Can Big 3 Stay in High Gear? Carmakers Hoping Sales Will Keep Rolling in '95

By Robert Manor Of the Post-Dispatch | St Louis Post-Dispatch (MO), February 5, 1995 | Go to article overview

Can Big 3 Stay in High Gear? Carmakers Hoping Sales Will Keep Rolling in '95


Robert Manor Of the Post-Dispatch, St Louis Post-Dispatch (MO)


Are the good times slowing down in the auto industry?

On the surface, the evidence appears to say yes. But appearances can be deceiving, and what seems like a slowdown may be more of a temporary time-out.

Sales in January were weaker than a year ago. General Motors Corp., for example, sold 329,515 vehicles, down more than 5 percent from January a year ago.

Some auto dealers are cutting back on the number of cars they have on their lots to reduce their inventory costs. The Big Three automakers have dropped overtime at some plants, even closing a few briefly.

Some car shoppers are surprised by the prices they see. The average U.S.-built car now costs $20,000, and some affordable models like Ford Motor Co.'s Tempo have been replaced by more expensive models.

Interest rates are going up, making car loans more expensive for consumers. On Thursday, Chrysler Corp. cited higher interest rates when it cut its estimate of auto sales for this year and next.

Rebates have re-emerged after nearly disappearing during last year's booming auto market. Rebates are the curse of the auto industry, siphoning away profits and often yielding little in increased sales.

Chrysler is offering cash back for people who buy the minivans it builds in Fenton, for example, and General Motors is subsidizing leases on its cars. Ford is offering rebates to its dealers to help move its new Contours and Mystiques, built in Kansas City. Ford Mustang V-8s carry an $800 rebate in some areas. The Chrysler Concorde comes with a $1,350 rebate.

When the auto industry gets sick, Missouri and St. Louis get a fever.

More than 26,000 people work in the state's five assembly plants and at dozens of supplier factories. Those jobs helped drive unemployment here to its lowest level in a generation.

Automakers hired new workers throughout 1994, creating $40,000-a-year careers and slowing the decay of manufacturing in Missouri. If that trend reverses, the economy is certain to suffer.

But signs that the boom is ending may be misleading.

Some dealers are missing sales because they can't get enough popular models, not because no one wants to buy them. Pent-up demand for vehicles is at its highest point since the early 1950s. The nation's strong economy is a certain stimulant to auto sales.

On Friday, Ford surprised everyone.

Ford said its U.S. vehicle sales in January rose 1.6 percent to 263,897 compared with the same period a year ago. Auto industry analysts had expected Ford to show flat sales.

So is the party winding down, or just starting?

"The auto industry is real cyclical," said Jeff Davis, an industry researcher at the University of Michigan. "Over the last 30 years, the pattern has been two years of really good sales, two years of average sales and two years of terrible sales."

Last year and 1993 were definitely good years. In 1994 an orgy of sales rang up $14 billion in profits for Ford, Chrysler and GM, following strong sales in 1993.

Were those the two good years?

"There will be a bust sometime," Davis said. "I can't tell you when."

The Mystique Of Ford

If the auto industry is doing well, it has a strange way of showing it.

Ford spent billions of dollars to bring out the Contour and Mystique. The cars are winning critical acclaim for their technology, safety features, looks and power. The cars are built at Kansas City, replacing that unglamorous favorite of rental fleets, the Tempo.

The Contour and Mystique aren't selling nearly as well as Ford would like.

"The Contour and Mystique have 100-day sales supplies, which is very high," Davis said. They can cost $16,000 or more, while the old Tempo cost $11,000 or less. "People who look at them are surprised at how expensive they are compared to the Tempo," he said.

As a result, Ford has canceled overtime at its Kansas City plant. …

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