Autos: Sales Down, Optimism Up

Chrysler gambles big on a new horizon

After a thundering 1977 model year, automobile executives are scrutinizing the latest sales figures with the anxiety and puzzlement of early-morning dockers timing the latest workout by an erratic race horse. Overall, the car industry's performance has been disappointing of late. Domestic sales dropped by 6.3% in the first ten days of December, the third decline in a row. General Motors sales were down by nearly 14% from last year's, while Chrysler and American Motors slumped by 8.4% and 29%, respectively.

Oddly, though, automen have seldom been so ebullient about the future of their industry. GM Chairman Thomas Murphy clings to a forecast of record U.S. car and truck sales in 1978. Ford is highly optimistic, with good reason: its sales in early December jumped 13% above those of a year ago, giving it about a third of the domestic market. The company will spend $2.5 billion next year to enlarge its plants, launching an expansion program that Chairman Henry Ford II describes as "bigger than anything we've ever tackled before in the 75-year history of the Ford Motor Co." It will continue through 1981.

There are several reasons for the optimism. Truck sales are setting records, indicating that buyers are still in a spending mood. German and Japanese makers are raising the prices of the cars they sell in the U.S. by 3% to 4%, reflecting the rise of their nations' currencies against the dollar and promising less stiff import competition to Detroit. More important, the domestic industry has come up with some hot new or redesigned models. GM has heavily scored with a new four-door Chevette. Ford's Fairmont and Zephyr, which have replaced the Maverick and the Comet in the compact class, are moving out of showrooms in startling numbers. Indeed, the Fairmont is selling faster than the Mustang did when it was introduced in 1965. Says Ford President Lee lacocca: "We expect to top the first-year Mustang record" of 418,800 cars.

Detroit is also gingerly moving toward what many regard as the autos of a future in which it must make cars smaller to comply with federal gas-mileage requirements: front-wheel-drive cars. Front-wheel drive, an idea from Europe, makes possible a transverse engine--one that is fitted sideways under the hood. That saves enough space to permit a surprisingly roomy interior in a relatively small car. Moreover, there is no transmission tunnel running back through the passenger cabin to cramp leg room. GM offers front-wheel drive on some Cadillac and large Oldsmobile Toronado models and is preparing a small front-wheel-drive car for the 1979 model year. Ford is importing the front-wheel-drive Fiesta from Europe, where it has proved highly successful with cost-conscious buyers.

Surprisingly, though, Chrysler, which has lagged in bringing out new cars since it introduced the Valiant in 1960, has gone further and faster toward front-wheel drive than anyone. Its executives are the most bullish of all. Says Executive Vice President R.K. Brown: "In five years, when the entire industry will have spent $50 billion to rebuild an entire new fleet of cars for the North American public, people will look back and say it all started with Omni and Horizon." These are two snappy, speedy, lightweight cars that Chrysler is now showing off to the press, and will put on sale in mid-January.

The autos are the first popular-price front-wheel-drive cars to be built in the U.S. Dressed up with carpeting, radio and white walls, they will sell at a base cost of $3,706 (tax and title extra). The price, combined with an overall mileage rating of 30 m.p.g., will certainly help Chrysler compete with imports like the stripped-down Volkswagen Rabbit, which has just gone up to $4,030. With its share of the market at just 12%, the lowest since the early '60s, Chrysler is gambling $350 million on the new models. First-year projections are for sales of 200,000.

Chrysler's 245,000 stockholders certainly hope that Brown's prediction is prescient. The third biggest carmaker has stumbled through some difficult years. Always highly leveraged (longterm debt has increased from $360 million to more than $1 billion over the past decade), Chrysler has had a curiously erratic record. Even though the industry has performed spectacularly this year, Chrysler's third-quarter earnings slumped 55.8%, compared with last year's. For the first nine months of 1977, Chrysler's profits were down almost 30%. Moreover, Chrysler expects losses of some $37 million in Great Britain, although part of that bill will be met by the British government.

Because it nets less than three cents on every sales dollar, Chrysler needed to build up its cash position, partly to finance refitting of the Belvidere, Ill., plant, where the new cars will be assembled. In 1976 the company sold its Air-temp air-conditioning division to Fedders for $47 million; the sale has now become the subject of lawsuits. Last month the real estate division sold several shopping centers, a hotel and some office buildings for $50 million.

At the Belvidere plant, Chrysler has installed 20 electronic robot welding machines that do 92% of the welding formerly performed by hand. Production will be increased by one-third, to 60 Horizons and Omnis an hour, v. the 45 larger cars per hour that had been built there. That should increase profits, but it alarms a lot of union members because some 200 workers were laid off when the new equipment was set up.

Senior executives at Chrysler are well aware of the consequences should their new models be viewed unkindly by the public. Product-Planning Chief Hal Sperlich is both cautious and cocky. "We are heading for an encounter of the third kind that can have tremendous consequences for us," he admits. Then comes the characteristic salesman's caveat. "Chrysler is the last of the big three to build a small car, and as my colleagues at Ford used to say, 'Last in, best dressed.' " Maybe. First sales results will be available in February, and if they are good, the industry's drive to make cars that are smaller yet roomy will accelerate.

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