Talking Shop with Detroit's Big Three

By Robert J. Eaton, John F. Smith Jr and Alex J. Trotman.

Last week TIME's editors interviewed Chrysler chairman Robert J. Eaton, General Motors CEO John F. Smith Jr., and Ford chairman Alex J. Trotman at the Detroit Athletic Club. Here are some highlights:

TIME: You three have dinners together, which was once unthinkable. You have visited the President together. Now this. Aside from a change in the atmosphere in antitrust, why all this togetherness?

Eaton: I think, basically, people recognize that we are in a global environment, and frankly, that's what our competitors have been doing for a long, long time. And we weren't permitted to.

TIME: What has come out of this?

Trotman: What has changed is the realization that as a group -- group meaning Washington and the big auto companies in America -- we could over the last 20 years have done a much more enlightened job of serving society than we have done.

TIME: What do you mean by that?

Trotman: There seems to be a much more open forum in Washington to explain issues relative to clean air, for example, or to the environment, and regulation of industry at large. A much more open feeling than I have experienced before.

Eaton: There's no question about it. All three of us have had experience in Europe and elsewhere overseas. And we were the only nation that had an adversarial relationship between industry and our government. Everyplace else it's exactly the opposite -- it's a very cooperative relationship.

Smith: One difference in Europe is that the governments are not afraid to raise the price of gasoline. It's totally different than in the U.S.

TIME: How do you feel about a 25 cents, 50 cents gas tax?

Eaton: We'd love it.

Smith: We are in favor of it. Gasoline costs roughly $3 to $4 a gallon in most parts of the world. And that drives the sales of smaller cars with, I'd say, an average displacement of somewhere between 1.6 and maybe 1.8 liters or so. Whereas in this country at $1 a gallon for gasoline, the average engine is going to be six cylinders and somewhere around three liters.

Trotman: We're in favor of it. Obviously it's very controversial. It's not a new subject. We've been quite public for a long time that part of the solution has to be an increase in the price of gasoline.

TIME: So you would welcome the pressure toward fuel efficiency that a higher tax would lead to?

Eaton: Yeah, we would welcome a consumer pressure for higher consumption, not a government regulation. We want to be in a position of satisfying our customers, not some law that doesn't relate to customers' desires.

TIME: I recently saw a chart of gas prices that went back to about 1960 showing that, inflation adjusted, the price of gasoline has never been anywhere near as cheap as it is now.

Trotman: It's never been this low.

TIME: But you clearly make more money on the bigger gas guzzlers. I know you hate that term, but what is your incentive to continue building smaller, fuel- efficient cars?

Trotman: We have an incentive to meet the law. That's our incentive. We're selling smaller cars against the grain. We have to sell approximately 400,000 Escorts and Tracers to meet the CAFE ((Corporate Average Fuel Economy)) requirements of 27.5 m.p.g. Whether the customer likes it or not, we have to sell them.

TIME: It was the impression at large in this country that your U.S. market share had gone into something like a free fall. Can you describe what's happening with your market share now, where you see it going?

Smith: Well, you're aware that it is starting to swing back away from imports to the domestics. And there are a number of reasons for that. The quality gap continues to close. The fact that the yen has risen in value is another major ingredient in that shift. People do look at price, and they look at the quality gap being closed. Since the price favors the domestics, they tend to go domestic. I think another important factor is that the market continues to swing toward trucks, and the Japanese in particular, or even the Europeans, haven't really been strong players on the light, commercial side of the business. So that tends to influence the domestic market share.

Eaton: Another factor, which I have no idea how to quantify, is a reawakening of the need for a manufacturing base in this economy.

Trotman: Let me speak for Ford for a minute. We have not been plummeting. That is something I'd like to make really clear. Our market share has been climbing since 1978, and we've come up over 5 points of total market share. I think one of the major factors has been price. The lowest-priced Ford car 10 years ago was valued about $2,000 over the smallest ToyotNow we've reversed positions. That's a big value change.

TIME: How will your operations change as a result of the recent North American Free Trade Agreement?

Trotman: We are going to ship more vehicles south.

Eaton: That's the first thing.

Smith: See, the duties come off on goods entering Mexico, and we'll take advantage of that by shipping our American product down to Mexico to fill in for product not manufactured down there. So there'd be quite an increase in exports.

TIME: Will you move any production, any manufacturing into Mexico?

Smith: We'll add some.

TIME: Do you know what you'll do? Will it be small cars?

Smith: Yeah, we'll do a small car . . . for the market in Mexico.

TIME: Won't it make sense under NAFTA for your suppliers to move to Mexico?

Trotman: Well, they could today.

Eaton: Yes, they could. Just as we could.

TIME: Do you think that the era in which your workers feel that layoffs are a fact of American life is over?

Trotman: Absolutely not.

TIME: Well, do you think that in the automobile industry we've been through the worst of the restructuring?

Trotman: I think that might be a perception, but if it is, any chance I get, which is frequently, I'd like to dissuade people from that notion. We have too much capacity in the world. What I constantly communicate to my work force is that we're in a very, very tough and competitive industry. We are going to have to work like mad, get more and more efficient, to survive and prosper in this global industrial environment. So I hope none of the people working in my shop feel that the happy days are here again.

TIME: At these dinners, what do you talk about? What are your most urgent concerns?

Eaton: Up to this point, the dinners have all been focused on public policy. And along with that has been the clean car, or maybe a tiny bit on joint research. But it's principally public policy. That is, at this point in time. And within that I'd put health care -- that is this industry's biggest competitive hardship, compared to the rest of the world . . . We're covering people in half the cities in this country.

Trotman: One thing that concerns me about this kind of discussion is the message that might be perceived in the public domain, that we are getting cozy together. We are talking public-policy issues here. And I'm sure there's a danger, because I've heard it from people out in the street, that we're starting to be less competitive with each other than we should be in the interests of society, and that's a message I sure would like to avoid getting, because I want to take every sale I possibly can from Jack and Bob, every car and truck. But I think it is important to make it clear that we are as competitive now, if not more so, as we have ever been.