Out of the Red?

Strong sales revive Chrysler

When the latest new-car sales figures were announced last week, the results were once again gloomy. For the middle ten days of June, sales fell to an annual rate of just 5.2 million, the lowest for the period in 23 years. Only one manufacturer showed any increase at all. Chrysler's sales rose a zesty 16%.

Just six months ago, Chrysler seemed headed for bankruptcy, with $1.7 billion in 1980 losses and no certainty that the Reagan Administration would answer the company's urgent pleas for $400 million in federal loan guarantees. Since then, Chrysler's sales have risen 23% over those of a year ago, and the plants that make the compact K-car are running on overtime. Now there is growing optimism at the company's Highland Park, Mich., headquarters that in the three-month period ending June 30, Chrysler may break even or perhaps show a small profit. If so, that would mark the first time since December 1978 that Chrysler has been in the black.

Chrysler's surge toward profitability is due mostly to drastic reductions in corporate spending. Already burdened with $2.3 billion in debts, the firm has cut $2 billion from capital-spending plans by postponing or canceling new models. Instead of developing its own 1986 subcompact, it is cooperating with France's Peugeot in the joint design and construction of a new model. By closing plants and laying off workers, Chrysler has also slashed its fixed spending and operating costs by another $2 billion. It has closed eight plants, laid off 22,000 white-collar workers and put thousands of hourly workers on indefinite layoff.

The overall saving has cut by nearly one-half, to 1.3 million, the number of vehides that Chrysler needs to sell this year to break even. Moreover, since consumers are no longer being bombarded by news of the company's embarrassing requests for federal assistance, Chrysler dealers are beginning to find it easier to convince customers that the automaker will be around in the future to fix and service the cars it sells today.

Chrysler Chairman Lee lacocca is now making a bid to expand the company's shrunken dealer base. lacocca, a former president of Ford Motor Co., is even trying to persuade GM and Ford dealers to display Chrysler models alongside their own. He is gambling that his models will outdo the competition and that he can eventually take over some franchises. One St. Joseph, Mo., dealer who has been affiliated with Ford for 24 years is now outselling Fords with Chryslers by 3 to 1 off his showroom floor.

While Chrysler is recovering, the other automakers are waiting for the voluntary restrictions on Japanese imports to steer customers their way. GM's older models are languishing, and the company has been slow to roll out its new J-cars. Deliveries of the front-wheel-drive models are backed up, in some cases for several months. Thus far, Ford's new two-seat sports cars, the Ford EXP and Mercury LN7, have been a disappointment. Overall, Ford's sales are off 4% from last year.

Despite Chrysler's sales boomlet, the firm's survival is by no means assured. If interest rates remain high, hardly an unlikely prospect, hard-won sales gains could easily begin to erode all over again. Moreover, Chrysler's drastic cuts in spending have already crimped its ability to compete long term with GM and Ford in the development of new products. Company officials admit that they must continue to seek a merger with another auto maker to stay in business. So far, no corporate suitor has been eager to woo a bride with such uncertain prospects.

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