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Step On It, Detroit


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STEP ON IT, DETROIT

As car sales improve in tandem with the U.S. economy, Detroit is starting to score against its Japanese competition (page 82). In the first five months of 1992, U.S. carmakers have grabbed 72.4% of the car and light-truck market, up 1.6 points from a year earlier. Japanese rivals, meanwhile, have lost 1.4 points, to 24%.

Today, Ford and Chrysler are among the world's low-cost producers, many experts contend, and gm finally seems determined to control its expenses. At the same time, costs are rising for the Japanese. Partly in response, Japanese carmakers have hiked sticker prices an average of 5% this spring, and they plan to lengthen the interval between some new models from their current four years. The Big Three lead the Japanese in fuel economy and safety features, both of which are important to U.S. consumers. Detroit is speeding up introductions of new models and is rebounding from years of being in the design doldrums, while some Japanese design has taken on a bland sameness.

So far, so good for Detroit. But this time, U.S. auto makers must not blow their new advantage. If they are to maintain their momentum, they must conquer their instincts for self-immolation. In previous recoveries, they forgot the recession's hard lessons once the going got better. The urgency of their cost-cutting efforts disappeared. Profits were frittered away on stock repurchases, fat salaries, and ill-advised diversifications outside the car business. In their last brush with prosperity, GM shelled out $8.5 billion for computer-services giant eds and defense contractor Hughes Aero-space, Chrysler paid $642 million for Gulfstream, and Ford funneled its cash into buying savings and loan associations.

With attention focused on their performance, Detroit's new managements aren't likely to repeat their past mistakes. But the Big Three must realize that their window of opportunity to take back ground from Japan may not stay open for long. Consumers' "buy American" mood may not last, and Japan seems sure to compete more vigorously once election-year threats of U.S. retaliation subside.

There's more riding on a revived Detroit than auto-industry jobs or stockholder and investor interest--though the market has doubled its valuation of the equities of the Big Three in seven short months. It is still true that when Detroit sneezes, the economy catches cold. And a robust Big Three means just the opposite: good economic news for the nation.


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