Automakers expect to turn corner
Don't count the automakers out yet. The automaker's third-quarter reports are covered with red ink; but, by the end of the year, their earnings should show some major improvements.
By then the model changeovers, a costly affair, will be over and consumers will be looking at showrooms full of smaller, more fuel efficient cars.
By the fourth quarter, says auto analyst David Healey of Drexel Burnham Lambert Inc. brokerage house, General Motors "might have a crack at a small profit and ford motor Company might reduce its loss by 75 to 80 percent." Chrysler Corporation, the analyst believes, will remain deeply in the red although Chrysler's management is projecting a profit for the period.
The losses by the companies also are masking a significant achievement: They have cut the Japanese market share from 27 1/2 percent to 23 to 24 percent. This has occurred mainly because of Ford's intorduction of its new "world car," the Mercury Lynx and Ford Escort and Chrysler's K-cars, the Aries and Reliant. The Japanese have also been stymied somewhat by a strong currency, which has raised their selling prices. A further boost for Detroit has come from the wide availability of gasoline this summer and fall, bringing buyers of large cars back into the showrooms.
Still, the companies have their work cut out for them. GM's chairman, Thomas A. Murphy, in a statement sent out with the company's earnigns report, listing a loss of $567 million, said, "Further, the corporation will continue to experience significantly reduced profitability until the economy and automotive retail sales improve to more normal levels." He added, "We have weathered the worst. Recovery, although gradual, has begun."
One of Detroit's most pressing concern is the rising tide of interest rates. This spring when the Federal Reserve Board improsed credit controls, the auto industry went into an immediate slump. So far this fall, money is available. But automobile executives are nervous. The higher interest rates are making dealer inventory financing more expensive, a factor that may cause the dealers to cut back on their ordering.
Mr. Healey says still too early to tell how well the new cars are being accepted since the "pipelines is still filling." Showrooms are still stocked with leftover 1980 models, some being offered at discounts, and dealers are anxious to sell them before they start selling the new higher priced "81 models. "We really won't get a good fix on the new cars until the New Year," says Mr. Healey.
Even if the consumer starts to buy the new smaller automobiles, it may not be enough to keep some of the companies out of the red next year as well since they won't be able to produce enough small cars. Frank Drob, auto analyst at E. F. Hutton, a brokerage house, is forecasting that Ford will show a loss of about $5 per share or $600 million next year. Mr. Drob reasons that Ford will continue to lose market share next year since it only can offer customers the new Lynx and Escort," he says. GM should show a profit next year, mr. Drob says, of about $4.50 per share or about $1.3 billion. GM's profits will come from its increased efficiencies and lower costs.
Next year, E. F. Hutton is estimating the industry will sell 7.7 million new cars, up from an estimated 6.3 to 6.4 million this year. While this gain will help, says Mr. Drob, "it's still not any great shakes."
All of the auto companies will have to finance their large capital spending programs and losses. In the case of General Motors, it has sold Terex, its heavy vihicle subsidiary, to IBH, a German company, for $325 million and has used the European markets to raise some cash. Ford has borrowed from the banks and is expected to float some bonds. And, Chrysler has been using the $1.2 billion it borrowed with guarantees from the US government. Next year, says Mr. Healey, Chrysler will probably need more money. American Motors has been bailed out by Renault, the French auto manufacturer.
The companies are also hoping that the government will relax its fuel and emission standards and possibly give them some tax breaks. However, as the Detroit automakers know, it's easier to sell cars than to wait for help from Washington.