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Troubles Continue for US Auto Industry - 2001-10-01


Even before the terrorist attacks on the World Trade Center and the Pentagon, America's automobile manufacturers were having a rough year. The aftermath of those shocking events are making things worse. Rising costs, skidding sales and painfully pinched profits became the story of 2001 for U.S. automakers and that was before September 11.

The major contributing factor to the carmakers' woes? The publisher of Automotive News, Keith Crain, says it boils down to competition. "To maintain volume and share of market, the domestic auto companies discovered that they had to add a lot of incentives to encourage people to buy their cars, as well as they were not able to raise prices.," he says.

Incentives in the form of cash rebates, sometimes as much as $3,000 per vehicle, and low-interest - and in some cases - no-interest loans, have sharply cut profits at General Motors, Ford and the Chrysler division of DaimlerChrysler.

In an attempt to kick the incentive habit, Chrysler has reduced prices on some new models and eliminated incentives. Keith Crain believes that will be "a disaster" for the automaker. "Chrysler is going to have a very, very rude awakening when they discover that, by dropping rebates and trying to re-price their cars, that sales are going to, I think, fall precipitously as well as their market share," he says.

While the domestic automakers struggled during the first eight months of the year, says Keith Crain, it was a different story for many of the import brands from Japan, Korea and Europe. "They've been creating products that the American public wants to buy, whether it's a Honda or a Toyota or whether it's a Mercedes or a BMW on the high end," says Mr. Crain. "It is just simply obvious that they've got cars that Americans are willing to go out and buy without any rebates."

But those sales levels were reached before September 11. For at least the first two weeks after the attacks, says Mr. Crain, the public's mind has been on more compelling matters. "Americans just weren't in a mood to buy cars and showroom traffic was down dramatically," he says. "So I think that all car companies are going to have a September, from a sales standpoint, that's going to be disastrous."

As for the future, no one has a clear picture. But David Cole, Director of the Center for Automotive Research in Ann Arbor, Michigan, says one thing is apparent. "I do believe that it's just going to add to the turbulence of the industry, but fundamentally over the longer term," says Mr. Cole. "We're not going to see the American public move away from their primary dependence on cars and trucks."

That may well be true, but for the short term, it is pretty clear automakers face some tough going until American consumers begin to feel secure once again.

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