US automakers hit puddle of red ink

August 1, 1980

America's auto industry today is like a big luxury car with four flat tires. The latest figures tell why: * Chrysler, weakest of the big-four US makers, on Thursday announced a loss of $536 million during the past three months. It was the second-highest quarterly loss in the history of US industry.

* Ford, which kept its big-car strategy too long, announced a $468 million quarterly deficit. Its losses would have been even bigger without profits from its European wing.

* General Motors, long dominant in the industry with over 60 percent of the US market, fell $412 million into red ink.

* American Motors, smallest of the four, rolled up $84 million in quarterly losses.

All four US firms are desperately trying to pump air back into their flattened tires. But only GM is sure it has a pump that works.

GM's loss will almost certainly be reversed quickly in coming months. Even so, the sudden slide into deficit at GM was in some ways more extraordinary than even Chrysler's huge loss.

Since its founding in 1916, GM has totaled losses in only four years -- none of them after the 1930s; and most of its loss quarters in the past have been associated with strikes.

In spite of the latest setback, GM remains king of the domestic auto industry by a huge margin. And the prospects are strong that it will expand its position in the future, despite new car entries by Ford, Chrysler, and American Motors.

GM's sales lead is overwhelming. With more than 62 percent of all domestic car sales, GM passenger cars in the first six months occupied seven of the top 10 spots on the domestic sales charts, and 14 of the top 20.

No. 2 domestic producer Ford now has 23.2 percent of the domestic car market, Chrysler 9.6 percent, and American Motors 2.3 percent. (West German-owned Volkswagen of America actually edged out AMC with 2.8 percent.)

Ford's loss, meanwhile, was its third quarterly loss in a row. The loss on its North American automotive operations, $735 million, was partly offset by profits overseas.

AMC's and Chrysler's losses were each their worst ever.

Both workers in Detroit and stockholders across the nation are wondering how far the downturn will go for these firms. GM, obviously, has the best prospects for an early reversal.

The assessment of auto industry experts is that while bruised, the world's largest carmaker is far from down. The resources of the multi-faceted company are tremendous and are expected to cushion it: GM may lose $400-million-plus for the year, but Chrysler faces at least a $1.1 billion red-ink bath, and Ford $1.5 billion or more.

Thus, GM is expected to pull through the current slump, perhaps in an even stronger position than before the downslide.

GM, which had gotten the jump on its domestic competitors with a downsizing effort in the mid-1970s, has accelerated its timetable for a second complete redesign of its product line. Ford and Chrysler are still struggling through their first downsizing effort. By 1983 the big automaker will have redone its entire model line once again -- "an incredibly short period of time," according to Mr. Tremblay.

Originally, the revamping was planned to run through 1985.

"It looks as if GM has bitten the bullet 100 percent on all its product programs," asserts Eugene Tremblay, a stock-market analyst with Wellington Management Company in Boston.

Now it appears that GM may be ready with the right product just as the US economy recovers from recession. A major reason for the sharp increase in import car sales, notably Japanese, has been the lack of enough competitively priced, high-mileage cars by Detroit. As a result, US car buyers had little choice but to "buy foreign."

To achieve its massive second round of auto shrinking, GM is expected to borrow from $1 billion to $2 billion. The actual amount depends on the pace of recovery in domestic car sales, as well as whether or not the federal government relaxes depreciation rules, tool writeoffs, emissions and safety standards, and other federal regulations.

GM borrowed $600 million in 1974 to launch its first downsizing drive which cultimated in the smaller-sized big cars of 1977, followed by redesigned midsize , compact, and specialty cars over the next couple of years.

GM's so-called J-car is due out next spring, a brand-new vehicle which will replace the Chevrolet Monza and Pontiac Sunbird. The corporation is expected to build 540,000 units late in the 1981 model year, 800,000 in 1982, and 1.1 million in 1983. "This is a very important car for GM and the industry," notes Mr. Tremblay.

Further, GM X-cars -- the Chevrolet Citation, Buick Skylark, Oldsmobile Omega , and Pontiac Phoenix -- should increase in sales over the next few years. In the fall of 1982 GM will introduce a compact sports car, probably to be sold by Chevrolet and Pontiac.

Then, for the 1984-model year, GM will field a 40-to-60 miles-per-gallon, Two-seater minicar. Two assembly plants are due to build it -- 400,000 units a year to start.

Most important of all are the upcoming resized A-body midsize cars, which will come out a year from now. Output is scheduled at 1 million cars to start. Then the B-bodies, or full-size cars, will hit the pavement a year later -- all with front-wheel drive. The resized a-body specials -- Chevrolet Monte Carlo, Olds Cutlass Supreme, etc. -- are expected to be on the road in the fall of 1983 .

In all, by the start of the 1983-model year -- just over two years from now -- GM will have converted 6.5 million units a year of capacity.

This relatively rosy outlook for industry giant GM is not shared by its three competitors. The financial condition of Ford has been severely weakened; American Motors is perched on the edge of a fiscal precipice, wishing that its joint car project with France's Renault were now instead of 1982; and Chrysler is evolving into a much reduced small-car producer that will share perhaps less than 10 percent of the market.

Nonetheless, the future is not entirely bleak for these firms. There now are 120 million vehicles on the road in the US. Tens of millions of them are getting an average 12 to 15 miles per gallon of fuel. "Those cars have got to be replaced," declares Mr. Tremblay.

As a result, there is a potential for a long, sustained flow of sales over the next few years. "The demographics are very good for the future," Mr. Tremblay adds.