Detroit Still Sings the Blues : Higher Prices for Imported Cars Not Much Help to Big 3

DETROIT — Detroit! Detroit! What a wonderful town. The yen is up, and the dollar is down.

It is a jingle that should have everybody driving in an Oldsmobile--or at least a Plymouth--by now, right?

Well, the Motor City isn’t singing such an upbeat tune these days. With the Japanese still coming at them--along with the Koreans, Brazilians and Mexicans--Detroit might well be singing the blues instead.

Indeed, the dollar’s much-ballyhooed free-fall over the past three years, which has made Japanese and European imported cars much more expensive, has not done much for the Big Three’s domestic production.

Although Japanese sticker prices have risen about 40% since the yen began to appreciate in September, 1985--compared to an 11% increase on comparably equipped domestic cars--the Big Three’s market share has continued to deteriorate.

Not Regaining Customers

Today, cars built in the North American factories of Detroit-based auto makers account for just 65.4% of the total auto market in this country, five percentage points below the share held by Big Three cars in 1985--and in the recession year of 1982.

Even though analysts now estimate that Japanese sticker prices are, on average, $3,000 higher than those on comparable American models, the traditional domestic car still isn’t winning back its customer base.

“And we don’t see them recovering it,” warns William Pochiluk, an automotive analyst with Autofacts, a market research firm in Paoli, Pa. “The Japanese . . . will not be pushed back to the shore. We think the Big Three may bounce back a little this year, but long term, there is going to continue to be erosion in Detroit’s share.”

In fact, while the 1980s have not been good years for the Big Three in terms of market share, there is some improvement in recent months. The auto sales figures for imports and the Big Three most frequently reported in the media are looking better for the Big Three these days.

Their market share has edged up compared to 1987, and the market share held by direct imports is down. While the latest import share of 28.4% is still high by historic standards, it does represent a sharp drop from 1987’s record level of 30.8%.

In addition, the 1987-88 quota year, which ended March 31, was the first in which the Japanese were unable to sell all of the cars here that they were allotted under the Japanese government’s voluntary restraint program. The share of the market held by direct Japanese imports has fallen to 18.3%, down from 1987’s 21.2%.

Meanwhile, imports from Western Europe, hurt by the dollar’s plunge as well, have declined to 4.53% of the market this year, down from a 1986 peak of 5.63%.

“The Big Three have done surprisingly well at holding onto their market share, and even expanding it, over the last few months,” said Jack Kirnan, automotive analyst with Kidder, Peabody & Co. “I think the recent sales incentives from Detroit have crystallized in people’s minds that there is a huge price difference between domestics and imports.”

Yet those optimistic signs mask some ominous trends for the Big Three.

The Japanese, for instance, have more than offset their declining imports with cars built in their new U.S. and Canadian plants; their sales of “transplant” cars, including cars the Japanese build here for the Big Three, now account for 6.31% of the total car market. As a result, the “real” market share held by foreign producers has soared to just over 34%.

More Production Due

What’s more, the share held by these transplants is likely to explode over the next three years as massive new Japanese assembly plants now under construction begin production.

Toyota, for instance, is due to build its first car at its Kentucky plant later this week. Diamond-Star Motors, an Illinois joint venture between Chrysler and Mitsu- bishi, will begin producing Japanese-designed cars in September, while Isuzu and Fuji Heavy Industries, the parent company of Subaru, will open a joint venture assembly plant in Indiana late next year. Honda, which is now the fourth-largest U.S. auto producer behind Detroit’s Big Three, is already building a second assembly plant, set to open by 1991.

Combined, those four plants will produce nearly 700,000 cars annually, bringing the transplants’ total production capacity in the United States to 1.77 million units by 1991. On top of that, Japanese executives are scouring the country now looking for more plant sites; Isuzu officials are reportedly interested in taking over one of GM’s many vacant plants for a second U.S. facility.

In addition, 330,000 cars and utility vehicles are to be produced by Japanese plants in Canada, with many of those earmarked for sale in the United States. As a result, Japan’s North American capacity will nearly equal the nation’s auto exports to the United States, limited to 2.3 million units under the existing quota system.

Based on the improving market share figures for the Big Three over the past few months, some analysts now believe that Detroit will be able to frustrate the Japanese as they try to sell all of their imports and all of their transplants.

“Clearly, the market is telling us that the Japanese can’t sell what they are bringing here,” Kirnan said.

Developing Strategy

But others warn that the Japanese are “market-share driven,” and will not easily back down from their sales and production goals.

“The domestics have retrieved some lost share this year, but they shouldn’t underestimate the capacity of the Japanese to come out fighting to cope with the yen,” said Chris Cedergren, automotive analyst with J. D. Power & Associates, a market research firm. “The Japanese will do whatever they have to do to increase their share in this country. They are still developing a strategy that would have all of their transplant units become incremental sales, on top of selling all of the imports they are allowed under the quotas.”

Yet the Japanese are not Detroit’s only worry these days. Besides the transplants, some of the fastest selling cars in this market are now from the developing countries of the Third World.

Inexpensive cars from countries such as South Korea, Brazil, Mexico and Yugoslavia are flooding in to fill the void left by the direct imports from Japan and Western Europe, attracting buyers who can no longer afford cars from Tokyo, Detroit or Stuttgart.

Third World imports--which were virtually non-existent three years ago, now represent 5.6% of the market. And, since they are free from the kind of quotas that limit Japanese cars, and their home currencies have not dramatically appreciated against the dollar--Third World producers are likely to continue to grow at a fast pace--probably at the expense of American-built cars.

To be sure, many of those Third World imports are being sponsored by the Big Three. Detroit auto makers now import from Japan, South Korea and Mexico, and also sell cars built by the Japanese in the United States. Those sales inflate Detroit’s market share; yet the American companies are really just distributors of those cars, not manufacturers.

And, after all, it is the ability of Detroit’s auto makers to continue to compete as independent domestic auto manufacturers that worries analysts the most.

“I never bought into the argument that some analysts are using that the Big Three would get their share back,” Pochiluk notes. “You can make the mistake of looking at the last 10 days and projecting it for the next decade.”

CHANGES IN U.S. AUTO MARKET SHARE 1982* Japanese 22.3% West European 5.1% Transplants 0.1 % Big Three 70.8% 1988* Japanese 18.3% West European 4.5% Transplants 6.3% Third World 5.6% Big Three 65.6% *Industry estimates; figures do not add to 100% because of rounding AUTO SALES

May 11-20 % 10-Day 1988 change GM 104,330 -6.4 Ford 66,691 +2.6 Chrysler 30,348 +3.1 Honda U.S. 8,046 +37.2 VW U.S. 1,284 -39.3 Nissan U.S. 2,829 -52.4 Toyota U.S. 1,805 +43.4 Mazda 992 -- TOTAL 216,325 -2.2

There were 9 selling day in the selling period this year and last year.