Big sales of big cars giving Detroit an m.p.g. problem
Boston — True love never dies. Two oil crises and a couple of recessions snipped the bloom off America's love affair with big cars. But affection for larger cars is budding once again, and the result is a profit picture that has Detroit beaming.
No romance, though, is without rough edges.
While increased sales of midsize to large cars now mean record profits for these automakers, down the road it could mean stiff fines if the sales trend continues. Because General Motors and Ford have sold more large cars than expected, they are unable to meet total corporate mileage standards set by the Department of Transportation. This may force the two carmakers to pay out hundreds of millions of dollars to the government over the next few years.
Ford and GM are now working double shifts and speeding up assembly lines at their plants that make medium-size, large, and luxury cars. They are working at just about full capacity.
But how far and how deep will large-car love go?
The automakers haven't been very good at answering this question, which is why they are now in a position where they can't meet the government's mileage standards.
Back in 1975, Congress ruled that US automakers would have to produce cars that met a set fuel efficiency so the American public wouldn't be caught in a bind should another oil embargo come along. The entire fleet sold by an automaker needs to average 26 m.p.g. for 1983, 27 m.p.g. for 1984, and 27.5 m.p.g. for 1985. For every tenth of a mile that they fall below the standard, automakers have to pay $5 multiplied by the total number of cars they sell that year.
A spokesman for General Motors, Stanley Hall, says that 1983 will not be a problem for the company, because it can rely on past credits chalked up by surpassing the standards. Without the credits, GM would have had to pay the government $458 million for the 2.5 miles that it is short of the 1983 standards. General Motors hasn't yet made a projection for 1984 performance, ''but frankly, our success in predicting (total mileage) has been pretty dismal, '' Hall says. Both GM and Ford had thought fuel prices would be substantially higher than they are now and that diesel cars would have sold better. These factors would have increased sales of more fuel-efficient cars.
The two automakers hope that by taking advantage of future credits, they can avoid fines for 1984, too. But analysts aren't so sure. They agree this year is nothing to worry about. ''The problem is '84, '85, and maybe '86,'' says David Cole, director of the Office for the Study of Automotive Transportation, at the University of Michigan. And, he doesn't blame the automakers. ''It's a market problem. The consumers opted for a different mix of cars. It's not a technical problem.''
By the time 1986 rolls around, though, mileage on large cars will be so good that the mix won't matter so much, he says. Still, for the interim, ''it's a serious problem.'' There is a possibility that the standards could be eased somewhat, but at this point it's uncertain.
To predict what the mix of car sales will be, automakers have to know why consumers are buying what they're buying.
Robert Lund, vice-president of sales and marketing at General Motors, gives two simple reasons behind the increase in medium-size and large car sales: ''First, the stability of gasoline prices is causing the buyer to opt for larger cars. But more important, gas mileage in those larger cars is awfully good compared to a few years ago.''
''I've followed this all my life, as a hobby and a business, and I don't think there's any question that the general public has a tendency to go to larger cars, if the conditions are right,'' agrees Donald Hurter, an auto analyst at Arthur D. Little Inc., a Cambridge, Mass., consulting firm. The right conditions now prevail, he says, taking form in the energy outlook and ''inherent feeling'' that large cars are safer and more comfortable.
The fuel-efficiency and gas-price argument is malarkey, others counter. ''Energy is not reshaping the car market,'' says Maryann Keller, auto analyst at Vilas Fischer in New York.
Ms. Keller says the reason for a decrease in compact and subcompact sales, and the increase in mid- and full-size sales, is that ''this was a recovery where wealthy people still predominate.'' And, she continues, the wealthy people are the ones who can afford these cars. The $50,000 salary earner may have deferred buying during the recession, but now that bonuses are back, he's buying again. Meanwhile, ''mainstream America has not come back yet, but when it does, it can only afford a small car.''
Subcompacts and compacts still make up the majority of the market, and Detroit has that well in mind. The demand for larger cars is being taken care of by raising prices, adding extra shifts, and opening new plants that have been on the drawing boards for years - not by sinking a lot of new capital into big-car production.
Ford is handling the subcompact issue by trying to make its plants flexible. A few plants can already run small and large cars on the same assembly line, says John Emmert, a Ford spokesman.
At GM, the strategy is more concentrated on getting the right lines of cars developed, rather than factory flexibility.
''Subcompacts are the largest single market segment today,'' says Mr. Hall at GM. ''We're not just sitting back, giving up that market. We need to be successful in all segments.'' To prove that point, last week the company made an unusually early announcement about the Saturn project, a line of subcompacts not yet slated for any specific model year.