US car makers on painful road back to health

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The Independent Online
IT IS maddeningly slow and the process is only coming about with plenty of pain. If this is an apt description of the halting progress of the economic recovery here, it might also apply to the fortunes of the giant car makersin Detroit, at last showing weak signs of improvement.

If any industry has been representative of America's recent economic ills it has perhaps been its most important one in terms of employment - the car industry. Battered and bruised by unremitting punches from Japanese competitors and dragged down by old working practices and labour unrest, it has staggered first through declining profits and then into desperate losses.

Now, just as most Americans have become almost conditioned to hearing end-of-the-world stories from Detroit, each of the Big Three - General Motors, Ford and Chrysler - has had some good news to report. Ford and Chrysler reported second- quarter profits of dollars 502m and dollars 178m respectively, compared with big losses a year ago. Even GM would have turned in a profit, but for huge charges associated with cutbacks at its Hughes Aircraft division.

Much of the turnaround comes, of course, from the pain that all three continue to administer to themselves. GM, the most obese of the trio, shocked the country at the start of the year by announcing the closure over three years of 21 plants with a loss of about 70,000 jobs. Similar, if less dramatic, exercises are under way at Ford and Chrysler, whose finance subsidiary this weekend was struggling to win approval from 152 lenders for a dollars 6.8bn refinancing.

But there are also more positive developments underlying the improving figures. Sales have been rising this year and, more important, the Big Three have clawed back market share from the Japanese for the first time since 1988. Their slice of the 6.5 million cars and lorries sold in the US in the first half of the year touched 71.9 per cent, up 1.7 percentage points from a year earlier. Though the change seems modest, it helps a lot in balancing the books.

So what is persuading these crucial few Americans to return to domestic brands? Partly patriotism and partly a growing public acceptance that US-made cars are not the lemons of old. In general, they also tend to be cheaper than the Japanese competition.

In promoting their models, the Big Three have been shameless in appealing to a sense of patriotism, with advertisements heavily overlaid with Stars-and- Stripes flags and direct references to the fact that buying American means ensuring US jobs and US prosperity.

Honda and Toyota have hit back by pointing out that many of their models are actually produced at US plants.

In playing up the reliability and quality of their vehicles, the US companies have almost admitted that, well yes, the cars that they produced in the Eighties were pretty lousy. The current, deeply irritating Ford television jingle, 'Have you driven a Ford lately?' is one such semi-confession.

John Middlebrook, general manager of GM's Pontiac division, has seen the change. 'We're seeing not just a buy- American attitude, but an attitude that says, 'Let's give American products a second chance.' We're seeing people we haven't seen for years,' he says. Even the Japanese competitors grudgingly admit that something has happened. Richard Lepley, senior vice-president at Mitsubishi Motors, remarked: 'They're making better cars, no question about it.'

GM, though it perhaps has the furthest to travel back to long-term health, offers the most spectacular success story, with its new Saturn line of compact cars made at a spanking new plant in Tennessee, away from all the strife and strain of Detroit. It is sleek in appearance and priced low, and sales have quickly outstripped production, rising from 10,204 cars a month in January to 22,034 in July. Saturn seems also to have won public favour by adopting a discipined sales regime, with models priced the same at all garages, sparing customers tiresome haggling with dealers.

Another factor is the new difficulties facing the main Japanese manufacturers. The weakness of the dollar against the yen has made Japanese products more expensive for Americans. Meanwhile a slowdown in domestic Japanese sales, against a background of economic retreat, has forced companies such as Honda and Toyota to raise prices in the US more quickly than their American counterparts.

Though all these things are bringing rare cheer to the folks in Detroit, no one is sipping champagne yet. The fortunes of the Big Three and the economic health of the country as a whole are closely intertwined, and unless the recovery continues and gathers strength, recovery in the car industry may also wither.

The risk of a double-dip recession is as much a threat to the car industry as it is to the economy as a whole. Economic news continues to be mixed. The release last month of the feeble second-quarter GDP figures of 1.4 per cent confirmed fears that the recovery was hardly the hoped-for surge. The tepid growth continues, however, to squeeze inflation out of the system, with wholesale price figures, published last week, showing an increase in July of only 0.1 per cent.

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