Special Report: the Auto Industry: The Big Three Get in Gear

From Flint, Mich., to Fremont, Calif., from West Germany and Yugoslavia to Japan and South Korea, they roll off the assembly lines with daunting speed. Cars, cars and still more cars. Suddenly they are being turned out by more manufacturers in more locations than at any time in decades. In myriad shapes, sizes and colors, price tagged for all pocketbooks, in a glittering, growing, chromium-plated cavalcade seemingly without end, they continue to cruise into U.S. showrooms and, with slightly less frequency, back onto the streets of America. Under the impact of that four-wheeled flood, the $230 billion-a-year U.S. auto marketplace is being pushed, pulled and pummeled into new forms and shapes as one of the most diverse, sophisticated and, above all, brutally competitive selling arenas in the world.

Why the frenzy? And why now? The main reason is a hike in global automaking capacity that has already dramatically increased output around the world and will do so for several more years. South Korea is showing that a developing country can build an auto industry almost overnight and quickly crack the American market. Japan, the premier auto exporter of the '80s, is still fighting hard for U.S. market share and is rapidly building up its own American manufacturing capacity, largely in so-called transplant factories that depend heavily on imported Japanese parts. Meanwhile, American auto companies have entered into new and exotic relationships with foreign producers, both in the U.S. and abroad, that can only further add to the potential auto glut. By 1990 the excess production capacity in the U.S. could reach 1 million to 2 million cars annually, or roughly 10% to 20% of projected domestic sales.

Lloyd Reuss, an executive vice president at General Motors, has a clear view of the prospect. Says he: "The good news is that North America is the only automotive market in the world where there's a good shot at a profit. The bad news is that everyone knows it." Agrees Donald Ephlin, a vice president of the United Auto Workers: "We are talking about fundamental changes in the world where we live and the market where we compete."

Change -- painful and profound -- is something that U.S. auto companies, especially Detroit's Big Three, have been struggling with for years. Battered in the early '80s by recession and imports, GM, Ford and Chrysler were bolstered by short-term protectionist measures, chiefly the imposition of "voluntary" export restraints on the Japanese. By 1984 the Big Three had rallied to their highest profit level ever: $9.8 billion in all.

But protectionism has since begun unwinding: the Reagan Administration stopped forcing quotas on Japan in 1985. Even though the Japanese unilaterally imposed their own ceiling on the number of cars exported to the U.S. that year, the quota was a full 24% higher than the one for the year before. In 1985 Detroit's collective profits shrank a bit to $8.1 billion, and this year are expected to decline again, to $7.1 billion.