Talk about mixed signals. Not long before George Bush heard the latest good news on the economy–an uptick in postwar consumer confidence–he met with the leaders of America’s Big Three automakers, who trudged into the Oval Office last month bearing a message of gloom. As Chrysler’s Lee Iacocca put it in a letter sent before the meeting, the car business “has been severely weakened by a combination of recession and war.” He warned that if Detroit wasn’t spared from costly new environmental regulations, the pain would get worse. Iacocca even pleaded with Bush to set a cap on Japan’s steadily growing share of the U.S. car market (chart). “I can tell you, Mr. President,” he wrote, “at a Japanese share of 40 percent in a depressed industry, Chrysler is gone.”
Until recently, few in Detroit would have conceded that Japanese competition might put one of the Big Three out of business. Yet the American auto companies, despite steady improvements in cost control and production methods, continue to lose ground. Already-sagging sales fell through the floor during the war, when “everyone was at home watching television,” as University of Michigan auto analyst David Cole puts it. And there has been little sign of improvement since the war ended: sales of passenger cars were up only a fraction in the first 10 days of March. Collectively, the Big Three are expected to lose $3 billion in the first quarter of 1991 alone. “The auto industry–manufacturers, suppliers and dealers–is just hemorrhaging money,” says Cole. “They can’t sustain it.”
At the White House, the auto executives did get a sympathetic hearing on one count. In their meeting with Bush they asked for some latitude in conforming with new auto-emission standards and argued against proposals to raise the overall average fuel efficiency carmakers are required to maintain on all their models (now 28 miles per gallon). Bush officials said they would look favorably on both requests. But Iacocca’s letter got a frostier response. (Ford boss Harold “Red” Poling and General Motors’ Robert Stempel apparently didn’t join the Chrysler chief in his explicit demand for new import restrictions.) “There’ll be no push for any new barriers,” said one of Bush’s top economic aides.
Iacocca knew what that answer would be in advance; Bush and his economic team have always rejected anything that smacks of “managed trade.” But he may have hoped the headlines about his appeal would get Japanese firms to ease up on their own. Bush meets with Japanese Prime Minister Toshiki Kaifu this week, and a White House official indicated he would bring up Detroit’s problems. In Tokyo, auto analysts speculated that Iacocca may also be playing to U.S. consumers unhappy with what they believe to be Japan’s grudging contributions to the gulf war. Worried about hard feelings, Toyota board member Shinji Sakai has been canvassing dealers in the United States, asking if they sense growing anti-Japanese sentiment. (The answer so far, he says, is no.)
Detroit was also motivated by a more immediate fear. The American market hasn’t been very strong recently for the Japanese, either, and that might lead them to start slashing prices to move inventory. Because the Japanese companies have healthier balance sheets and bottom lines, they could afford a price war more easily than the Big Three. In his letter, Iacocca charged that the Japanese firms have shipped “large numbers” of cars to the United States in recent months and might soon begin to “distress merchandise” them. It’s that scenario that led Iacocca to project a Japanese market share of 40 percent–and to call on Bush to limit all Japanese cars, including those now made at U.S. plants, to 31 percent of the market.
Iacocca may not have to worry about a price war just yet. Although Toyota’s Sakai concedes that price-cutting is “a fairly normal strategy” during times of market weakness, Japanese automakers are reluctant to do anything that would call more attention to themselves in the sensitive postwar environment. But that doesn’t mean they will stop the relentless drive to improve their cars and U.S. plants that has accounted for so much of their success in America. After hearing that the administration had rejected Iacocca’s demands, Japanese car executives were typically decorous. “We are very grateful for the administration’s fair response,” said a high-ranking official at one auto company in Tokyo. But Detroit knows that they won’t be so polite when it comes to the battle for the American market–and that this may not be the last time the Big Three ask the White House for help.
