Uphill All The WayDavid Woodruff and Larry Armstrong and Thane Peterson
When John F. Coppola strode into Jack Taylor Toyota in Alexandria, Va., in late July, he was all set. The 44-year-old government worker had studied Consumer Reports and had a firm idea of what he considered a reasonable price for a 1991 Celica: about $300 over wholesale. Ninety minutes later, Coppola drove off with a nifty maroon model at more than $1,000 below its $14,500 sticker price. "They certainly were willing to bargain in my price range," Coppola marvels.
After the worst auto sales slump in a decade, in which Detroit's Big Three collectively lost $7.4 billion over four quarters, car buyers are slowly returning to showrooms. As a result, U. S. car and light-truck sales have been ticking up. J. D. Power & Associates predicts unit sales for the year will hit 12.6 million, a recovery from disastrous levels during the gulf war (chart), but still way below last year's 13.9 million.
SLUGGISH MARKET. While 29% of the tire-kickers bought cars in July, up from the wartime rate of 24%, dealers say consumers remain wary. And the Federal Reserve's slight easing of credit may not help much (page 26 24 ). But if the Fed were to ease credit further, "we could have a very significant rise in auto sales," says Chrysler President Robert A. Lutz.
The upshot: No one's predicting a strong recovery in car sales. "There will be some improvement--but it will be slow," says Harold A. Poling, Ford Motor Co. chairman. Adds Richard D. Recchia, executive vice-president of Mitsubishi Motor Sales of America Inc.: "The optimism we see in the market isn't supported by any enthusiastic buying. We're still pulling the customers along with incentives and rebates."
With a raft of new models coming out, General Motors Corp. may be able to hold or slightly increase its market share (table), analysts figure. But Ford and Chrysler have few new products to get buyers excited. Together, the two have lost 1.1 market-share points to Japanese rivals since January. A sluggish market will make it hard to stop the erosion. Japanese makers, with their quick, 4 1/2-year product cycles, have a slew of all-new offerings this fall--many of them aimed at the Big Three's lucrative luxury cars and vans. Most analysts expect Japanese companies, who now have about one-quarter of the market, to gain two points a year through 1993.
Chrysler is plainly worst off. As Lutz puts it, Chrysler is "in an eternal cost squeeze." To raise up to $500 million, it announced on Aug. 7 that it will sell 33 million shares to the public and contribute another 23 million shares to its badly underfunded employee pension plan. Chrysler is also negotiating to sell Mitsubishi its portion of their jointly owned Diamond Star car factory in Normal, Ill. Analysts figure that might raise an additional $100 million. Also on the block are parts of Chrysler's profitable auto-finance unit and its 64% stake in a transmission joint venture with GM.
Chrysler badly needs the dough to spend on new-product development. Its popular minivans are selling well, and a new version of its Jeep Cherokee is due out next year. But what it really needs are new sedans, and its next generation, the LH series, isn't due until next fall. "That's make or break it," says Bernard G. Campbell, director of auto analysis at DRI/McGraw-Hill. "If Chrysler can limp along, it has some exciting products coming out--finally."
Ford, too, has to get more new models into showrooms. Its Explorer sports/utility vehicle is hot, but the popular Taurus will feature only modest restyling this fall. By the time an all-new version comes out in 1995, the car will be 10 years old. And the Tempo, which dates to 1982, isn't due for a revamp until 1994. "Ford needs some new product," says John Hynansky, whose Winner Group in Wilmington, Del., counts Ford among the 12 nameplates on its lot.
Only GM this fall will match the Japanese car makers' proliferation of new models. There's a new Cadillac Seville, Buick Le Sabre, Oldsmobile 88, Pontiac Bonneville, and Chevy Suburban and Blazer. And GM is adding plenty of new features. For example, its revamped Pontiac Grand Am, Buick Skylark, and Olds Achieva family will have standard antiskid brakes, a safety device until now available only on much more expensive models. Air bags will be standard on many more models, too.
Some buyers may suffer sticker shock. GM has announced average 3.1% price increases, vs. Ford's 3.7% and Chrysler's 1.4%. That looks small. But in GM's case, sticker prices will rise as much as 10% on models such as the $18,599 Pontiac Bonneville LE when airbags and other new standard equipment are included.
Meantime, Japan is applying the heat. With baby boomers becoming more family oriented, Toyota Motor Corp. will try to topple Honda Motor Co.'s Accord, the best-selling vehicle in the U. S. Toyota has redesigned and increased the size of its Camry, while giving it a larger V-6 engine. The Camry "is perfectly positioned and executed to take advantage of what we're predicting will be a boom in family sedans," says Christopher W. Cedergren, an analyst with Santa Ana (Calif.) market researcher AutoPacific Group Inc.
Then there's the assault on the high end. Three years back, the only Japanese luxury car was Honda's Acura Legend. Two years ago, Toyota's snappy Lexus and Nissan Motor Co.'s Infiniti brands appeared. Now, there are new Japanese luxury models galore. Lexus' SC400 coupe is just out, and at $37,700 a copy, it's a hit. And cheaper Japanese luxury models are taking on the Cadillac and Lincoln franchises in the under-$30,000 market. Examples: Mitsubishi's just-out Diamante sedan and a more luxurious redesign of Mazda's 929 sedan that's on the way.
MORE RED INK. Trucks and vans, which Detroit now dominates, already are in the Japanese carmakers' crosshairs. Perhaps as early as 1993, Toyota is expected to deliver Japan's first fullsize pickup. And Mitsubishi is about to introduce an $11,000 small minivan. The Japanese deny it, but Detroit has lodged charges that the Mitsubishi minivan and other models are being dumped in the U. S.
It all means more red ink. Shearson Lehman Brothers Inc. analyst Joseph Phillippi expects the Big Three to lose an additional $1.2 billion in the third quarter and to be only "moderately profitable" in the fourth. For even if the economy's recovery gets going in earnest, the car makers' margins will remain under pressure from price slashing. To boost volume, the Japanese for the first time are offering buyers hefty discounts, too.
Detroit's distress, of course, means "it's a great time to buy a car," as DRI's Campbell puts it. Indeed, given the persistent pressure on carmakers, shoppers like John Coppola can count on getting sweet deals as far as the eye can see.