Auto gears grind slowly
THE United States auto industry is bracing for what could be one of the most unpredictable - but still potentially promising - years in recent history. For US and overseas carmakers, 1987 looks to be a year of shakeouts: Some troubled companies will be hard pressed to maintain existing market share. For US consumers, however, it will be a year of opportunity, with more than 40 car varieties to pick from, plus the lure of special discounts, low-cost financing, and rebates to sweeten the decision to trade in the old family jalopy for a newer, sleeker model.Skip to next paragraph
Subscribe Today to the Monitor
Nor should what happens in the US market during the months ahead be looked upon as somehow insular - just an ``American'' business story. The US market remains the centerpiece of the American industrial setting - and, in large measure, the key to financial success for many overseas companies. Just consider the eagerness of overseas makers to increase their market shares in the US.
More imponderables than usual face the industry. It had an excellent year in 1986, with more than 16 million cars and trucks sold, a record. The end of the year was especially strong, in part because of changes in tax law. Under the new tax reform law, the interest deduction is being gradually phased out, starting this year. The sales tax deduction was entirely phased out Dec. 31. Thus, many consumers, eager to take advantage of existing deductions, bought a new car before the end of the year.
What happens now, under the new tax law? What does the increased competition within the industry mean for carmakers? Although General Motors retained its primacy, Ford was the domestic US company on the march. Ford was especially strong in the non-car segment of the market. (Trucks make up some 40 percent of Ford's North American business.) Its European sales were impressive. And it has a new line of vehicles eagerly sought by consumers.
In the case of GM, by comparison, many consumers complained they couldn't distinguish among various GM products. GM's earnings have been lackluster. Still, GM, to its credit, rolled ahead with a $700 million buyout of dissident director H. Ross Perot, while continuing to come up with new innovations in technology.
The third Big Three member, Chrysler, amply held its own during the year.
Imports are more costly because of the rising value of foreign currencies in relation to the dollar, but they continue to cut out a larger market share. Imports were more than 28 percent of the US market last year, up from 26 percent in 1985. Moreover, some seven overseas carmakers are now making, or are gearing up to make, their vehicles in the US at their own domestic plants. Little wonder Japan says it will hold its car exports to the US at existing levels.
As a result of the increasing array of overseas companies with US plants, overcapacity will likely be a challenge for carmakers during the years ahead. Foreign-owned plants will be able to turn out some 2 million cars in the US by the end of the decade. For consumers, however, that will put downward pressure on prices.
Many industries in the US have come and gone, leaving little trace of their presence. Few industries, however, have had the economic clout of the auto industry. Wishing the US car industry well, therefore, is no exercise in semantics. It is a necessity.