Monday, Nov. 12, 1990
Dangerous Curves Ahead
The wintry wind of recession is beginning to batter Detroit. Car-dealer showrooms have become uncomfortably quiet in the past several weeks. Consumers are staying away because of increasing layoffs, widespread credit tightening among banks and climbing gasoline prices. Detroit has tried to keep sales up by discounting aggressively, but that has only hurt profits. When the Big Three posted their third-quarter earnings last week, the results were dismal. Ford's profits fell 79% from a year ago, to $101.7 million, its worst performance in eight years. Chrysler fared even worse, showing a $214 million loss, compared with a $331 million profit a year ago.
The most startling report, however, came from General Motors. The world's largest industrial company announced a $1.9 billion loss for the period, the largest quarterly deficit in automotive history. The red ink includes the one- time $2.1 billion cost of a huge restructuring project. GM will permanently close four obsolete factories and temporarily shut down 19 of its 29 assembly plants in the next two months.
The action is part of GM's campaign to concentrate operations in its most efficient plants, most notably its new Saturn factory in Tennessee. "GM wants to begin the decade of the '90s with a clean slate," says Scott Merlis, an analyst with the investment firm Morgan Stanley. The automaker's latest downsizing, which will eliminate an estimated 20,000 jobs, drew no protest from the United Auto Workers. One reason is that the U.A.W.'s new contract with GM allows many workers who lose their jobs to get severance equal to as much as three years' pay.