Days of Glory

Chrysler turns up a winner

Though the good news of Chrysler's second quarter results had become one of the worst-kept secrets in automotive history, Chrysler Chairman Lee lacocca was determined to get all the mileage he could out of the announcement. First, he picked the National Press Club in Washington as a forum to give the second quarter company statement the widest possible coverage. Then, at a pre-speech reception, lacocca presided over the presentation of small bottles of artists' ink to the members of Congress who had voted 19 months ago to give Chrysler up to $1.5 billion in federal loan guarantees. On the bottles of black ink were the labels NOW BEING USED BY THE CHRYSLER CORP. Unable to resist winning a little more publicity for his products, lacocca arrived at the club driving a prototype of a 1982 Chrysler Le Baron convertible in its first appearance on public streets.

With all the fanfare complete, lacocca gave out the news: after 27 months and $3.1 billion of losses, Chrysler had made a profit of $12 million during the second quarter. Quipped lacocca: "With our second quarter profits, we too might make a tender offer for Conoco. What the hell, everybody else has."

Although $12 million will not go far in solving Chrysler's massive financial problems, the small profit represents a significant improvement over last year's second quarter, when the company lost a stunning $536 million. Skeptical observers, however, wondered whether Chrysler's black ink was a demonstration of the company's improving health or just the outcome of some fancy financial footwork.

From April 1 to June 30, Chrysler shipped 242,000 cars to its dealers. Since auto-industry bookkeepers count the cars sold after they are delivered to showrooms, this helped build up the second quarter results. But Chrysler's auto dealers sold only 189,000 cars, creating a large inventory that could keep down third quarter factory orders.

Iacocca insisted that he had not cooked the books. He said that Chrysler prudently built up its stocks so that shortages will not develop later this summer when plants shut down for the annual model changeovers. He also noted that both Ford and General Motors increased stocks during the second quarter.

Fancy bookkeeping or not, Chrysler will be hard pressed to stay in the black for the rest of the year. Even though it has sharply reduced the size of its operations and drastically cut costs, the company is headed into the year's slowest selling season. Sales will also be sluggish if interest rates remain high. lacocca last week predicted a good second half of the year for Chrysler and the rest of the industry if interest rates drop to 15% or less. But he added: "If they stay at 20%, look out--it will be disaster."

The other major auto companies also made money in the second quarter. Ford last week reported a narrow $60 million profit, which was a relief after its $439 million loss in the first quarter of the year. General Motors, the only American automaker to earn money during the first three months of 1981, is expected to announce even better results for the second quarter.

The temporary move into the black, however, does not remove the industry's persistent serious problems. The automakers' gains are coming mostly as a result of lower overhead and worker layoffs. Detroit continues to have difficulties selling cars. During the first ten days of July, sales of American-made autos fell to the lowest levels for that period in 20 years, and they have increased only slightly since then. Ford suffered a setback last week when talks broke off with Toyota over plans for the two companies to build cars jointly in the U.S. Such a venture would have helped Ford fill out its sparse line of small cars. Even GM is now running into problems with the subcompact J-cars that it introduced in May. Production has been slower than expected, and consumers have been very reluctant to buy the new small cars at prices that can top $10,000.

U.S. automakers still hope for a sales upturn this fall. Millions of Americans have been delaying replacement of their old cars, but at some point they will be forced to take them off the road. The new voluntary restrictions on Japanese auto exports should also eventually help the sale of American models. But it may be a while before lacocca will be able to repeat last week's profit announcement.

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