U.S. Auto Industry Suffers Worst Sales Year Since ’83 : Economy: Purchases of Big Three cars drop 13.2%. Experts express dire predictions for American firms.
As President Bush flew to Japan on Monday to press for open Japanese markets, the U.S. auto industry closed the books on its worst year since 1983. Industry analysts predicted continued dismal sales in the months ahead.
Auto makers reported weak sales in December and 1992 sales of just 12.3 million cars and trucks. Total sales of domestic and foreign vehicles were off 11.8% compared to 1990’s poor results, as recessionary fears scared many Americans away from dealer showrooms. U.S. auto makers reported a 13.2% decline in sales while Japanese auto makers recorded a 5% drop.
While dreary reports came out of Detroit, a Washington think tank headed by former Ronald Reagan Administration trade adviser Clyde Prestowitz warned that the U.S. auto industry is “basically going out of business” and recommended several urgent steps to revive General Motors Corp., Ford Motor Co. and Chrysler Corp.
The sales reports and dire forecast underscored the recessionary woes that have transformed Bush’s Far East trip into a trade mission on behalf of the U.S. auto industry and other weakened sectors of the U.S. economy.
Bob Keefer, owner of Hawthorne Mazda, said the deepening recession made December a “disaster,” much like the rest of his sales year. As the aerospace industry--where 40% of his customers are employed--announced successive layoffs throughout the year, Keefer watched his sales plunge 50%.
“Each month it’s gotten worse,” said Keefer, who has laid off nearly half of his employees over the last 12 months. “I just wonder whether I’ll make it. That’s how critical it is.”
The final auto sales figures for 1991 capped a year of record losses by the Big Three--expected to total $4.5 billion--and a massive retrenchment by industry leader GM that will close 21 factories and eliminate 74,000 jobs by 1995.
The Big Three’s combined market share dropped two points to 70% in 1991, but that masks a more worrisome erosion to just 48% of the retail car business. The balance of sales is to industry and government fleets and rental car companies.
To regain their share of the retail market, Ford, Chrysler and GM have vowed to reduce sales to rental companies. In the short term, however, the move will likely result in lower sales volumes and further increases in Japan’s record share of total U.S. auto market.
The import share of the market continued a four-year decline, falling one percentage point to 20.5%.
The seeming inconsistency of imports dropping while the Japanese share of the U.S. car market climbs is explained by the fast-growing production by Japanese companies on American shores.
About 40% of the cars and trucks the Japanese sold in the United States last year were built in this country. The Japanese “transplants” accounted for about 10% of total U.S. auto sales in 1991.
And transplant capacity is slated to expand, as both Nissan and Toyota look to double output at their U.S. plants over the next two years, intensifying the pressure on the Big Three just as sales are expected to pick up.
At a meeting of auto analysts in Detroit in conjunction with the North American International Auto Show, forecasts of a recovery in auto sales were predicated on the outcome of the trade talks in Japan and, especially, the government’s progress in spurring the economy.
“We enter 1992 with the momentum down. The first three months of this year will probably be pretty damn wicked,” said Philip Fricke of Prudential Bache in New York. “But I think Washington has gotten a wake-up call. There is a genuine awareness in Washington that Detroit is in big, big trouble.”
Most forecasts call for 1992 sales of 13.1 million to 13.5 million cars and trucks--still weak by historic standards. But Donald Hilty, chief economist at Chrysler, said sales could climb as high as 14.8 million vehicles--a 20% jump--with the right economic stimulus from the government to boost consumer confidence.
However, the question for Detroit is how much of that eventual increase it can capture and how much will go to the Japanese. Prestowitz, head of the Economic Strategy Institute in Washington, warned Monday that Detroit is being replaced by Japanese auto makers.
Prestowitz said in his report that the U.S. auto industry accounts for 4.5% of the gross national product, 12.4% of corporate research and development, 6.4% of employed scientists and engineers and nearly 2 million jobs.
“The issue here is not so much saving . . . the Big Three companies,” he said. “The question is the U.S. economy.”
Prestowitz urged tax credits for those buying cars this year, with the size of the credit rising to as much as 15% of the total sales price, according to the extent of the vehicle’s U.S.-made parts.
Other suggestions: a $2-billion low-interest loan of military funds to the auto industry for research in energy conservation, safety and pollution control; a prohibition against state governments offering tax breaks to lure foreign businesses; cuts in executive and worker pay and shareholder dividends and restraint in prices on cars.
Japanese leaders were said to be readying their own relief package this week to comply with demands that cars and other foreign products win easier access to the Japanese markets. But many doubt immediate results from any such policy changes, and critics of Bush said his trip was political window dressing.
Rep. John D. Dingell (D-Mich.), the powerful Detroit area congressman, said he would be more optimistic about the trade mission if Bush were bringing along the secretaries of Treasury and State instead of just “his campaign manager,” a reference to outgoing Commerce Secretary Robert A. Mosbacher, who will head up Bush’s reelection effort this year.
Speaking to the auto analysts Monday, Dingell said he hoped that the U.S. auto executives with Bush will “do more than stand behind him like potted plants.” He said he would not judge the trip a success unless Japan genuinely opens up its markets and quits dumping products in this country.
