Makers focus on profits

Originally published: Jan. 11, 1993

DETROIT -- Increasing per-vehicle profit is a key project for the U.S. auto industry this year.

Both importers and domestic makers are concentrating on strengthening the profitability of both their dealers and their own operations.

The focus comes as many companies have tried to improve or return to profitability and reduce break-even points through months of corporate streamlining and efficiency moves.

Auto executives at the North American International Auto Show here last week suggested that even if sales improve only slightly this year, dealer profitability is likely to increase.

That is because profits per vehicle will be healthier. In addition, some makers are stepping up dealer support.

While industrywide sales projections for 1993 vary widely, manufacturers and importers are trying to en-sure that a greater percentage of vehicle sales are profitable.

For example, Saab Cars USA Inc. will halt discount leases Feb. 1. Instead, dealers will receive cash payments based on reaching 75 percent, 90 percent or 100 percent of their sales quotas. Saab will not dis-close the cash amounts.

"It's a reallocation," said Saab spokesman Steven Rossi. "You have a certain chunk of money, and you have to ask what is the best way to spend it. We've been spending a lot of money and we want to bring it under control."

In addition, Saab Cars USA expects its own profit per vehicle to improve as a result of recent restruc-turing and downsizing efforts.

"We may sell the same number of cars but we have enhanced our profit potential," said Bill Kelly, president of the U.S. subsidiary.

In contrast to Saab's withdrawal, Cadillac plans to increase its leasing business this year.

"Thirty percent of our business is leasing," said General Manager John Grettenberger. "It needs to be higher.

"In terms of profitability our dealers ended 1992 up substantially over last year," Grettenberger said. "Retail business is the reason. Retail is up and fleet is down by design. That also improves residual values."

Jim Perkins, Chevrolet general manager, noted: "Giving up daily rentals helps (our) margins. We want profitable market share."

Multiple-line dealer Ken Meade, co-chairman of the Detroit show, said many dealers expect improved profit per vehicle this year.

"Margins are going to go up," he said. "There is a lot of new product hitting the market, and not many 1992 models left over."

Chrysler Corp. dealers are receiving some of that long-awaited new product.

At the Detroit show last week, Chrysler introduced longer, more upscale versions of the LH models, which will bow as the 1994 Chrysler New Yorker and Chrysler LHS. Production starts in May.

Dodge also unveiled the Ram full-sized pickup that goes into production July 21.

"We expect improvements in dealer margins across all our lines due to the new vehicles," said John Damoose, Chrysler vice president of marketing. "(Chrysler's) margins already are improving substantially because we've got our costs down and we have eliminated redundancies. With $4 billion in annualized cost reductions, we're seeing improvement."

Mitsubishi Motor Sales of America Inc. also anticipates that new product this year will strengthen its dealer network. The 1994 Mitsubishi Galant made its North American debut at the show last week. Production begins in February and the introduction is planned for late spring.

"In the last half of 1992, the market was so tough we took the position we couldn't create a market no matter how much money we threw at it," said Richard Recchia, Mitsubishi Motor Sales executive vice president. "That hurt dealer profitability."

The company is trying to boost dealer profitability by offering an array of leasing and financing incen-tives coupled with the planned Galant launch.

"The first quarter of 1992 is our test," Recchia said. "Our goal is to increase sales of metropolitan dealers by 25 units per month per dealer by the time we launch the Galant. If we achieve that and then launch the Galant, dealer profitability won't be a problem.

"Our focus is on improving dealer profitability to a point where exclusivity isn't an issue anymore," Recchia said. "If we demand exclusive dealers, then we as a manufacturer have to provide enough sales opportunities for a dealer to be profitable. We accept that responsibility."

Michael Bassermann, president of Mercedes-Benz of North America Inc., noted the German importer's obli-gation to its dealers.

"We have to be very creative in developing leasing and sales programs for our dealers to sell the numbers we are projecting," Bassermann said.

Pricing will be a key factor for dealers, Bassermann said, noting that "price and value will be key issues for success in every segment."

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