't establish any new records before 1986,'' says Mr. Collier at GM. But Mrs. Keller argues that ''by the end of the decade I would hope (sales) would be at the level of 12 million a year.'' Consumer reaction to US cars:
Even if car sales recover sharply, Detroit may not be the beneficiary. ''Younger people lack a strong preference for domestic nameplates,'' Mr. Collier admits.
In fact, in the second quarter of 1982, 38 percent of all new car buyers under age 25 bought Japanese models. And one-third of the buyers in the 25-to-34 age group bought a Japanese car. That group accounts for almost one-fourth of the total new car market.
Winning back these young drivers will not be easy, since they, like older Americans, are unhappy with the domestic industry, says Milton I. Brand, president of Brand, Gruber & Co., a Detroit-based market research firm. Buyers ''don't believe in the companies that make cars,'' Mr. Brand says. They feel dealers often give the impression that ''they don't want to sell me a car.''
Home computers are likley to play a role in smoothing the auto buying process. It is likely, for example, that a customer could call up information on potential cars by using a home terminal. Already Buick Motor Division is testing a computerized order assistance system with some dealers.
''I don't know why ordering a car should be harder than ordering a pizza,'' says Buick's chief engineer, Edward Mertz. New car technology:
The cars Detroit hopes will lure buyers back into showrooms will not be radically different from today's models but will include noticeable refinements. Perhaps the most noticeable will be the increased use of electronics to personalize cars. Auto engineers hope this personalization will offset a smaller selection of body sizes.
For example, electronics will be widely used in the passenger compartment. Buick is considering a card key system, with which a driver inserts a card in the ignition. Then the car's seat, steering wheel, sound system, rear view mirrors, and other items would automatically adjust to the individual driver. Electronic dashboards could be programmed to display information required by each driver, engineers add. Meanwhile, the Nissan Motor Company is already selling a car in Japan that responds to verbal commands uttered by its owner. Competition from Japan:
Earlier this summer Japanese cars took a record 32 percent of all US car deliveries. Industry leaders think the market-share battle with Japan may get worse before it gets better.
It is likely Japan will produce about 15 million cars and trucks in 1990, up 4 million units from the current level, according to Martin Anderson, a researcher at the Massachusetts Institute of Technology. Since the Japanese market will not absorb this production, export markets will be pushed.
In fighting for the US market, Japan has a cost advantage some researchers place in the $1,500-per-car range. And Japan's voluntary auto export quotas are slated to end early next year, although some analysts think they will be extended. In addition, the current strength of the dollar vs. the yen gives Japan a major export advatage.
''If we have a free market, the Japanese share could increase,'' says Mrs. Keller at Paine Webber. ''They are not using the cost advantage they have. They could drop the price (of their vehicles).''
Meanwhile, on the streets of Tokyo, residents already drive highly attractive , turbocharged sporty cars which will likely find their way into the US market. ''There are a number of products there and not yet (in the United States) which clearly present a formidable challenge,'' says David Cole, director of the University of Michigan's Center for the Study of Automotive Transportation. Quality control:
To battle new Japanese models, Detroit thinks quality is the most important weapon. ''The single most important key to our industry's success - its very survival - depends on improvements in quality and reliability,'' says Robert Decker, GM vice-president for quality and reliability.
Reaching that goal will be vastly harder than stating it, but the domestic car companies are laying plans to make much greater use of traditional statistical quality control techniques as well as new procedures.
For example, some new products at GM are now designed using a ''design quality index,'' which assigns demerits to proposed product features that might cause a problem with quality. The index helps executives choose the design most likely to be problem-free. Changed supplier relations:
In the future, Detroit's relations with suppliers will more closely pattern the close information and investment links between assembler and supplier that prevail in Japan. ''Purchasing in the '80s will focus on improving supplier performance and developing supply partnership relationships,'' says Mr. Bakken at Ford.
One sign of the new relationship is that Ford soon will require purchasing staff members to get written permission if they cannot develop a long-term supply relationship for a certain part. Until now, written permission was needed to develop such a relationship.
Auto companies also expect to make much wider use of the Japanese ''kanban'' inventory system, by which parts move from supplier to assembly plant just before they are needed. By using kanban, GM has reduced its inventory investment by $1 billion in the last 12 months. The greater use of kanban also means new parts plants will be built closer to assembly operations. Manufacturing methods:
Equaling Japanese cost performance will require more than new relationships with suppliers. The industry is also mapping major changes in production methods. Increased use of robots is one key step. Between 1982 and 1985, Ford is planning to step up its use of robots 400 percent. By '85, the company also expects to boost the number of computer-aided design stations it has in use by 100 percent.
The companies are also seeking manufacturing efficiency by consolidating operations. Recently, General Motors consolidated a variety of truck operations that had been scattered around the company. Labor relations:
It is unlikely that over the next several years the US labor costs will come down to Japan's level. ''I don't think we will ever catch Japan on labor rates; (our) culture won't tolerate it,'' says Peter Pestillo, labor relations vice-president at Ford.
But management and labor are working to broaden labor participation significantly in boosting quality and cutting costs. To encourage worker participation, Ford recently dropped the use of time cards at one plant and is experimenting with a lifetime employment arrangement at two plants.
''If we approach problems together, we can solve things that appeared insurmountable in the past,'' says United Automobile Workers vice-president Donald Ephlin.
But this cooperative approach is no panacea, he notes. ''We will never bring all the people back who used to work in the auto industry.''