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In the Passing Lane : Auto Sales Surge Ahead in '96--Good News for the Big Three and the UAW


DETROIT — When Tim Miller decided this spring to replace his 8-year-old Chevrolet Caprice, he was pleasantly surprised at the deals to be found in Southern California's auto malls.

It seemed every dealer was offering him some kind of enticement--a rebate, short-term lease or low loan rate--to lure him into a new vehicle. He settled on leasing a $19,000 fully loaded four-door Honda Accord.

"My perception is it's a buyer's market," said Miller, a pharmacist who lives in Torrance.

And that has helped make it a robust market. Auto sales, which were expected to be flat this year, are up a surprising 6.4% in the first five months.

They are providing a powerful boost to the nation's economy, to the bottom lines of the Big Three and to the aspirations of the United Auto Workers union, which officially opened its triennial auto labor negotiations Monday.

Indeed, although sales are expected to ease somewhat in the second half of the year, 1996 is shaping up as a very good one for Detroit. Car and truck sales are now expected to top 15.1 million this year, up from 14.8 million in 1995.

Already, General Motors Corp., Ford Motor Co. and Chrysler Corp. have stepped up production and adjusted their sales forecasts upward for the year. This has raised some fear that the U.S. economy could overheat, bringing inflation and interest-rate increases.

"We are very positive through this year and 1997," Chrysler Chairman Robert Eaton said. "We think what we're into is a steady and sustainable growth period right now."

Such talk has prompted Wall Street analysts to raise earnings projections for the Big Three. The darling of the investment gurus is Chrysler, whose sales in May alone were up 17% over May 1995.

Among the Japanese auto makers, Honda and Toyota continue to thrive. They, along with Chrysler, have grabbed market share from Ford and General Motors. They have lowered their production costs and also reaped the benefits of a weaker yen, enabling them to remain price-competitive.

Most economists attribute the strength in auto sales to several trends affecting consumers: strong job and income growth; a buoyant level of consumer confidence; available cash from mortgage refinancings, tax refunds and stock market gains; and incentives that make vehicles more affordable.

But the year's second half is likely to see a slowing of the fast pace of job creation and lesser wage gains. At the same time, the buying fueled by lower mortgage costs and tax refunds will have dissipated. And as dealer inventories become leaner, incentives will be a bit harder to find.

"For all these reasons, the current level of sales is not sustainable," said William Wilson, an economist for Comerica Bank in Detroit.

The outlook for the Big Three is also complicated by labor uncertainties. The union leaders want a bigger share of the windfall of the last three years, when General Motors, Chrysler and Ford collectively earned $34 billion.

The negotiations for a new three-year contract officially got underway Monday with the traditional handshake ceremony between Ford and UAW officials. Talks with Chrysler begin today and with GM on Wednesday to replace contracts that expire Sept. 14.

"The industry is standing tall right now, and we think it's time for them to be responsible to our issues as well," UAW President Steve Yokich said.

After Labor Day, the UAW will choose the "target" company--the one from which it expects to get the best deal. Under what is known as a "pattern bargaining" strategy, the UAW then offers the resulting contract as the standard to the two other auto makers.

A strike this fall, after the UAW chooses its target--which many believe will be Chrysler--could hurt industry earnings. Earlier this year, a 17-day strike against two GM parts plants over preserving jobs shut down most of the auto maker's assembly operations and cost it $900 million in lost profit.

But for now, the possibility of a labor disruption is far from the minds of most auto dealers and customers.

Doug Seibert, vice president of Graham Ford in Columbus, Ohio, said sales at his dealership are up 14% this year and that truck sales are up a whopping 49%.

"Traffic has been good, and better yet, the traffic that is coming in is buying," he said.

Among the most popular vehicles are Ford's remodeled F-series pickup truck--the nation's top-selling vehicle for the last 17 years--and the Ford Explorer sport-utility vehicle.

Even Ford's mid-size Taurus sedan has begun to show strength, Seibert said. The vehicle, the most popular passenger car for the past three years, was redesigned for this model year. Its higher price and ovoid design was meeting with resistance until Ford offered consumers a $600 rebate and 4.9% loan financing.

The rebate helped convince Harriet Carlson, a retired secretary from Northfield, Ill., to trade in her 1985 Chrysler LeBaron for a new Taurus in May. She paid $18,500 for a sedan.

"I think I got a good deal," she said. "The rebate was certainly a big help."

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