Auto Sales: 90 Nicer Days

By John S. DeMott

And it's back to the job for thousands of assembly-line workers

The giant U.S. auto industry, whose sales are critical to any sustained economic recovery, is showing unmistakable signs of renewed vigor. Prodded by sharply lower financing rates, sales of new cars have been on a quiet but steady rise since October. By last week Detroit's harried automakers could look back on sales increases for nine consecutive ten-day selling periods, the first time that has happened since 1976.

Furthermore, General Motors planners said last week that 21,400 laid-off auto workers will be recalled during the next three months at seven U.S. assembly and parts plants. That will make only a ripple in the pool of 250,000 blue-collar employees who are on indefinite layoff, meaning they have no dates to return to work. But GM's is possibly the largest recall of auto workers since the mid-'70s. Union officials were encouraged. Owen Bieber, who will succeed Douglas Fraser as head of the United Auto Workers in May, said he hoped GM's announcement was "just the beginning of the industry's long-awaited return to health."

GM plans to produce about 890,000 cars through March, fully 30% more than it turned out during the first quarter of 1982. Said GM President F. James McDonald: "Our dealer-order bank is better than it has been in three years." Ford's forecast is even brighter: its schedules call for a 67% increase in production. Chrysler is expected to make 20% more cars during the period.

Financing rates of 10.9% helped push up sales for GM, Ford and Chrysler by a combined average of 27% in November and December over the same months of 1981. Even after that come-on disappeared at year's end and was replaced with an 11.9% rate, consumers kept buying. In the first 20 days of the new year, sales were up 12%.

Yet, in the manner of an experienced mechanic who senses that a problem is not entirely solved even though a test meter's needle may indicate otherwise, auto executives look warily at the figures and fear that any rebound in interest rates could brake the sales rise. Cautions Robert Stempel, Chevrolet Division general manager and a GM vice president: "The market is very volatile. We're going to have to keep everything in perspective."

The 11.9% financing--enticing when most banks' auto-loan rates are 15% to 16%--is scheduled to expire on March 31, but low rates are selling so many cars that it might be extended. General Motors, which took the initiative before, is likely to lead in keeping the rates down because its financing subsidiary, General Motors Acceptance Corp., has a high credit rating and can borrow substantial amounts of money at lower rates. Ford can borrow neither as freely nor as cheaply and is losing on the credit operation, while Chrysler, which must rely heavily on more expensive bank financing to sell cars, is losing even more per sale.

Nonetheless, a healthy increase in sales could bring production-line efficiencies that will chip away at the financing deficits, so the incentive could stick. Says Harold A. Poling, Ford's executive vice president for North American operations: "It's a logical way to back off gracefully from rebates and other market-support programs."

The lower rates came none too soon. Last year was the worst for the industry since Dwight Eisenhower was President. Only 5.1 million U.S.-made cars were produced, the lowest number since 1958. U.S. makers sold a mere 5.8 million autos, the fewest since 1961. In addition, Americans bought 2.2 million imports, principally from Japan.

Only GM and Chrysler will show profits for 1982 when the figures are released this month. GM's earnings come in part from its insurance operations, tax credits and favorable foreign-exchange transactions. Chrysler's profits will not come from auto operations either but from the sale of its defense division, which builds tanks, to General Dynamics Corp.: that brought Chrysler $348.5 million. Ford and American Motors will show losses, despite healthy sales of Ford's Escort and the meteoric popularity of the Alliance, which AMC developed with its French partner, Renault.

Has the bottom been reached? The answer from auto executives is a cautious maybe. According to a report in the Wall Street Journal, GM forecasters are predicting an increase in U.S. car sales of about 15%, but they are more optimistic than their counterparts at Ford or Chrysler. Officials there look for a more modest increase of 10%, to sales of about 6.3 million autos. That is paltry by past standards. In 1978, the industry's most recent peak, 9.3 million U.S.-made cars were sold. Says Maryann Keller of Paine Webber Mitchell Hutchins, regarded as one of the best among Wall Street's 20 or so auto analysts: "By historical standards it's still bad. But it's better than what the industry's been through."

In general, Wall Streeters are far more bullish than the industry's managers in Detroit. Shares of Chrysler and Ford were among the stock market's superstars last year, rising 426% and 132%, respectively; GM's rose 62%.

The investment professionals contend, and executives in Detroit agree, that the companies are in a far better position to benefit from a recovery in sales than when they pulled out of earlier recessions. That is because of new operating efficiencies. In 1979, for ex ample, Chrysler had to sell 2.4 million vehicles just to cover its costs. Now, boasts Chairman Lee A. Iacocca, that number has been cut to 1.1 million cars, as employment and other costs have been reduced by $1.2 billion.

Automakers also are being helped by renewed customer interest in larger cars, on which they make more money, spurred partly by the weakening in gasoline prices as the OPEC cartel loses its grip. Rust also is Detroit's friend: more and more cars in the U.S. auto fleet are older ones (average age: seven years) and will need to be replaced sooner or later. This year will not be a great one for Detroit. But at last there seems to be cause for believing that good times, if not around the next bend, could be around the one after that. -- By John S. DeMott. Reported by Bruce van Voorst/New York and Paul A. Witteman/ Detroit

With reporting by Bruce van Voorst/New York and Paul A. Witteman/ Detroit This file is automatically generated by a robot program, so viewer discretion is required.