Experts may argue over just how much the new car market in the United States will decline over the next few years, but there is one thing everyone agrees on: Sales will decline, while the number of competitors is likely to increase. In turn, as the market shrinks, most observers have been forecasting a glut of production capacity, and indeed, General Motors Corporation has already begun closing a dozen of its body and assembly plants announced in late 1986.
Until now, it was expected that only the nation's oldest and least efficient assembly plants would close. Few would have even thought to place any of the newer, so-called ``transplant'' plants being built in the US by Japanese carmakers on the endangered list. But the continuing downward spiral of the dollar could be a critical blow to the weakest of these foreign-owned factories.
``I predict even transplants are going to be in trouble,'' says Chrysler Motors' executive vice-president Robert Lutz. ``Some of them are just straight bad business propositions, and they're not going to work.''
On the surface, it might seem as if the decline of the dollar would put the transplants in an even better position than when the exchange rate was 260 yen to the dollar, instead of its current level of about 123 yen.
As a result of the currency shift, it now costs twice as much to import a Japanese car as it did in early 1985, but at the same time, companies like Toyota, Honda, and Nissan have had to absorb much of that difference, largely by cutting profits, to avoid losing customers.
Cars built in US factories might seem to be less affected by the perturbations of the dollar, and thus their costs should remain relatively stable, after accounting for the modest inflation of recent years. But there are other factors threatening the transplants, factors which would raise costs far above the expectations of a few years ago.
Much of the production equipment used in the foreign-owned factories, for instance, comes from Japan, which raises costs substantially.
Even more significant is the fact that at least half the components used by the transplants currently operating in this country - the Mazda plant near Detroit, a Honda plant in mid-Ohio, a Toyota/General Motors joint venture near San Francisco, and a Nissan plant near Nashville - are imported, so their costs also have gone up significantly, even though the vehicles are assembled in this country.
With the factory still a year away from production, Chrysler is desperately looking for ways to cut costs at its Diamond-Star Motors plant in Bloomington-Normal, Ill., a joint venture with its Japanese affiliate, Mitsubishi.
The plant was designed to turn a healthy profit - when the dollar bought 260 yen - but ``the economic fundamentals are such that the dollar is going to be weak for some time to come,'' Mr. Lutz forecasts. As a result, ``we've had to work with Mitsubishi to come up with cost-saving ideas.''
So far, the partners have had to make a number of changes in plans. For one thing, they have greatly reduced the number of components being imported from Mitsubishi, turning instead to US suppliers. Eventually, it is expected that Diamond-Star's domestic content will be as much as 65 percent, compared to 40 percent or so when the deal was originally formulated.
And with the dollar continuing to set new record lows, Lutz frets that ``we'll have to turn the screws even more.''
And Lutz notes, ``Diamond-Star is not a whole lot different from the other transplants.'' Indeed, officials for the various factories already in operation, and those set to come on line before 1990, say they are seeking ways to quickly trim back on their use of imported components.
The Honda plant in Marysville, Ohio, for example, ultimately hopes to have at least 65 percent of its parts come from US sources.
A few years ago, says Susan Insley, Honda Motor Manufacturing's vice president of corporate planning, it would have been tough to find US suppliers capable of meeting the company's strict cost and quality standards. ``When we were producing Honda Accords at a rate of 100,000 to 150,000 a year, there were suppliers who said it was difficult to amortize their costs. It's certainly now more cost effective.''
Honda is also raising its US content by increasing the number of components it builds for itself. It is spending several hundred million dollars to expand a new engine and drive train plant.
Toyota recently announced plans to build an engine plant of its own to supply its soon-to-open assembly plant in Kentucky.
Such steps are within bounds for the largest of the Japanese companies, but will be much more difficult, analysts say, for smaller firms whose sales will not justify the opening of American-based component facilities.
``We're glad we built the plant,'' Ms. Insley says. Officials at other Japanese companies, however, are a little less enthusiastic, waiting to see how well they weather the uncertain times ahead.