The Big Three Are Learning To Hold A Lead

It wasn't supposed to happen this fast. Detroit figured 1993 would be a year of consolidating the nearly two points of market share it gained from Japanese carmakers last year after a decade of decline. Instead, Motown zipped into the passing lane again during the first three months of 1993, adding 2.5 points to its share. That widened Detroit's share of the U.S. car and light-truck market to 74.7%--its highest level since the mid-1980s.

Why are the Big Three suddenly so hot? One reason is that the yen has risen sky-high, notes Chrysler Corp. President Robert A. Lutz, and "exchange rates are really working against [Japanese companies] big time." Quality is also way up, Buy American sentiment is strong, and slumping profits are forcing the Japanese to raise prices to boost margins.

But the Big Three may be creating their biggest advantage by avoiding a past mistake. In previous upswings, analysts say, the domestics jacked up their prices, too, to boost short-term profits. This time, says Bernard Campbell, an analyst at DRI/McGraw-Hill: "They're taking price increases where they can. But unlike in the past, it doesn't look like they're going to sacrifice market share by pushing the envelope."

HOT TRUCKS. The result: Detroit's price advantage over its Japanese rivals just keeps yawning wider. Since the beginning of the current model year, Japanese companies have raised prices by an average of 4%, which contrasts sharply with the Big Three's paltry hikes: 0.8% for Ford, 1.1% for General Motors, and 2.6% for Chrysler. Such fast rises have driven up the price of Japanese cars, on average, to about $2,500 more than their U.S. counterparts, says Salomon Brothers Inc. analyst Jack V. Kirnan, a gap he thinks could widen to $3,000 by next year. And from Detroit's standpoint, that couldn't be happening at a better time. With the economy still iffy, notes First National Bank of Chicago economist Diane C. Swonk, "consumers are more price-sensitive than they have been in the last 35 years."

As in the past, Detroit is benefiting from booming sales of light trucks, a high-profit segment that it has always dominated. Light-truck sales rose 17% in the first quarter from the previous year's already strong results. At Chrysler, where minivan and Jeep sales are soaring, average daily light-truck sales of 4,055 in March were the highest ever, says Ward's Automotive Reports.

But this time around, the Big Three's cars are gaining an edge, too. Ford's Taurus, which knocked the Honda Accord out of the No.1 spot last year, continues to hold the lead. And a bunch of other domestic cars are hot sellers, too, including Chrysler's new LH models and GM's Saturn. In the car segment, Detroit gained a whopping 3.2 points of market share in the first quarter, even though industrywide sales were off slightly.

RESTRAINT. The best news of all: Detroit's profits are coming back despite its pricing restraint. Ford Motor Co. and General Motors Corp. are expected to join Chrysler in the black for the first quarter, after losses in late 1992. Dean Witter Discover & Co. analyst Ronald A. Glantz predicts net operating earnings on common shares, a measure that excludes nonauto earnings, of $322 million at GM, $298 million at Ford, and $535 million at Chrysler. For Chrysler, a $4.7 billion charge for retiree health benefits will cause a net loss for the quarter and the year.

The question now: Can Detroit keep the gains coming? Alexander J. Trotman, Ford's head of worldwide auto operations, says his company isn't getting complacent. "We don't come to work in the morning and think about how we can ding GM and Toyota," he says. "We think the way to win is to focus on the customer." Ford's market share rose one point in the first quarter, and Chrysler added 2.2 points.

But GM is clearly misfiring on a few cylinders. George Peterson, president of AutoPacific Group Inc. in Santa Ana, Calif., notes that a lot of Ford's and Chrysler's gains "are coming right out of the hide of General Motors." Indeed, GM has lost 0.7 points of share so far this year, on top of last year's 0.9-point drop. GM's decision to sharply curtail unprofitable car sales to rental fleets has cut sales in recent months, although it hopes to recoup some of its shares by yearend.

The darkest cloud on the horizon may be the slow pace of economic recovery. Auto sales in this year's first three months remained anemic, up just 4.3%, compared with 1992's tepid first quarter. But even if sales rebound later on, Detroit can't stop glancing in the rearview mirror for the Japanese. Sure, Japan's problems are turning out to be more persistent than Detroit expected. But when Japan bounces back, the domestics know their current sales juggernaut could easily shift into reverse.