US Automakers Find Action Is in Europe

THE United States auto industry needs a jump start. These are unhappy days for Detroit: America's Big Three car industry is stalled in the economic roadway, the result of sagging sales, expensive rebate programs, intense competition from overseas producers, tough labor negotiations with the United Autoworkers Union, and corporate earnings reports that aren't exactly wowing the folks on Wall Street.

Nor is the immediate outlook much better, according to analysts. Barring a sharp drop in interest rates, consumers are expected to be as wary about buying a new car in the third quarter of this year as they were during the first two. Indeed, there is speculation that the sales slump could last through the year - forcing Detroit to maintain or even extend its expensive rebate program.

What this means, says an economist with DRI-McGraw Hill, an economic consulting firm in Lexington, Mass., is that the auto industry, measured against other domestic manufacturing industries, is clearly ``experiencing recessionary conditions.''

Last week Chrysler Corporation reported a 47 percent decline in second quarter earnings. Chrysler also said its losses for the third quarter will be steeper than earlier expected.

Chrysler is hardly alone in its pattern of earnings deceleration. Late in July, General Motors Corporation reported a second quarter earnings decline of 38 percent; Ford Motor Company came in with a decline of 45 percent for the quarter. And for the first half of this year, US car and truck sales are off about 4.5 percent compared to last year.

Despite the sales and earnings slump, the Big Three remain profitable. Moreover, a number of analysts believe that Detroit is poised for an upturn.

Granted, industry officials and local car dealers are watching the wage negotiations now underway with some concern. There has been talk, for example, of a strike by the United Autoworkers Union against GM, whose contract expires Sept. 14. But according to Arthur Davis, an analyst with Prescott, Ball & Turben, Inc., an investment house, the negotiations might actually make the Big Three ``more competitive,'' in part because of ``simplified work rules to enhance productivity.''

Mr. Davis believes that the financial community has been ``too gloomy'' about the future of the Big Three. By early next year, he notes, US carmakers will be reestablishing a number of popular product lines. They have already reduced car inventories.

A number of stock analysts also like the Big Three because of their overseas links - and overseas is where the main economic play has been of late. Ford and Fiat, for example, recently announced a joint venture which combines their farm, tractor, and industrial equipment operations, with Fiat the dominant partner in that agreement. GM has formed joint ventures in Hungary, Czechoslovakia, East Germany, and even the Soviet Union.

The investment house of Kidder, Peabody & Company believes that European economic unification after 1992 - will work in favor of Detroit since US carmakers have a strong marketing presence on that continent.

So far this year, according to a recent report by Kidder, Peabody, European car and truck sales are running only slightly below last year's record volume. Through May, car sales averaged 13 million units and truck sales 2 million units. Consumer confidence in Europe, in contrast to the US, has remained fairly bullish.

Of the Big Three, GM has the most momentum going for it in Europe, according to Kidder, Peabody. GM has been gaining market share in each of the 12 Common Market nations this year. GM's new Calibra sport coupe is red hot on the Continent. And GM has been upgrading its manufacturing capacity in Europe.

Finally, Kidder notes that GM has the best long-range strategy for dealing with Eastern Europe, with over 300 car dealers signed up in East Germany alone. -30-{et

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