Detroit Feels Pain Again as Imports Rise : With Quotas Eased, Japan’s Car Makers Gain Market Share
It took awhile, but the easing of “voluntary” quotas on Japanese cars last April is finally starting to hurt the U.S. auto industry.
With shipments rising by nearly 25% under this year’s relaxed limits, sales of Japanese cars are once again soaring while domestic sales are slipping.
Although total car sales have been relatively stable this year, the share of the market held by imports has been climbing steadily since the Japanese government significantly loosened its car export quotas, and now is approaching the peaks reached during the depths of the recession.
What’s even worse for Detroit’s auto makers, those figures don’t include the sales of cars built by Japanese companies in ever-increasing numbers at their new American plants.
“The imports are coming up pretty damned fast,” says Bennett E. Bidwell, a Chrysler executive vice president who runs the auto maker’s sales and marketing operations.
Takes Brunt of Assault
So far, General Motors appears to be taking the brunt of the assault. GM’s U.S.-built cars (excluding imports from Japan that are sold through GM dealers) took only 38.8% of all car sales in July, down nearly seven percentage points from April’s 45.6% share.
James Vorhes, GM’s vice president for sales and service, concedes that GM is “disappointed” by its lackluster performance recently.
Until quotas were eased, Ford and Chrysler were major beneficiaries of GM’s slide over the past year. But they too are now starting to be hurt by increased import sales. Their market shares, which had been climbing, have started to slip, though not as precipitously as GM’s.
Overall, sales of domestic cars (including those built here by the Japanese) rose just 0.3% in the first seven months of the year, while import sales jumped 10%. Excluding sales of Japanese cars built in this country, domestic sales were actually down 0.2% so far this year. What’s more the pace of car sales seems to be slowing; sales off 3.7% in July from a year ago.
“It appears that GM has been hurt the worst, but all of us are feeling it,” Bidwell says.
As a result, industry executives and outside analysts predict that price competition in the subcompact and compact segments of the car market will intensify in the 1986 model year, as Detroit desperately tries to avoid losing all of the hard-won market share gains it made while under the cover of the earlier--and stricter--import quotas. (The ceiling on Japanese passenger car shipments has been raised to 2.3 million units this year, a 24.3% increase from last year’s 1.85 million units.)
“The Japanese sales gains will continue to come out of the domestics unless the U.S. companies bring back the kinds of widespread sales incentive campaigns (such as cut-rate financing and rebates) that they dropped earlier in the summer,” says Brad Hontz, an industry analyst with Ward’s Research in Media, Pa. “So we think we’re going to see price competition in small cars heating up by 1986.”
But the domestic companies will have to move quickly to regain their footing. The Japanese share (excluding cars they build here) of the U.S. car market reached 23% in July, up nearly three percentage points from July, 1984, and three and a half points from January this year.
High Market Share
By contrast, the highest level achieved by the Japanese for any previous full year was only 22.6%--and that came in the midst of the recession in 1982. (Meanwhile, the market share for all imports, including European models, hit 29.5%last month, the highest level since February, 1983.)
The Japanese should also be able to maintain that high market share throughout the remainder of the current quota period (which ends next March 31), analysts say. On a seasonally adjusted basis, Japanese sales in July equaled an annual sales rate of 2.28 million units, which is still below the 2.3 million-unit quota limit, notes David Healy, automotive analyst with Drexel Burnham Lambert. (The seasonally adjusted annual rate is a reflection of the number of cars that would be sold if July’s pace continued for 12 months.)
“There is no question that the Japanese are eating into the domestics this summer,” adds John Hammond, auto analyst with Data Resources, a Lexington, Mass., forecasting firm. Hammond predicts that the Japanese (including imports sold by GM and Chrysler) will command 43% of the subcompact market in 1985, up from 38% in 1984, and will take 29% of the compact market, compared with 28% last year.
To be sure, Japanese sales are not expected to increase much from July’s level, mainly because they have already reached a relatively high plateau. In fact, some Japanese companies “front-loaded” their imports at the start of the quota period, and will have to reduce their shipments in early 1986 to comply with the limits, says Richard Recchia, executive vice president of Mitsubishi Motor Sales of America.
Gambled on Orders
He notes that Mitsubishi had to place orders last winter with its Japanese parent for cars to be built this summer. Since the American subsidiary didn’t know at that time whether import restraints would continue beyond last April, it gambled by placing large orders. Currently, Mitsubishi is placing orders for the 1986 model year and is moderating its requests, Recchia says.
Apart from the government’s quota program, the only thing that may slow down Japanese sales is the ongoing strike of the nation’s 20,000 unionized car haulers, which has stopped the flow of new cars from factories to the nation’s dealerships. So far, it has been hurting import dealers the most because they had the fewest cars on hand when the strike began last month. But once the strike ends, most analysts expect the Japanese to pick up where they left off.
“I’m sure people will get a false impression about how the imports are doing from the sales numbers over the next couple weeks, because of the truckers’ strike,” says Tom O’Grady, automotive analyst with Chase Econometrics, a forecasting firm in Bala Cynwyd, Pa. “Once it is over, however, the Japanese will continue to sell everything they can ship in.”
O’Grady predicts that the Japanese market share for all of 1985 (which includes three months under the old quotas)will rise to 21% from 17.9% in 1984. All imports should take 26.1%, compared to 22.9% last year, he adds.
Predicts Import Surge
But in 1986, he expects the share held by the Japanese (plus the South Koreans, who will enter the market for the first time next year) to soar to 25%, with total imports holding a record share of 30.7%.
O’Grady and other analysts note that many import-oriented consumers, who until recently were locked out of the car market by tight quotas, are likely to be lured back by the increased availability of Japanese cars over the next few months, immediately absorbing the additional shipments from Japan.
That should allow many dealers of Japanese makes to continue charging full sticker price--and sometimes more--for at least a few more months. But analysts say that the pent-up demand for Japanese cars could be satisfied by the end of the year. After that, import dealers may finally be forced to compete more aggressively, prompting a greater use of sales incentives by the import manufacturers and dealers to win over new customers.
“You should be seeing more price competition among the Japanese” later in the year, says Chuck King, the top sales executive for Nissan in the United States.
But while the sticker-plus premiums import dealers have been charging on hot cars may slowly disappear, few industry executives or analysts expect to see any significant price reductions on either domestic or imported cars over the next year.
Instead, they predict that discount financing and rebate programs will be used more frequently to pump up sales, especially in the subcompact field.
“The Japanese will probably just go down to list price, rather than charging over list, and the domestics will struggle to hold the line on prices, but I don’t think you will see real price cuts,” Chrysler’s Bidwell says.
“But I also don’t think you will see real substantial price increases, either.”
