Recovering from Frostbite

Auto sales are thawing out

When auto executives made their annual sales forecasts last year, they reached a consensus that more than 11 million cars would be sold during the 1978 model-year. Then they spent the winter chewing their nails; as snowstorms ravaged the Midwest and Northeast, sales fell to an annual rate of around 10 million. Now the prognosticators of Detroit think they are being vindicated. Though a downturn in the last ten days kept March sales from catching up to those in the same month a year earlier, they came within 1.4%. Even better, sales of 883,000 U.S.-made cars and 192,000 imports during the month work out to an annual rate of 11.5 million cars. Says Lee lacocca, the peppery president of Ford Motor Co., "We have recovered from the frostbite of January and February. March wasn't a turnaround. It was a resumption of sales. The market was there; it was buried in the snow."

Sales figures suggest that buyers are becoming more discriminating and value conscious. When General Motors in mid-March ran special sales contests, during which dealers pare prices, sales increased dramatically. While total new-car sales were down for the first six months of the 1978 model-year, sales of compact and subcompact cars increased by 13%. The star performer at General Motors last month was the boxy Chevette; its sales were up 84%, compared with a year ago. At Ford, Mustang sales rose 14%, while the new Fairmont is a stellar seller. Ford's lacocca puts himself in the position of a price-conscious buyer who has been out of the market for a few years and then visits a showroom to do some tire kicking. Says he sympathetically, "It's a jolt to see what you pay."

The major sour note in the industry is Chrysler's deteriorating financial position. Sales of the compact Dodge Omni and Plymouth Horizon, the first small front-wheel-drive cars to be made in the U.S., are up to expectations. But these cars appear to be snatching some customers from Chrysler's own Volare and Aspen.

In the last quarter of 1977, Chrysler suffered an operating loss of $49.7 million, compared with an operating profit of $119.2 million in the 1976 period. This year's first quarter probably wound up in the red too because the company's share of the total U.S. market has slipped (to 11.3% in March) and foreign operations are producing mounting losses. Standard & Poors has downgraded the company's bond rating, and a group of antimanagement stockholders anticipates that the 900-per-share dividend will be eliminated. Besides conserving cash and issuing 20 million shares of a new preferred stock this year, Chrysler may sell off some of its money-losing operations. Reason: it must spend $7.5 billion over the next five years to modernize North American plants and develop new models.

With another six months of the model-year ahead, only the most cockeyed optimist would feel certain that the present strong industry sales trend will continue. But auto executives are ever positive. The fact that dealer inventories are at an alltime record of more than 2 million cars does not bother them. "That's about a 60-day supply, which is normal, given the present selling rate," says Pontiac General Manager Alex Mair. To demonstrate their confidence, the carmakers have scheduled production of some 850,000 vehicles this month, the highest for the industry in any April.

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