And They're Off! Eurocars Burn Rubber In The U.S.

It's the year of the Eurocar. With cost-cutting and new models kicking in, European carmakers are off to their best year in the U.S. since a disastrous market slide began in the mid-1980s. Through April, the Europeans' U.S. car sales are up 32.2%--vs. 16.3% for Japan and 8.7% for Detroit.

It wasn't so long ago that European car companies, including Italy's Fiat and France's Renault and Peugeot, were pulling out of the U.S. Now, even Volkswagen, the only high-volume European carmaker still selling autos in America, seems finally to have arrested its slide: VW says its sales nearly doubled, to 46,300 through May. And in luxury cars, where Europeans hold about a quarter of the U.S. market, the Old World is more than holding its own. BMW's sales are now neck and neck with those of Toyota Motor Corp.'s Lexus--for the first time since 1990.

One reason the Europeans are doing so well: a plethora of new models. Mercedes-Benz, with spanking-new C-Class models to sell, is up 29.6% in 1994's first four months. And hot sales of Volvo's new 850 have helped the Swedish carmaker snare 7.8% of the luxury-car market, according to Little Falls (N.J.) consultants Jacobs & Associates--up a point from the same period last year and top among European cars. Other new Euro models include Porsche's 911, a revamped Saab 900, and Mercedes' modestly restyled, top-of-the-line S-Class cars. Coming this fall: BMW's new top-end 7 Series.

Aggressive pricing isn't hurting the Europeans, either. Although European currencies are relatively strong against the dollar, the superstrong yen puts Japanese carmakers at a disadvantage. "All of the Japanese cars are struggling because of the yen," notes Ronald D. Ertley, whose Pennsylvania dealerships sell Mercedes, Volvos, Lexuses, and Acuras. Indeed, a favorable exchange rate helped Sweden's Saab shave 3.2% off the price of its new 900S convertible and Volvo price the most popular version of its 850 at a competitive $28,010. Moreover, European carmakers, including Mercedes, say they have cut back on cut-rate lease deals.

STAYING POWER? Thanks to cost-cutting, even Mercedes is getting into so-called value pricing. It set stickers on the C-Class in the $30,000 to $40,000 range. And the S-Class models came out in late May at $6,000 to $8,000 off the price of the cars they are replacing. Not that the cars are cheap, mind you: A 6-cylinder S320 sedan starts at $65,800. But company officials say they achieved reductions mainly because of a cost-cutting drive started in 1991 that saved the company $2.3 billion last year alone. From now on, says Michael Basserman, head of Mercedes' North American operation, "we'll watch our costs. With the competition out there, we have to."

Will Europe's turnaround have staying power? Even Basserman admits that Mercedes' torrid pace may not last. For the full model year, he expects Mercedes' unit sales to hit about 70,000, a 13% increase over last year. One reason growth may slow: Japan has new cars coming this fall, such as a redesigned Lexus LS 400 and the new Acura Vigor.

Another nagging doubt is the relatively sloppy quality of European cars. Volkswagen, for example, is struggling to shed its image for shoddiness. Last year, when it had quality snafus at its Mexican facility, it held its products back from the U.S. until the problems were fixed. That kept sales weak in 1993 but is paying off in booming sales of the Jetta and other models now. As for Mercedes and BMW, the quality of their cars is good--but it has not quite kept up with the Japanese. In the latest J.D. Power & Associates Inc. survey of problems during the first 90 days of ownership, Lexus, Toyota, and Infiniti top the list of companies whose cars have the fewest glitches--while Mercedes ranks No.8. BMW, at No.16, is slightly under the industry average.

Still, the recent American renaissance is important to Continental carmakers. "The U.S. market is the yardstick of a company's capability as a world car producer," says Karl E. Ludvigsen, chairman of Ludvigsen Associates, a London auto consultant. That's one reason BMW and Mercedes are each now building their first U.S. carmaking facilities. The aim: to break Europe's American jinx and return to the glory years of the mid-1980s--when the Euros sold about 750,000 cars in the U.S., twice what they'll sell this year if they keep up their current pace. An admirable goal, but they have a long road to travel to reach it.

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