Lackluster Sales for Big Three Auto Makers Will Come Home to Roost as Lower Profits
The weakness in the U.S. auto market has been obvious for months in disappointing car sales. Now, Big Three profits are about to show the strain.</br></br>As General Motors Corp., Ford Motor Co. and Chrysler Corp. slash production, most industry analysts forecast second-quarter profits will at best be even with year-earlier results. The third quarter could see an even steeper earnings slide. GM is expected to cut U.S. car production about 15%, and at least one analyst predicts an operating loss for GM in the period.</br></br>As Detroit slumps, the broader U.S. economy could slump with it. "If you cut another 150,000 {vehicles} out of U.S. production in the third quarter, you could cut 1% out of the GNP {gross national product}," says Kidder, Peabody & Co. analyst John V. Kirnan. "That could tip the economy into a quarter of negative growth. Then all you need is another to have a textbook recession."</br></br>If the bears are right, and a recession that pushes car and light truck sales below 14 million vehicles hits next year, each of the Big Three is in better shape to weather the storm than during the 1980-82 recession years. Back then, Chrysler's survival hinged on a federal bailout, Ford lost more than $3 billion in three years, and GM in 1980 recorded its first full-year loss in 60 years.</br></br>But even a mild downturn will put the Big Three to a harsh test. For one thing, Japanese auto makers are gearing up enough U.S. plant capacity to build two million cars a year by 1992, at a time U.S. auto makers already can build two million more cars than they can sell. As the Japanese fight to make their U.S. plants profitable, they will put pressure on the Big Three to hold down prices and accept tighter profit margins.