President Reagan's cabinet is not longer arguing over the issue of Japanese imports -- at least publicly -- and the president waits in apparent calm to make his decision. But one of the central issues in the debate remains unresolved.
What to do about Ford Motor Co.?
In many ways, Ford is to the Reagan administration as Chrysler was to the Carter presidency -- a painful test of how far an administration will go to help a critical, ailing industry.
Ford is not close to bankruptcy, but it lost $1.5 billion last year. Losses in the first three months of this year may be $500 million, according to a consensus of leading financial analysts.
"Right now their sales stink," says David Healy, an auto industry analyst with Drexel Burnham Lambert. He makes an exception for the new Escort/Lynx subcompact that Ford introduced successfully last fall.
"They may have gotten themselves into a long-lasting problem because they haven't converted fast enough to front-wheel drive," Healy added.
Ford spokesmen protest that there is nothing magic about front-wheel drive, but the fact is that this feature, which permits significant reductions in vehicle weight, is eliciting the greatest degree of interest among U.S. car buyers. Ford is trailing not only General Motors Corp., but even Chrysler, in this area.
Ford's Fairmont has lost ground steadily to the front-wheel-drive Chevrolet Citation and GM's other "X" cars, and some of the success of Chrysler's front-wheel-drive "K" cars is coming at Fairmont's expense, too.
By this summer, BM will be selling a new front-wheel-drive model, the "J" car -- a roomy, four-passenger compact designed to compete with the Honda Accord, Datsun 210, Toyota Corona and Ford's Mustang. In contrast, there is nothing new about the Mustang or the Fairmont, says Healy, nor will there be until the end of 1982, when the Fairmont gets replaced with a front-wheel-drive successor.
In the view of Transportation Secretary Drew Lewis, Ford is at least three years away from having a competitive product line.
But even three years of protection against Japanese imports is not enough, Ford Vice President David McCammon told the Senate Finance Committee this month.
If Japanese auto imports were held at 1.6 million cars annually for three years -- a reduction of 300,000 cars from last year's total -- Ford's cash flow would increase by only $100 million the first year.
What Ford wants is a five-year quota holding Japanese auto imports at 1.2 million a year. That would generate $300 million in additional cash the first year, and $1.5 billion the fifth year.
Ford's theory is simple. If Consumers were faced with a three-year import restriction on the foreign cars they had their sights on, two out of three probably would wait. "Very few people will wait five years," however, said Ford vice president McCammon.
In the debate within Reagan's cabinet, Lewis favored an import level of about 1.6 million Japanese cars, but it isn't clear what President Reagan wants, if he has a specific figure in mind. Japanese officials have signaled that 1.8 million units is what they are thinking about. And that won't help Ford much.
At this point, none of the experts sees Ford going under.
"I think they're a survivor," Healy said, and most analysts agree. Its 1980 year-end cash reserves totaled $2.6 billion, enough to take Ford through the balance of 1981, even with the current sales slump. And it has between $1 billion and $2 billion in potential untapped short-term borrowing power. Finally, Ford's extensive foreign sales operations provide an additional cushion, although that division slumped badly late last year.
But Ford needs to spend $4 billion a year to modernize its plants and redesign its cars, even with its decision to stay with conventional rear-wheel drive longer than its two chief U.S. competitors. Its ability to borrow depends to a large extent on how healthy its future looks to lenders. t
It could go to the bank with tough import quotas, telling lenders that higher sales were certain.
But if a significant cutback in imports doesn't materialize, Ford has two other principle strategies, although neither is very inviting. The first is to try to persuade the United Auto Workers to make similar wage concessions to those given Chrysler this winter. By the time the current contract ends in September 1982, Chrysler's autoworkers will be receiving $3 to $4 less per hour than their counterparts at Ford and GM, a difference worth several hundred dollars per car. The UAW has turned down attempts by Ford and GM to reopen the existing contract.
The members of President Reagan's task force agreed on one point -- that Ford had to reduce its labor costs to compete with Japan in the long term.
The faction headed by Budget Director David A. Stockman argued that Ford would have an easier time winning wage concessions if there were no import quotas and the company was in Chrysler's shoes, facing possible financial ruin.
The other side, behind Lewis, said the union's cooperation could be better won if President Reagan called for voluntary import restrictions by Japan, demonstrating the administration's concen for the industry and its workers.
Based on Chrysler's case, Stockman would win the argument. The wage concessions granted by the UAW this winter, when Chrysler hung by a thread, were much larger than the original ones the union agreed to 15 months ago, when Congress was approving the company's federal assistance.
The second option is to follow Chrysler's lead and continue to close its less profitable car and truck plants, making more components in foreign countries and buying more parts both in this country and abroad.
Ford's extensive foreign operations invite such a switch and Ford is headed in that direction already. It is building a $530 million transmission plant and a $380 million engine plant in Great Britain. It also is building a truck plant in Argentina and will retool an engine plant in Australia. Ten years ago, 70 percent of Ford's sales were recorded in this country. Last year, the figure was less than 50 percent.
Ford Chairman Philip Caldwell has warned that if Ford doesn't get import protection, the trend toward foreign operations will increase, with the obvious impact on employment in the U.S. auto industry.
Lewis argued within the cabinet that an unwritten understanding could be reached among the Ford, the UAW and the administration involving import limits, wage concessions and a commitment by Ford to maintain a high level of investments in this country.
But that kind of negotiated industrial policy is apparently not part of the Reagan economic philosophy.