Detroit Begins Tailgating Japan's Small SedansDavid Woodruff
There could be some anxious-looking Japanese auto executives strolling the aisles at the big annual Detroit auto show in early January. That's because Ford Motor Co. and Chrysler Corp. are ready with hot new models that take dead aim at a Japanese stronghold: small sedans. If the new cars do anywhere near as well as analysts expect, they could be Detroit's most ambitious effort ever to wrest back market share lost to Japan.
The new small Fords and Chryslers aren't due in U.S. showrooms until next fall, but they already look like winners to car watchers. They'll have to be to gain the 10% to 11% share of the compact-car market projected for each of them by 1996 (chart). The U.S. cars are up against such respected competition as Honda Motor Co.'s Accord and Toyota Motor Corp.'s Camry.
TEST DRIVE. Indeed, Japanese models command more than 40% of the 2.3-million-unit market for compact cars. Going after those sales with a vengeance, says Christopher Cedergren, an analyst with AutoPacific Group Inc. in Santa Ana, Calif., "is a direct attack on [Japanese carmakers'] pocketbooks."
Ford has bet a bundle on its new cars, called the Ford Contour and Mercury Mystique in the U.S. and the Mondeo in Europe. The auto maker spent $6 billion developing the models' new high-tech 4- and 6-cylinder engines, slick new automatic and manual transmissions, and three distinct body styles. The European version, on sale since March, already has attracted 300,000 orders in a slumping market. "It's a superb automobile," says Theodore Shasta, an analyst with Loomis, Sayles & Co., an institutional investor that owns big stakes in all three Detroit auto makers. Shasta should know: He put the Mondeo through its paces at up to 140 miles per hour.
Chrysler's approach is more modest. It is spending $900 million on its cars, code-named the JA line. Chrysler and Dodge versions will come first, with a Plymouth variant due as soon as six months later. All three will share engines and transmissions with other Chrysler products, such as the Neon subcompact. But they have all-new chassis employing the same innovative "cab-forward" styling pioneered by the successful LH sedan. This approach gives the JA as much interior space as a much larger Taurus--a big plus for the young families these cars target.
The new models almost certainly will beat Japanese rivals by a wide margin on price. Company officials say stickers will range from about $13,000 to $16,000. That will translate into a $2,000 to $5,000 advantage over comparably equipped Japanese models, whose prices have shot up because of the strong yen. The entry-level JA, expected to come with a $13,000 sticker, for instance, will have such standard goodies as air conditioning and a radio. A similarly equipped Accord goes for more than $16,000. Cedergren figures the new Detroit models will help lop two points off the Accord's share of the compact-car market by 1996, cutting it to 13% in the U.S.
In keeping prices so low, Ford may be running higher risks than Chrysler. Indeed, analysts believe that Ford won't be able to recoup its $6 billion investment, even if it can sell close to its 700,000 annual capacity for the new cars worldwide. Chrysler, by comparison, has spent just $4.2 billion in recent years to develop three distinct car lines: JA, LH, and Neon. That includes developing the same number of new engines and transmissions as Ford, plus outfitting more assembly plants. As a result, Chrysler "can just stomp all over the Mondeo" from a cost perspective, says Shasta.
STEPPING ON THE GAS. Caught in the crossfire along with the Japanese could be General Motors Corp. Its compact cars, such as the Pontiac Grand Am, are far less sophisticated than most rival models. To stay in the game, GM has kept a lid on prices and pushed value in its ads. For instance, the Grand Am's base price remains unchanged for 1994 at $12,999, even though the car got a new standard driver's air bag. And a peppier, 150-horsepower base engine is due for 1995. All that should keep sales humming at 200,000 annually, says John G. Middlebrook, Pontiac general manager. "No one is going to unseat us too fast."
Of course, Japanese auto makers aren't going to roll over and play dead, either. Take Toyota. It is doubling capacity at the Kentucky factory that builds Camrys, to 440,000 cars annually. And analysts expect it and other Japanese companies to continue to cushion against sticker shock by aggressively pushing lease deals with low monthly payments.
But Chrysler and Ford clearly are on a roll. And they've got a bead on Japan's bread and butter.