Better car sales don't ease Detroit's woes
Detroit — Admitting corporate shortcomings has never been a major pastime for auto industry executives who are intensely proud of Detroit's contribution to the United States economy.
After years of success, ''it is extremely difficult . . . to recognize you are no longer competitive in the world market,'' admits Ford Motor Company's quality czar, John Manoogian.
But in the past several years auto companies have swallowed their pride and attacked what critics said were two of their biggest problems: lower product quality and higher production costs than Japanese carmakers.
The assault on these deficiencies continued despite slumping sales and staggering losses which totaled $5.2 billion in the three-year period ending in 1982. ''It was a very agonizing, very depressing period,'' says one auto executive.
Now good times - and showroom customers - seem to have returned. Final 1983 profit figures for the four US auto companies will be released in a couple of weeks, and Standard & Poor's predicts a record $5.8 billion in earnings. The outlook for 1984 is even brighter with sales so far this year outpacing 1983 levels, although falling below historic peaks.
But surging profits do not signal an end to Detroit's cost and quality problems. And in the coming months automakers face new challenges. These include a possible expiration of the limits on Japanese imports and emerging competition from even lower wage countries like Korea.
''We have just been through the worst possible situation anyone can remember and not all the problems have been solved,'' says David N. McCammon, Ford's vice-president for strategic planning.
In its struggle on costs and quality, Detroit has made the most progress on the quality front. Before the end of the 1980s the purchaser of a US-made car can expect paint as flawless and seams as straight as those offered at imported car dealerships.
It is in these so-called fit and finish areas that Japanese companies have outpaced Detroit. In other quality areas like crashworthiness or rust prevention , Detroit is generally considered to be ahead.
''Quality has improved dramatically and is getting better every day,'' says General Motors Corporation marketing vice-president Robert Lund. A desire to make further quality improvements was one reason behind the recently announced reorganization at General Motors. The industry's progress on the quality front has been achieved by trying to design higher quality into cars, setting tougher standards, using statistical methods to maintain standards, and involving workers and suppliers more intimately in the quality effort.
Outside observers seem to agree progress is being made although the Japanese firms are a moving target. The quality gap will be closed ''fairly quickly - by the end of the 1980s,'' says Martin Anderson, who runs the Future of the Automobile Program at Massachusetts Institute of Technology.
Available data on quality are sketchy, but they tend to indicate US companies are making progress.
For example, a US car line - Lincoln-Mercury - recently became the first domestic line to break into the top 10 in a survey of customer satisfaction conducted by J. D Power & Co.
Meanwhile, internal Chrsyler Corporation figures show a 45 percent decline over the past three years in customer irritation over minor defects, according to vice-chairman Gerald Greenwald.
However, the public's perception of Detroit's quality ''is lagging and will lag,'' behind the progress being made, Mr. McCammon says. That is because individuals are keeping their old - and lower quality - cars longer.
And if Japanese carmakers want to, it is likely they will be able to sell high quality cars for less than US firms for the foreseeable future. The cost gap has proved tough to close.
The difference is generally estimated to be between $1,500 and $2,000 on small cars. ''The gap is about the same (for the industry) as it was three years ago,'' says Chrysler executive Greenwald.
Over the past several years the cost gap ''probably hasn't grown substantially, but we don't think it has been reduced,'' says Michael Driggs, deputy assistant secretary of commerce for automotive industry affairs.
He notes that just keeping the gap from widening while volume was dropping was ''pretty amazing,'' since the cost per car jumps when there are fewer vehicles over which to spread fixed expenses like a mortgage on a building.
So while the gap with Japan may not have closed, that doesn't mean costs have not been cut. Chrysler has chopped enough costs to trim its breakeven point from 2.4 million cars down to 1.1 million.
And the industry as a whole is making large profits at sales levels where ''four or five years ago you would have said they would have trouble meeting their payrolls,'' says David Cole, director of the University of Michigan's office for the Study of Automotive Transportation.
Mr. Cole says progress in terms of ''hundreds of dollars'' has been made, and notes one engine plant alone trimmed $600 from the cost of each unit.
Auto executives argue that much of their cost-saving work has been offset by a decline in the value of the yen vs. the dollar. This has the effect of lowering the US price of Japanese vehicles.
Ford, for instance, has cut costs per car by about $400 in the past three years, Mr. McCammon says, while weaker yen has cut Japanese prices by $450.
Mr. McCammon and other Detroit executives argue that roughly two-thirds of the cost gap can be explained by Japanese currency and tax policies.
The industry, of course, has reason to push its quality gains and understate its savings since quality sells cars but higher profits make workers want raises. This year both Ford and GM face the United Automobile Workers in contract talks.
Wage negotiations are not the only challenge facing the industry. If economic growth slows significantly in 1985, as some forecasters predict, that could hurt auto sales as could a postelection tax increase designed to help reduce the federal government's deficit.
Another looming problem is that the restraints on exports to the US, which the Japanese government extended under pressure, are slated to expire in 1985.
Analysts are divided about the impact on Detroit if the controls lapse.
''I see them basically holding market share,'' says Commerce official Driggs. He contends that Japan is likely to pursue a plan of maximizing the amount of profit on each vehicle which is easier to do when supplies of the car are relatively tight.
But Ford analyst Raymond Windecker, and others within the industry, take a grimmer view. Mr. Windecker expects the imports' share of the market to grow to 40 percent if quotas come off. The previous high for imports was 27.9 percent of the market in 1982.
''They will take as much market share as they think the US would tolerate politically,'' says Chrsyler's Greenwald.
In the longer term the auto companies have to be concerned about competing with firms in countries like Korea which have even lower wage costs than Japan.
To deal with that threat, GM has been considering importing a small car from Korea's Daewoo Motor Company.
In Korea's effort to enter the auto industry, ''I see Japan 10 or 15 years ago,'' Mr. Greenwald says.
But the initial challenge from Korea likely will come in auto ''components and not in cars,'' says MIT auto expert Anderson.