Making cars in the US: too popular? An impending auto glut would be good for US consumers, but tough on the Big Three, as several Japanese-owned plants show they can make cars as efficiently here as they do at home.
America's car buyers and automakers had better buckle up and get set for the ``Great American Auto Glut.'' So many foreign companies are building auto assembly plants in the United States (sometimes referred to as ``transplants''), and so many cars are flowing in from abroad, that analysts think the industry is primed for a long, brutal price battle beginning next year.Skip to next paragraph
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Competition will heat up as seven Japanese plants and a Korean plant in Montreal, all scheduled for completion between 1988 and 1990, begin producing cars and adding to current industry overcapacity next year.
``We can expect tremendous price competition - we're already seeing the leading edge of that,'' says John Hammond, an analyst with J.D. Power & Associates, a consulting firm in Westlake, Calif. ``The real effect of the transplants won't even be felt until early '88.''
Good news for auto buyers is, however, less wonderful for US automakers. Indeed, there is serious trouble brewing for Chrysler, Ford, and General Motors, all of which must still must bring their production costs down further to compete with the new transplants and other imports.
``We're already seeing a glut, from the perspective of US automakers,'' says John McNeil, an auto analyst with Data Resources Inc., a Lexington, Mass., research firm. ``It's only going to get worse during the next two or three years.''
Americans buy far more cars - and more expensive cars - than any place else in the world. Last year saw 11,380,000 cars sold in the US, with sales of more than $188 billion.
With that kind of market, it is no wonder foreign car companies are competing so hard for a slice of the pie. But for US automakers, the stiff competition promises to shrink their combined share of the US market from just over 70 percent last year to about 50 percent by the end of the decade, analysts estimate.
Next year even Malaysia will send its new low-price competitor, the Proton Saga, to the US, following the lead of Yugoslavia's Yugo ($3,995) last year. Completed Japanese plants in North America are already pumping out more than 570,000 cars this year. Output is expected to jump to nearly 1 million by 1989 as plants built by Nissan, Toyota, Mazda, Suzuki, Isuzu, Mitsubishi, and Fuji (Subaru) are finished.
The strengthening of the yen versus the weakening dollar has encouraged the Japanese to build in the US. But the Japanese also see the move as a good way to defuse protectionist sentiments in Congress. Japan's automakers are also looking long-term, planning to use the US as a manufacturing base from which to produce and export cars to the world.
``It is not enough that our US operations are competitive only in the United States,'' says Tadashi Kume, president and chief executive officer of Honda Motor Company. ``We will develop our US operations to the point that we will have a self-reliant, integrated motor vehicle company capable of competing in the world marketplace.''
Mr. Kume's comments came last week when Honda, which was the first Japanese company to build a US assembly plant, announced it would build another new plant and export 70,000 cars a year from Ohio to Japan and other countries overseas. The new plant, not far from its first plant in Marysville, Ohio, will cost $380 million and be flexible enough to produce luxury cars, such as the Acura Legend in the $20,000 range, or the less expensive Honda Civic.
The Japanese aim to win the US auto battle by developing a full product line, including midsize ($10,000 to $17,000) and luxury models, while also remaining the low-cost, high-quality producer. They also plan to respond quickly to different styles demanded by consumers, and to sell their US-made cars abroad.
But as the Japanese move to sell more upscale, higher-priced models, they are not (as US carmakers seem to be) leaving any markets behind. Instead, they are trying to maintain a presence at the low-price end while proliferating their products in more market segments.