Big Three bask in recent success

QUALITY is on the mend. Market share is rising. Profits are racing toward all-time highs. But can the Big Three United States automakers survive success?

Combined, General Motors Corporation, Ford Motor Company, and Chrysler Corporation profits totaled $4.6 billion for the second quarter of 1994. That is all the more amazing considering the billions in losses Detroit racked up during the last recession. While a spring sales surge has begun to cool, the carmakers still struggle to meet demand for their hottest models. Chrysler is short of its new Neon subcompact. And there is barely a 20-day supply of Ford's new Mustang convertible - less than one-third of what the industry considers normal inventory.

``I'm hearing something I haven't heard in a long time - dealers begging for more cars to sell,'' says John Rock, general manager of GM's Oldsmobile division in Lansing, Mich.

But is this really ``the Golden Age of the Big Three,'' as some are dubbing it? Or is it reason to worry? Despite Detroit's successes, skeptics warn that the Japanese have halted their two-year sales slide. They are readying new products aimed at market segments long dominated by the Big Three. And Detroit may be throwing away the advantage handed it by the weak dollar. ``We've been banging our heads against the wall for so long that I'm afraid we'll declare victory and relax,'' Mr. Rock concedes.

There is no question that Detroit has made major strides. On the whole, today's typical American passenger car has barely one-fifth the number of defects of cars built a decade ago. The best domestic brands such as Saturn are edging to the top of the influential J. D. Power Customer Satisfaction Index.

Today's domestic products also seem more in line with customer tastes, especially import-loyal Baby Boomers and those in their 20s. Tellingly, the typical Neon buyer is a decade younger - and more affluent - than those who bought Chrysler's old Shadow and Sundance subcompacts. ``We're going for the jugular of the imports,'' boasts Steve Torok, general manager of the Chrysler/Plymouth division in Auburn Hills, Mich.

Not all the changes are visible to consumers. According to a new study by automotive productivity guru James Harbour of Detroit's Harbour and Associates, the Nissan transplant assembly line in Smyrna, Tenn., is the most productive plant in North America. But it is, at best, a pyrrhic victory for the Japanese after adding the cost of designing, engineering, and marketing a car. ``Chrysler is taking its competition apart,'' Mr. Harbour says. ``It's designing vehicles that are absolutely the lowest cost to build in the world.''

A visit to the new Chrysler Technology Center in Auburn Hills makes it easy to understand why. Each floor is devoted to a specific product line, with engineers and designers, marketing and manufacturing experts sitting side-by-side, working as a ``platform team.'' As a result, Chrysler was able to develop its new Cirrus, a compact sedan, in barely 30 months, with a staff of just 750. In the past, a similar program would have taken up to five years and 1,500 employees.

CHRYSLER is not the only automaker making big strides. In 1991, GM's North American Automotive Operations lost an average $750 million a month. But David Cole, director of the University of Michigan's Office for the Study of Automotive Transportation, estimates that GM has shaved $2,000 off the cost of producing a car since then. ``And they're going to get close to $4,000 out of costs by 1996,'' he adds.

In April, Ford combined its North American and European carmaking units into a single entity - Ford Automotive Operations. Under the new structure, Ford has five Vehicle Program Centers or VPCs, each focusing on a specific market segment. One group, based in North America, will develop large, front-wheel-drive vehicles such as the Ford Taurus. Another VPC, based in Europe, will handle smaller products, such as the CDW27, a code name for a new line of compact cars being sold as the Ford Mondeo in Europe and as the Ford Contour and Mercury Mystique in the US.

``It means not duplicating effort,'' explains Ford Chairman Alex Trotman. ``In the past, Ford developed [different products] in Europe and in the US - unique in virtually every detail but performing essentially the same functions. There was an enormous waste in doing that. In the future, we'll have one team design the [product] for use worldwide.''

So what is there to worry about? Plenty, cautions auto analyst Maryann Keller of Furman Selz Inc., a brokerage house in New York. Ms. Keller suggests Detroit could contribute to its own undoing. She says she was flabbergasted when GM announced a 2.5 percent price hike for its 1995 models.

``I don't think the market can tolerate a price increase,'' Keller says, noting that the typical 1995 car will cost about $19,000. That is up from $11,450 in 1984, according to the US Department of Commerce. A more telling statistic: The average buyer will work 26 weeks to pay for a car this fall, up from 23 weeks a decade ago.

The Big Three defend the increases and suggest the Japanese are likely to hike prices as much as 10 percent over the coming year - the result of the strong yen. But will they? Nissan cut prices slightly on the 1995 Maxima. And other Japanese manufacturers suggest they would rather reduce profits than raise prices more than a couple of percent.

They may not have to do that for long. Toyota, for example, has cut $2 billion out of its cost base this year; its goal is to break even below 90 yen to the dollar compared with 110 yen today. One way is to move more production to the US. Last month, Honda announced plans to expand its North American assembly capacity by 20 percent - and it hinted further increases could follow.

The Japanese are also gearing up a new assault on the light truck market, with vehicles such as Toyota's RAV 4 sport-utility vehicle. If they succeed, it could prove a devastating blow since trucks provide the bulk of Big Three profits. ``We have to keep our minds riveted on the basics of sound business all the time and never relax, just because we're making a few billion,'' Mr. Trotman acknowledges.

Detroit, he adds, has made major gains, but so far it has primarily been a case of clearing dead wood. Before the recovery is complete, there must be more fundamental changes. The real test for Detroit will come when the motor vehicle market slips into the next cyclical trough, which most analysts expect to happen by 1996 or 1997. ``If you haven't structurally improved,'' Trotman says, ``the rocks will come back up when the waters go down.''