This is the first of a series of articles that will appear from time to time examining the health and outlook of industries coming out of the recession.
DETROIT--The bloodletting in the nation's automobile industry is ending, and executives are talking about the recovery. But the business emerging from the carnage is different from the one that was ambushed by recession and imports.
Interest rates are down. Car sales are up. Production and operating costs are down--way down, largely because of slashed payrolls, shuttered plants, and a massive switch to automation. The changes have revived a word forgotten during the Great Recession--profit.
Last year, for the first time since 1979, the four U.S. car producers actually made money. Combined earnings amounted to a skimpy $321 million, most of which came from cutting costs and lowering break-even lines. But the gain compared with combined losses of $1.8 billion in 1981 and $4.2 billion in 1980.
It has been a chastening experience for the industry, and its executives are reordering their priorities. "Nobody in this corporation wants to ever go through that again," said General Motors Corp. Chairman Roger B. Smith.
Automakers and analysts expect the domestic industry to regain unit sales of cars and trucks of pre-recession years--including U.S. production of foreign nameplate cars--but all say that the industry will never again have as many workers as it had in the past, largely because of automation and other changes in production procedures.
U.S. automakers sold an estimated 5.8 million cars in 1982, the fewest in 21 years. (Motor Vehicle Manufacturers Association figures showing factory sales of 5.07 million exclude sales of cars from the prior model year.) But auto industry analysts are predicting sales of 6.6 million U.S. cars in 1983, a increase of 15.4 percent over last year's level.
"The recovery is coming. But it won't be a boom," said David Healy, an analyst with New York-based Drexel Burnham Lambert.
A literally newer domestic auto industry is rising from the ashes of misfortune. Billions of dollars are being poured into the construction of ultramodern, highly-automated factories, particularly at General Motors, the nation's and the world's single largest automaker. There is a new attitude toward quality, reflected in actions that seemed unthinkable in the giddy days of production-at-any-cost, such as stopping production lines to ferret out flawed work.
There is a new attitude toward customers, at least in the executive suites. All of the domestic car manufacturers are spending money to beef up customer relations programs, particularly with the aim of handling complaints before they can hurt a product through word-of-mouth.
Bosses and workers still go their separate ways after work. But they cooperate on the factory floor where, with the assistance of Unimates and Robogates, they try to practice what they preach--no car will be finished before its time.
No one is saying that the battles are over. Indeed, there are a number of nasty fights brewing, trench warfare that will pit domestic manufacturers against one another and against foreign invaders, particularly the Japanese. It will be a bitter, confusing crusade, replete with foreign-domestic alliances, including Japanese-American combinations like the agreement reached recently between GM and Toyota to jointly produce a car.
Automakers here believe the struggle will reduce the ranks of car producers worldwide. But none of the U.S. companies sees itself as a potential victim--not Chrysler Corp., fresh from a triumph over de facto bankruptcy; and not American Motors Corp., which owes 46.4 percent of its existence to Renault of France.
"The name of this company is American Motors Corp.," said W. Paul Tippett, chairman and chief executive officer of AMC, the country's fourth largest car producer. "We intend to be here. We can be a consistent performer, profitable over the long term, and a very respectable participant in the U.S. automobile market."
The AMC chairman said his company, based in nearby Southfield, Mich., learned something during the recession. AMC too often was a one-run hitter in the past. "We'd introduce a product that might do pretty well, but nothing else would happen for the next two or three years. We'd go up for a little while, and then come back down because there was not a steady stream of product out there to support the company over a period of time," he said.
"I'm not blaming prior management," said Tippett, who assumed his present position in January 1982. "But we didn't have the planning and we didn't have the money to develop a consistent product strategy."
Renault helped save AMC in October 1979, with an initial purchase of 22 percent of its stock. But the recession, which aggravated the numerous illnesses of the domestic industry, was just getting under way, and AMC, long the weakest of the Big Four, needed another helping hand from its French partner, which purchased an additional 24.4 percent of AMC stock in December 1980.
Now AMC's sales have taken off, largely because of the Renault-designed Alliance, which is assembled in Kenosha, Wis. The Renault money also has helped AMC develop new product lines: a hatchback Alliance and a completely restyled AMC Jeep. AMC lost $153.5 million on sales of $2.9 billion last year. But Tippett believes the company will become profitable again in 1985.
"I think we've solved our biggest single problem: product consistency," Tippett said. "We're getting rid of our rags-to-riches, feast-or-famine image."
"Hey, did those guys talk French to you over there?" GM Chairman Smith asked a reporter arriving from an AMC visit.
Smith was in a good mood. His company made $963 million in 1982 on worldwide sales of 6.2 million cars and trucks, down from 6.8 million units in 1981 and 7.1 million in 1980. The profits resulted from aggressive cost cutting, partly reflected in a decline in GM's worldwide payroll from 746,000 in 1980 to 657,000 in 1982.
"That's a lesson that's been very difficult for us," Smith said of the past few years and the staff and blue-collar cuts. "And we're not going to go back and fatten up only to have to go through another diet, cutting out whole departments and that kind of thing. We're going to stay off the ice cream and banana splits and eat the raw meat."
Smith said the recession has taught GM other lessons as well, especially about quality versus production. "We can't go back to where you sacrifice quality for output," he said. "We put too much emphasis on output in the earlier days and not enough on product quality. I'm sorry, but that's true."
The quality battle is being fought "one car at a time," Smith said. "Everybody is involved, from the boardroom to the plant floor . . . We're not okaying anything that doesn't come out of a department right. It simply won't get down the line."
Humans may not even have a say in the matter. For example, at brand new GM plants here and in Orion Township, Mich., computerized inspecting units automatically reject faulty body shells and other bad components before they reach the next step in the assembly process. GM, since 1980, has spent nearly $40 billion worldwide to build new plants and to remodel old facilities to meet high-tech production demands. Part of the overall expenditure includes about $250 million to revamp a GM assembly plant in Baltimore.
The stakes are high. Poor quality, real or perceived, kills sales. GM's X-body cars--the Chevrolet Citation, Oldsmobile Omega, Buick Skylark, and Pontiac Phoenix--represent a case in point. National sales of those cars are off by as much as 60 percent from year-ago levels, largely because of publicity surrounding a federal investigation of braking defects in 1980 models.
The Great Recession might have been more tolerable for domestic automakers -- but less instructive -- without intense foreign competition. Imports, led by the Japanese, last year took 28 percent of the U.S. market, largely because of their reputation for fuel efficiency and superior quality.
"That didn't happen overnight," said Harold A. Poling, executive vice president of Ford Motor Co.'s North American Automotive Operations. "In the first quarter of 1979, just before the recession started in this business, the only thing we could sell in the United States were big cars with eight-cylinder engines," Poling said.
"We had to have incentives on small cars to sell them back then. And the Japanese had small cars stocked at ports all around the country. They couldn't sell them. But now, after the energy crisis, those same cars are selling like mad and are being touted as tremendous for fuel costs savings," Poling said.
The lesson: Domestic automakers have to do more to convince consumers that they are serious about quality, Poling said. Ford, as a result, has launched an ambitious program to generate long-term customer loyalty. Under the program, called Lifetime Service Guarantee, customers pay once for a repair; subsequent repairs of the same item or condition, damaged under normal use, are paid for by the dealer and the company.
" 'Quality' is the approach on how you do everything--the design, the engineering, the delivery and service of a vehicle," Poling said. "People have to experience the change before they change their perception . . . The company that first adopts the total approach is the one that gets additional sales."
Ford lost $658 million in 1982, $402 million less than in 1981. But Poling said a fleet of new products, led by the 1983 Ford Thunderbird and Mercury Cougar--81,000 of which were sold before their introduction early this month--should help the company out of its doldrums.
Chrysler Corp. officials already are celebrating. They've pulled a hat trick, driving their company from a $1.7 billion deficit in 1980 to $170 million profit--on sales of $10 billion--in 1982.
The profit mostly came from cost-cutting and the sale last year of its tank division. But the company has been rolling out some popular models, too, such as its Chrysler LeBaron and Dodge 400 convertibles. Chrysler is spending $6.6 billion through 1986 to come out with new products.
"We're for real," says Chrysler Chairman Lee Iacocca, and many industry observers here agree. But there are some skeptics.
"There's been an enormous structural shift" in the domestic auto market, said GM Chairman Smith. "We'll see different players on the field in the future. Chrysler has done a good job in the turnaround. But the questions are: 'Can they sustain what they've done? What are they going to do for an encore in 1983?"
Iacocca has heard that talk before. He calls it the "you-shot-your-wad theory," which is based on the assumption that Chrysler would be unable to stay in the battle against GM, Ford and the Japanese.
Chrysler captured 8.7 percent of the domestic market last year, compared with 44.1 percent for GM, 16.9 percent for Ford and 27.8 percent for the imports. AMC occupied 1.4 percent of the market, and Volkswagen of America held 1.1 percent.
GM's $44 billion bankroll for new plants and products is impressive, Iacocca said in a recent talk with reporters. "But while product expenditures are key, how you spend those billions are more key than the amount you spend," he said.
Chrysler's successful trip up comeback road proves that "we can match anybody when it comes to the development of new and innovative products," Iacocca said.