Week of January 11, 1999

The Car Connection The Car Connection
January 11, 1999

THE BEST OF THE BEST
TOP SELLERS
TURNABOUT’S FAIR PLAY
MOVING METAL
CLOUDY CRYSTAL BALLS
CONSUMERS COULD BE THE WINNERS
RIDING THE BLUE MACAW
BILLIONS AND BILLIONS
IMPASSE IN BRAZIL
DOLLARS FOR JUNKERS
BMW WAVERS ON ROVER'
MERGER MANIA CONTINUES
NO ON CHO
COROLLA CAPS THE MARKET
WHEELING WINNERS

THE BEST OF THE BEST — Volkswagen’s scored a big hit with its New Beetle, and if anyone had any doubts, the car has collected yet another top honor. The reborn Bug was chosen North American Car of the Year by a panel of U.S. and Canadian auto writers. Perhaps the only one surprised by the award was VW Chairman Ferdinand Piech, who was forced to pay off on a $20 bet with Gerd Klauss, head of Volkswagen of America. “I paid, and I’m happy I could pay,” said a smiling Piech. “I’m happy to lose it.” The winner in the truck category came as a bit more of a surprise. Most observers had expected the new Chevrolet Silverado to take top honors, but the winner was the redesigned Jeep Grand Cherokee. The Silverado came close, according to judges, but it lost out after splitting its votes with the nearly identical full-size pickup, the GMC Sierra.

TOP SELLERS — In a season of winners and losers, the Toyota Camry grabbed another hard-sought honor. The midsize sedan narrowly outsold the Honda Accord to maintain its sales crown as America’s most popular passenger car for the second year in a row. Americans bought or leased 429,575 Camrys in 1998, just 28,504 more than the Honda Accord. Over two-thirds of Camrys sold in the U.S. are now being built at the automaker’s plant in Kentucky. Camry’s numbers pale in comparison to Ford’s F-Series pickup. The full-size pickup held onto its lead as the best-selling truck — and top-selling motor vehicle — for the 17th year in a row. Boosted by the introduction of the heavy-duty F-250 and F-350 models, Ford sold a total of 836,629 of the full-size pickups. That was nearly 60 percent more than the second-place truck contender, the Chevy full-size pickup. GM suffered a shortage due to model changeover and a devastating strike, but it has set a goal of displacing Ford as production of the new Chevrolet Silverado reaches full speed.

TURNABOUT’S FAIR PLAY — While Ford dominated the truck market, it failed to achieve a long-sought dream of winning the luxury car sales sweepstakes. Going into the final weeks of 1998, Ford’s Lincoln division seemed positioned to outsell its cross-town rival, General Motors’ Cadillac division. It would have marked the first time in 49 years that Cadillac couldn’t claim the sales crown. But Cadillac scored an unexpected burst of business in December, moving 3,642 of its new Escalade SUVs, and 5,008 Seville sedans. The Seville business was up nearly 700 percent over December 1998. Cadillac ended the year with sales of 187,343 vehicles, nudging by Lincoln at 187,121. But the two automakers may need to look over their shoulders in 1999. The Mercedes-Benz brand of DaimlerChrysler scored its own best-ever sales year in the U.S, with volume of 170,245. As with Lincoln and Cadillac, Mercedes has been riding high on growing demand for luxury SUVs.

MOVING METAL — It wasn’t supposed to happen this way. Going into 1998, most pundits expected sales to sag a bit, but the U.S. auto industry rolled up one of its best years ever, thanks to surging demand for anything that looks like a truck. Total industry volume rose 3 percent for the year, to 15.6 million, hitting the second-highest figure ever, and the best sales in 12 years. While 1998 might have gotten off to a slow start, it was running in full gear as the year came to an end, with December sales up 7 percent compared to the final month of 1997. Foreign automakers racked up the biggest year-to-year gains. Japanese and Korean manufacturers posted a combined 4 percent increase, while the Europeans scored a 29 percent increase. The Big Three — counting the Chrysler side of DaimlerChrysler — posted a combined increase of just 1 percent. The domestic numbers were impacted by the seven-week strike that shut General Motors down over the summer.

CLOUDY CRYSTAL BALLS — While the U.S. economy continues to resemble the Little Engine that Could, industry analysts are once again projecting a slight downturn in sales for 1999. Volumes are being forecast to run somewhere between 15.0 million and 15.5 million, with most observers aiming for the lower side of that spread. “We see more of the same, maybe a little weaker,” predicts Ford Motor Co. President and CEO Jac Nasser. For his part, General Motors Chairman Jack Smith is setting the same target for the U.S., but he’s keeping fingers crossed that European sales will be “strong, maybe even stronger than last year.” The big clouds cover Asia and Latin America. Few expect much of a recovery down South of the Border, and despite the latest fiscal stimulus programs, industry leaders aren’t very bullish about Japan, either. The rest of the Asian region will only slowly come back, according to current, conventional wisdom, though some markets are likely to recover faster than others are.

CONSUMERS COULD BE THE WINNERS — In more conventional times, strong sales usually are matched by rapid price hikes, especially on the industry’s hotter-selling products. But prices actually declined last year after adjusting for the nation’s modest inflation rate, and few expect the chance for any big increases in 1999, either. If anything, the coming months could bring more rebates and other consumer incentives, cautions auto analyst Susan Jacobs of Jacobs & Associates in Rutherford, New Jersey.

RIDING THE BLUE MACAW — General Motors hasn’t yet opened its new Blue Macaw assembly complex in southern Brazil, but it’s already convinced the concept behind the new factory can be put to good use in the U.S. GM officials will shortly announce the details behind the company’s long-rumored Project Yellowstone, which combines many of the concepts and processes developed for Brazil, as well as some of GM’s newer plants in Europe and Asia. If all goes according to plan, GM hopes to convert or build up to three “Delta” plants in the U.S., and possibly Mexico. Rather than have assembly line workers bolt together individual pieces, suppliers will deliver pre-assembled modules right to the assembly line. Combined with other labor-saving and waste-reducing processes, GM hopes to shave the cost of assembling a small car “in the $1,500 area,” according to Chairman Jack Smith. That would be more than 15 percent of the current cost of building a vehicle like the Chevrolet Cavalier. But before Yellowstone can go into action, GM will have to negotiate an agreement with the United Auto Workers union. And considering recent union-management frictions, insiders say that could prove a difficult challenge. Whether the plants go into the U.S. or Mexico will likely be decided by April. **For more on Project Yellowstone, click here for a special report.**

BILLIONS AND BILLIONS — GM isn’t the only automaker looking to cut costs. Ford has outlined plans to trim spending by $1 billion this year compared to automotive spending levels of 1998. The automaker outlined several goals for 1999, including a 5 percent return on sales (ROS) for its North American automotive operations. Both targets seem within reach, barring an economic meltdown. For the first nine months of 1998, costs were down $1.9 billion, while the North American ROS was 5.7 percent. Ford issues its 1998 fourth-quarter and full-year results during the third week of January. Analysts expect it to post 1998 operating earnings of $5.20 a share, compared to $4.86 the previous year.

IMPASSE IN BRAZIL — Thousands of workers continue to occupy Ford’s Sao Bernardo plant just outside Sao Paulo. The confrontation stemmed from the automaker’s unexpected announcement, just before Christmas, to cut about 2800 workers, or 45 percent of the Sao Bernardo workforce. Barring a move by Ford to negotiate the job cuts, union leaders say they’ll continue to block the plant’s main production line. The standoff comes in the wake of sharp reductions in the Brazilian auto market. Due to a weakened economy and massive increases in consumer loan rates, sales slumped an estimated 20 percent last year, to 1.5 million units.

DOLLARS FOR JUNKERS — The Australian government may start paying consumers to get their old cars off the road. A Sydney newspaper reports the bonus could come to as much as A$1,000, or US$620. The plan is designed to get rid of old clunkers and help kick-start the nation’s car industry, which is already reporting record sales.

BMW WAVERS ON ROVER — Despite reports in the European press, German automaker BMW says it has no plans to invest 3.8 billion deutsche marks, or $2.26 billion, to launch production of two new small cars at its British subsidiary, Rover Group Plc. Der Spiegel magazine said BMW wants Rover to come up with competitors to the popular Volkswagen Golf and Polo models. Rover sales have been on a slow rise, but the unit is reportedly losing more than $500 million a year. BMW has been hinting that it might need financial help from the U.K. government if it’s to continue to produce Rover cars in Britain over the long haul.

MERGER MANIA CONTINUES — Rumors suggesting all sorts of possible mergers and acquisitions have been flying fast and free in recent weeks. Industry insiders suggest that Volvo, Renault, Fiat and Nissan seem to be among the most likely to announce some type of deal this year. And the chairman of IFIL SpA was quoted as saying Fiat is engaged in talks with Sweden’s Volvo — among other companies — to explore possible alliances. “The discussion (with Volvo) exists, but not only with them,” said Umberto Agnelli, chairman of IFIL SpA, one of the holding companies through which the Agnelli family controls Fiat. “There are two or three groups” Fiat is talking to, he said. Volvo has been linked to several other possible partners, including both Volkswagen and Ford. Indeed, news reports have connected Ford with everyone from Volvo to BMW to Honda. For his part, Ford Chairman Jac Nasser is dismissing those rumors as “preposterous.”

NO ON CHO — Toyota Motor Corp. officials have refused to comment on reports of a shake-up in top management. Nikkeiren, the Japan Federation of Employers' Associations, said on Friday that Toyota's current president, Hiroshi Okuda, would replace Jiro Nemoto as the business lobby's chairman. It’s also being reported Okuda would stay on at Toyota in a reduced capacity. The reports suggest Okuda’s replacement as president — a corporation’s top position in Japan — would be Toyota Vice President Fujio Cho.

COROLLA CAPS THE MARKET — While the Japanese new-car market may remain in a slump, Toyota officials have something to celebrate. Their Corolla maintained its position as the country’s best-selling automobile, an honor it has now held for 30 years in a row.

WHEELING WINNERS — It’s the season for giving out plaques and honors, some large, some small. African Americans on Wheels, the nation’s first publication for black motorists, drew close to 1,000 attendees during a ceremony at the North American International Auto Show. The magazine named DaimlerChrysler its Company of the Year, picked the Beetle as its Vehicle of the Year, and honored Ron Goldsberry, vice president of Global Service Business Strategy at Ford Motor Co., as its Executive of the Year.

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