Sorry Start for the 1983 Models

By Alexander L. Taylor III

The new cars are here, but where are the customers?

Lee Iacocca, the brash, cigar-chomping chairman of Chrysler Corp., is an optimist by nature. At the introduction of his company's 1983 model cars at The Woodlands Inn & Country Club near Houston last week, however, he could scarcely disguise a sense of frustration. Said Iacocca: "Chrysler is ready to go; unfortunately the economy is not. There's a lot of fear out there because there's a lot of uncertainty about interest rates, currency values and our economic policy."

More and more, such sentiments typify the mood of the U.S. auto industry. After almost four years of slumping sales, soaring layoffs, and losses that at one point reached $5.2 billion, executives of the Big Three automakers (General Motors, Ford Motor Co. and Chrysler) have grown understandably wary of predicting almost any sort of recovery at all. Ford President Donald Petersen bluntly asserts: "There are no signs whatsoever of an upturn yet." Last week automakers reported a 13.4% sales rise during the mid-September period as compared with depressed 1981 levels. But analysts noted that the gain was something of an aberration, coming largely from temporary price promotions to customers.

Prospective buyers will see little in the way of radically new models in showrooms this fall. One of the few: Chrysler's new E Class and Dodge 600, which are actually artfully stretched versions of the Plymouth Reliant and Dodge Aries K-cars that were first introduced in 1980. By and large, the automakers will barrage the public with advertising messages that emphasize value more than innovation. Ford has already cut the sticker price on its subcompact models by $400.

During 1983, manufacturers hope to make up for lost sales. Ford plans to unveil its first compact front-wheel-drive cars, the Ford Tempo and Mercury Topaz, along with a new softly rounded, highly aerodynamic Thunderbird. General Motors is readying two sports cars of its own for the market: a revamped Chevrolet Corvette, and a small new two-seater from Pontiac.

The automakers' determined efforts to attract budget-minded buyers should get at least something of a boost from the ongoing decline in inflation. The Labor Department announced last week that consumer prices rose at an annual rate of only 3.3% in August, half as much as in July. A drop in gasoline prices contributed to the decline, as did lower food prices.

Despite a continuing campaign of price-cutting tactics by Detroit, foreign imports, especially from Japan, keep expanding their share of the American market. Japan has agreed to limit U.S. ship ments to 1.7 million cars this year, but as the domestic U.S. market shrinks, the Japanese share of it grows. By last month, imports had climbed to almost 33% of the U.S. market, an alltime high.

Detroit suffers especially from its difficulty in turning a profit on fuel-efficient small cars, the market sector in which foreign competitors are strongest. In the last two years, Ford has sold 600,000 subcompact Escorts, partly by holding prices so low that sales have barely covered costs. To stay competitive, General Motors is trying to reach an agreement with Toyota Motor Co. of Japan, in which the companies will jointly build small cars at an assembly plant in Fremont, Calif., that GM closed down early this year.

As industrywide sales have slumped, automakers have redoubled efforts to pare overhead costs. Corporate staffs have been reduced, inefficient plants closed, and new manufacturing methods introduced. By far the most stringent cost-cutter is Chrysler, which has cut its work force from 157,958 to about 75,000 since 1978 as its annual sales have dropped from 1.1 million to 730,000. The result: after four years of losses and near-bankruptcy in 1979, the company made $258.6 million during the first six months of 1982, and could wind up in the black for the entire year. Even so, Chrysler's long-term survival remains unsure. More than either of its top competitors, Chrysler is badly in need of capital to develop new products for later in the decade, and the company is looking for a merger partner, which would most likely come from Europe or Japan.

More immediately, Chrysler faces the threat of a strike by about 50,000 of its salaried and hourly employees who belong to the United Auto Workers. U.A.W. negotiators two weeks ago agreed to a new contract that gives Chrysler workers some $2 per hour less in wages and benefits than are received by employees at either General Motors or Ford. Ratification voting by the union's rank and file is expected to be completed this week, and industry analysts rate the outcome a tossup.

The entire industry's profit prospects are equally uncertain. Cost cutting has been so furious that analysts expect even a modest recovery to produce larger profits. But improved sales will necessarily depend on the strength of the U.S. economy. Automen are universally convinced that they have seen the worst. What they cannot figure out now is when the upturn will come. --By Alexander L. Taylor III. Reported by Paul A. Witteman/Detroit

With reporting by Paul A. Witteman

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