Overdrive

Grand profits for automakers

"There are great days in your life," said an exuberant Chrysler Chairman Lee lacocca last week. "This is certainly one of them." It surely was. lacocca announced that Chrysler recorded a staggering $705.8 million profit for the first three months of 1984. That is more than it made in any full year, including last year, when it earned a record $700.9 million.

Chrysler's turbo-charged results were produced by runaway sales of the Dodge Caravan and Plymouth Voyager, its new minivans (average selling price: $13,000), and strong demand for luxuriously equipped versions of all its models, especially the Chrysler Laser and Dodge Daytona sports cars. At the same time, the company got the payoff from the cost cutting made three years ago, when it reduced its break-even point from 2.4 million vehicles annually to only 1.1 million. Worker productivity has taken a great leap forward. Each employee now builds an average of 19.3 vehicles annually, in contrast with 10.2 in 1980.

When other U.S. automakers report their quarterly earnings this week, the news is likely to be equally exhilarating. General Motors is expected to make $1.6 billion, more than double the profit from last year's first quarter, and Ford could have earnings of more than $800 million, nearly quadruple last year's. Even American Motors, buoyed by strong Jeep sales, is expected to have good earnings. It will be only the second quarterly profit for the company in the past 3 1/2 years. Though Detroit is worried about the effects of high interest rates on sales, the current profit pace is expected to continue through the rest of this year.

But all that good news may be trouble for the automakers. The large profits and generous bonuses the companies are giving their executives are increasing pressure to roll back the import restrictions on Japanese autos that entered their fourth year this month. Said Martin Feldstein, chairman of the President's Council of Economic Advisers, last week: "I think that the quotas have kept prices higher to American consumers. I think it's about time that we think about getting rid of those quotas." Feldstein's remarks coincided with a preliminary finding by Brookings Institution Economist Robert Crandall that the restraints added an additional $400 to the cost of 1983-model American cars. Reason: the artificial shortage of Japanese autos allowed Detroit to crank up prices.

Nor are the industry's good tidings going unnoticed by the United Auto Workers. When contract talks begin this July, the union will be eager to win back wage and benefit concessions made to GM and Ford two years ago, as well as gain a chunk of current profits. The U.A.W has already signaled its goal by the slogan it has adopted for this year's talks: "Restore and More in '84."