Big Three in Big Mess
Recession is only part of the challenge for the US Carmakers. Foreign brands already account for 51 percent of the cars sold to individual buyers in the US
| REDFORD, MICH.
A LOT of shoppers have been walking into Mickey Husak's Dodge showroom lately looking for a new car. A lot of them have been walking back out the door and driving away in their old cars when Mr. Husak tells them he can't help them get a loan.
``I lose 10 to 15 deals a month,'' Husak complains, and industry sources say that around the country, the credit crunch may be costing dealers tens, even hundreds of thousands of additional sales each month.
The Federal Reserve Board's move Tuesday to cut the discount lending rate is ``late in coming, but we're glad to see it now,'' said David McCammon, treasurer of Ford Motor Company.
Combining lower interest rates with looser credit is a critical ingredient for a recovery, auto industry leaders believe.
And a recovery is something United States carmakers desperately need. This week, the Big Three reported combined first-quarter losses of $2.6 billion - the worst-ever three-month deficit.
Ford's McCammon concedes that ``With this sort of start, it will be difficult to achieve a profit for the full year.'' None of the other US-owned carmakers is likely to break into the black for more than a quarter or two.
The bath of red ink was no surprise. Lee Iacocca, chairman of Chrysler Corporation, says assembly plants ran at less than 50 percent of capacity during the quarter. At Ford, dealer orders were 40 percent of normal.
Since late February, there's been a measurable increase in showroom traffic, prompting some planners to predict a burst of new sales. But so far dealers report more lookers than buyers.
Consumer confidence, buoyed by the Gulf war victory, is sinking again under the weight of the latest unemployment figures. Add the credit crunch, and ``that's the reason there won't be an immediate release of pent-up demand,'' says Ted Sullivan, a WEFA Group auto analyst. ``Sustained growth in household income'' is needed to boost sales, he says.
A modest recovery is still likely to begin by mid-year, says William Pochiluk, chief analyst for Autofacts Inc. Total passenger car and light truck sales for 1991 will likely straggle up to 13 million, nearly a million units below 1990's already weak numbers. Most experts say car sales won't really revive until mid-1992.
But by mid-decade, volumes will match and probably even exceed the 16-million-unit records of the late 1980s, experts predict.
The question is whether Detroit will be able to capitalize on the anticipated boom. Reading between the lines of recent sales reports can cause some doubts.
Ronald Glantz, an analyst with Dean Witter Reynolds Inc., says an increasing share of Big-Three sales volume has been going to rental companies and other large fleets. Ford's fleet business grew to 26 percent of its total volume during the quarter, up from 22 percent for all of 1990.
Take out the fleet numbers and you discover that ``in the first quarter, 51 percent of all cars sold to retail [individual] customers were foreign brands,'' including cars made in the so-called transplant factories in the US, Mr. Glantz explains. And that, he warns, could mean that when the industry does rebound, foreign brands may hold an even bigger share than ever before.
``You're going to continue to see the Japanese gain share for the next couple years,'' agrees Chris Cedergren, auto analyst with J.D. Power and Associates.
Ironically, if quality were the only factor, domestic carmakers should be able to halt the erosion and even regain some lost ground, Mr. Cedergren says. Unfortunately, while ``you can turn the product around, the more difficult thing is turning [customer] perception around.''
That lesson isn't lost on the Big Three. General Motors Corporation's Buick division, one of the only domestic makers to gain market share during the recession, owes its resurgence primarily to winning back over-50 buyers disappointed by European and Japanese interpretation of luxury. Buick planners admit they must broaden the division's appeal to include Baby Boomers.
``They're in a group driving BMWs, Mercedes, Acura,'' says Darwin Clark, marketing manager. ``To show up in a new Buick is a risk and not everyone wants to take that risk. We've got to find a way to make it okay to buy a Buick.''