THE U.S. CAR MARKET “SUBCOMP ACTS” TO STEM THE FLOW OF FOREIGN CARS

Press, Volume CX, Issue 32392, 3 September 1970, Page 10

THE U.S. CAR MARKET “SUBCOMP ACTS” TO STEM THE FLOW OF FOREIGN CARS

(By

JAMES ENSOR,

:, motor induetry correspondent of the "Financial Times”. London)

* - v ...» • , uunuun; (Reprinted from the "Financial Times" by arrangement.)

Ford recently unveiled its new subcompact, the Pinto, which together with Chevrolet’s Vega and American Motors’ Gremlin represents the strongest challenge ever faced by foreign car imports in the United States market. Detroit has allowed imports to surge steadily ahead until they are taking 14 per cent of the entire United States market and as much as 42 per cent of the sales in some affluent East and West Coast counties.

What worried Detroit particularly was that American buyers of imported cars are younger, better educated and wealthier than average. The typical buyer is in his early thirties, earns over SIO,OOO a year and spent at least two years at college. These buyers have rejected Detroit’s marketing line that bigger is better and that a little more car for a little more money Is a worthwhile buy. Instead, they have bought increasing numbers of Volkswagens, Toyotas and Opels at under S2OOO. As auto industry executives wryly concede—the importers have had no price competition for 13 years. British Features The new subcompacts are more comparable with European and Japanese cars than any previously manufactured in Detroit. The Pinto’s standard engine is the Britishbuilt 1600 c.c. Cortina unit (its optional engine is a new German-made two-litre). The car also features British rack and pinion steering, while many of the suspension details follow European practice. The Pinto’s wheelbase is half an inch less than the Volkswagen Beetle, which dominates the United States import market, and its weight, price and size are almost identical.

1S Ford's product planners have set out to produce a ie car which could be built in !S highly automated plants at a a cost to match Volkswagen or n Toyota. Since labour rates in n the United States auto industry are between two and three times as high as those 1 in Europe and Japan, and • steel and other materials are . more expensive, this is no easy task. In fact, Ford managers admit that profits on the Pinto will be very low, while Chevrolet does not expect to see any return -m the Vega for three years. The American subcompacts ti- compare well with the Volks>e wagen in value for money, y Ford’s Gordon Mackenzie, s- who is in charge of market;e ing the Pinto, asserts that it d has more room, better handtn ling and stability than the Beetle. In addition, it should n match Volkswagen’s excepn tionally low cost of ownerr- ship. Partly to achieve is these ends, Ford has chosen is the well ■ proven Cortina is engine instead of designing y- a new one to be made in the tn United States as General ie Motors has done. Both Pinto and Vega will

be on sale through Ford and General Motors dealers across the United States next month. Each company is confident of selling at the rate of 400,000 cars a year—a little less than the 600,000 which Volkswagen should achieve during 1970 but very high by the standard of United States models. Thus the most successful new introduction ever, Ford’s Mustang, sold 418,000 in its first year, while the 1960 Compact Falcon sold 400,000 and the 1969 Maverick 340,000. Both Ford and General Motors marketing planners are confident that the subcompacts will push back the import tide. The success of the Vega is the responsibility of Chevrolet’s young general manager, John Z. De Lorean. At 45 De Lorean retains a youthful image a young wife, an interest in pop music and a part ownership of the San Diego Chargers. In the two years since he moved from Pontiac to Chevrolet De Lorean has been trying to ensure that the Vega will hit its target: the young, educated market: De Lorean expects Volkswagen sales to drop by 18 per cent in 1971 and the imports to slip back from 14 per cent to a modest 8 or 9 per cent of the market. The only real guide as to what may happen is provided by the results of Detroit’s first onslaught on the imports in 1959. The first compacts— Ford’s Falcon, Chevrolet’s rear-engined Corvair and the Plymouth Valiant were larger and more expensive than the Beetle. But within three years they cut sales of imported cars by half and drove companies like Vauxhall and Toyota right out of the market. British manufacturers were badly hit by the first compacts, and sales of British cars have only just regained their 1959 peak. Even today most of the British cars sold in the United States are sports cars, and neither the Austin America nor the Ford Cortina has made much impact.

Importers Established Nobody expects the subcompacts to, do as much damage to the importers as the original compacts, however. Companies like Toyota, Datsun and Fiat are far better established than the importers of 1959, who had rushed in on the wave of the demand for small cars without establishing adequate dealer organisations or spare parts supplies. Significantly, Volkswagen, which alone had built a really strong dealer network in 1959, emerged unscathed from the launch of the compacts and its sales have increased every year since.

Volkswagen may have as much to fear from the Japanese as the Americans in the United States. In the past few years Toyota and Nissan have made most of the sales gains in the import sector with a carefully planned attack. Toyota withdrew from the United States market in 1961 after the failure of its underpowered, poorly finished Toyopet. Returning just five years ago, Toyota marketed the Corona, carefully based on American styling. It initially limited its dealer network to California. Toyota has doubled its sales each year, soon overtaking British Leyland, and last year ranked second to Volkswagen with sales of 130,000 vehicles.

Toyota’s best sellers, its 1100 c.c. Corona, and its four wheel drive Land Cruiser, are similar to the Ford Cortina and the Land Rover respectively. The fact that the Japanese vehicles far outsell the British in the United States market can only be attributed to superior marketing. Specifically, Datsun with its half-ton pick-up and Toyota with its Land Cruiser have been much smarter in latching on to the American demand for holiday camping vehicles, which has grown rapidly in recent years. Trend To Small Cars

American experts expect the subcompacts to reinforce the trend towards small cars in the United States. Small cars such as the Maverick, Chrysler Valiant, Dodge Dart and Chevrolet Nova have been selling well this year; while the first subcompact— American Motor's Gremlin — has had long waiting lists since its announcement in February. Small cars—imports, compacts and subcompacts—currently account for 29 per cent of United States market sales. The launch of the Pinto and Vega will increase this substantially, perhaps pushing up the small car share to over half the market in the next ten years. Thi? should be good for the importers, even if they suffer an immediate setback because of renewed competition. Market research undertaken by Ford indicates that it is the cheapness of the imports, rather than any European or Japanese connotations of quality or supposedly superior design, which has led to their success. Nevertheless, imported

car buyers are generally more knowledgeable and interested in the design features of their car than the average American who neither knows nor cares what happens under the bonnet. Ford has felt it necessary to instruct its dealers in suspension and other design details of its cars—something which is new.

Importers Helped The fact that the American manufacturers will be competing on more European terms in their own market should ultimately be of significant advantage to the Europeans. For while the Vega and Pinto compare favourably in ride and roadholding with some European imports, they cannot match the sophistication of some of the latest European products. By encouraging the market to think in these terms, Detroit may be helping the importers.

It is very hard for Detroit to match European production prices on a small car. General Motors has constructed a completely new plant at Lordstown, Ohio, which is highly automated and should produce 100 Vegas an hour. New robot welders will make 95 per cent of the welds on the car, cementing 130 welds in just 4] seconds. The number of parts in the Vega has been reduced by 43 per cent compared with a standard American car, and the car makes liberal use of plastics.

When it comes to small cars, the Europeans have a volume advantage, for while Ford and General Motors will produce 400,000 subcompacts a year, Volkswagen manufactures about ti’-ee times as many Beetles. Production volume has persuaded Ford to use imported European engines in its Pinto, an approach which Chrysler is also taking with its subcompact which Will be launched in 1972.

Chrysler has been forced to delay its Dodge and Plymouth subcompacts because of financing problems. Instead, it will import the Hillman Avenger—renamed the Plymouth Cricket—and the Mitsubishi Colt, which it will call the Dodge Colt, to fill the gap. The eventual Chrysler subcompacts will also have a Hillman engine probably the 1500 cc Avenger engine and a new two litre unit.

A Hard Year Ford will not neglect its import line either. The British Cortina has been dropped because it failed to sell sufficiently well. It will be replaced by a British-engined, German-bodied Capri which should appeal more to American styling tastes. General Motors will continue to sell its Opel Kadett and GT models in the United States although Vauxhall is unlikely to re-enter the market. Next year will be a hard one for British cars in the United States. Although Volkswagen and Toyota should weather the onslaught of the subcompacts, it is likely that less well-estab-lished European imports will find it difficult to match the strength of 12,000 Ford and General Motors dealers. British Leyland faces the added competition of the Volks-wagen-Porsehe and Datsun in the sports car market where it has previously had little interference. But if British sales of complete cars do decline, as they surely must, there will be the added business, worth perhaps £2om or £3om a year, of supplying engines for the subcompacts.

Trying to stem the flow of foreign cars in United States markets, Detroit is relying to a large extent on its “subcompacts,” aimed directly at the younger, wealthier buyers who have rejected its marketing line.