The TV commercial is erotic and arresting. In a moonlit bedroom, a sleek young woman slips from beneath the covers and, leaving her mate behind, steals off in their car. With the scene set for infidelity, the next sequence reveals that her purpose is only to enjoy driving the Honda Accord at dawn along a coastal road. As the woman shakes her hair in the wind, the announcer asks: “At six in the morning, do you know where your spouse is? We do.” The video hard sell continues around the dial: literally dozens of cars and trucks are being pitched in glamorous promotions. The marketing war drums are beating as never before because domestic and foreign automakers are in a battle for supremacy in the most lucrative car market in the world—

North America. Said Chrysler Corp. Chairman Lee Iacocca:

“There is going to be one hell of a fight.”

From one side of the continent to the other, the consumers’ romance with the automobile is as steamy as ever. Sales were near record levels at the end of June, 1988, and production is growing. But there is trouble ahead. Many senior auto-industry executives say that by 1991 the industry will be producing five million more cars and trucks than there are buyers for them. And that, experts say, could cost 150,000 jobs if manufacturers make major production cuts.

Rooted: As well, Japanese and other foreign automobile manufacturers are now firmly rooted in North America—a base from which they are poised to conquer both domestic and world markets. Some analysts say that, ultimately, a Japanese manufacturing firm will even take over a major North American automaker

and that at least three vehicle-manufacturing plants could close in Canada. Said Chrysler Canada Ltd. president Maurice Closs: “Everybody is just making their bets at the moment, and we are betting we are going to win. But there are going to be losers.”

Iacocca warns that when the production figures are added up—three new vehicle-assembly plants are being built and another is stepping up production in Canada—what emerges is a “classic overcapacity problem of millions of cars and trucks.” As a result, he told Maclean’s last week, the domestic North American industry is confronting a major challenge: which Chrysler Corp., General Motors Corp. and Ford Motor Co. plants will have to be closed as the battle for market

share rages? And that decision will

become even more crucial, said the Chrysler chairman, as the Japanese open new manufacturing facilities in North America (page 35).

Radical: To hedge their bets against losing the escalating marketshare battle, auto manufacturers are adopting elaborate strategies. The socalled Big Three—General Motors, Ford and Chrysler—are buying into small foreign car firms, abandoning complete sectors of the market and offering a staggering array of rebates and warranties. And they are designing radical new cars that they hope will hold their market share in the future—including vehicles that use radar and advanced computers (page 34).

As the marketing war escalates, many auto analysts say that consumers will be the big winners as manu-

facturers and their dealers are forced to cut prices to lure buyers. And the Big Three will have to design vehicles that meet with instant success in the marketplace if they hope to regain a share of the socalled primary-import market —people who purchase only foreignmade cars and trucks. In 1983, Chrysler proved that it was capable of doing just that when it introduced the seven-seat minivan — which is now the highest-selling vehicle in North America. Slump: A new report released earlier this month by AUTOFACTS Inc. of Paoli, Pa., an auto industry forecasting company, says that Canadian companies are about to add dramatically to the overproduction of cars and trucks. They would be doing so just as Canada’s market for new vehicles is, according to most analysts, about to head into a slump. The report says that the Canadian share of vehicle production in North America will jump to 20 per cent by the mid1990s from about 14 per cent now—mostly, AUTOFACTS president William Pochiluk says, be-

cause of production by foreign firms in Canada. That will include cars made by Toyota Motor Manufacturing of Canada Inc. at a new plant scheduled to open in Cambridge, Ont., in 1988; an expanded Honda of Canada

Manufacturing Inc. facility in Alliston, Ont.; a factory being built by Hyundai Motor Co. of South Korea in Bromont, Que.; and a plant by CAMI Manufacturing Inc. at Ingersoll, Ont., a joint venture between Suzuki Motor Co. Ltd. of Japan and General Motors of Detroit (page 33). And much of that production could ultimately be exported. Meanwhile, manufacturers are offering a blinding assortment of

enticements to hold their market shares. To make sure that their percentage of the market does not slip, many automakers are slashing prices and increasing the list options car buyers can choose from. As a result, consumers, whether purchasing a cheap subcompact or an expensive luxury sports car, such as a BMW, are emerging as the winners in North America’s car war. Said Dennis DesRosiers, president of DesRosiers Automotive Research Inc. in Toronto: “The consumer has the power to bring companies to their knees” (page 30).

By 1991, Japanese companies alone plan to be producing an estimated 2.2 million vehicles annually in North America, including 630,000 in Canada,

compared with 500,000 continent-wide in 1987. Some analysts are even predicting that, barring government action to restrict imports, either Honda or Toyota could overtake Detroit-based Chrysler to become North America’s thirdlargest carmaker. And Susumu Yanagisawa, president of Toyota Canada Inc., says that because of the decline of the American and Canadian doll ars, 200,000 North Ameri-

can-built Japanese cars will be exported to Japan by 1991. But for now, North America remains the largest, most accessible and most profitable car market in the world. It is an irresistible lure to foreign vehicle manufacturers, which now control almost one-third of newcar sales in both Canada and the United States. Said Chrysler’s Closs: “North America is the only market where there is lots of profit. In Europe, the only ones making any money are the luxury-niche competitors, such as the British Jaguar and German

Mercedes and BMW.” Pessimism: Closs argues that the future is less certain. If production is not cut, North American oversupply of cars and light trucks could reach two million vehicles annually by the early 1990s if imports remain at their current levels. Many other analysts have expressed equal pessimism. Researchers at Bostonbased Massachusetts Institute of Technology (MIT) produced a study last year predicting that, by 1993, the supply of autos could exceed demand by two million to three million vehicles annually. The result, according to most analysts, will be a traumatic cutback in manufacturing capacity, layoffs and reduction in imports. And the MIT study concluded that seven to 10 auto-assembly plants

will be forced to close in North America, costing as many as 150,000 jobs. Christopher Cedergren, senior analyst with J. D. Power and Associates, a California-based auto research and consulting firm, said that such smaller, less-established carmakers as Subaru and Isuzu could be forced out of North America. Said Cedergren: “Everybody will be under the gun.” CM, as the world’s largest vehicle manufacturer, has been forced to make major changes as it prepares for the fight ahead. CM launched a $54billion plant improvement and modernization program in 1980. By the end of the decade, the company will have spent $8 billion on new and refurbished Canadian facilities, said George Peapples, president of GM Canada. Peapples added that the massive capital-spending program has made

GM more efficient and flexible. It has also ensured that the company can maintain its profit levels at current market share. Said Peapples: “We have got in place the ability to match our capacity to the market share.”

Chrysler faces fewer problems than

GM because it went through a dramatic restructuring during the 1980s after it almost went bankrupt. Even though Chrysler introduced the minivan in 1984, many analysts say that Chrysler will have to score other marketing successes if it is to stay ahead of its Japanese competitors. Last year, Chrysler’s car sales stood at slightly over one million, a figure that Honda hopes to surpass in 1990.

Overtime: By far the strongest member of the Big Three is Ford, the second-largest domestic automaker, which last year earned a profit of $5.5 billion, a worldwide industry record. Ford’s 1988 first-quarter profit of $1.9 billion was also a record for a threemonth period. Kenneth Harrigan, president of Oakville, Ont.-based Ford of Canada, said that over the past six years, the company has reduced its annual operating costs by $5 billion. Said Harrigan: “If there is a fall in the markets, we could take the

overtime off and reduce our volume by about 15 per cent without affecting our employment.”

But despite all their attempts to stop the Japanese and other foreign vehicle manufacturers from making inroads into North America, the Big Three are running into strong consumer resistance. In fact, William Atkinson, GM Canada’s vice-president of sales, said company research shows that about 20 per cent of car buyers now fall into a category known as “primary-import” buyers. Those consumers usually do not even consider a GM, Ford or Chrysler product when they are looking for a new

car. It is a phenomenon that dealers are also familiar with. John Crockett, co-owner of Alex Irvine Motors Ltd., a Scarborough, Ont., Chevrolet-Oldsmobile dealer, said: “People who are buying imports don’t come into our showroom. We’re losing them and we

don’t even know who we’re losing.” The permanent loss of a large segment of the market is due in part to what analyst DesRosiers calls “the quality and reliability gap.” Over the years, some consumers have become convinced that Japanese cars run bet-

ter and last longer. He said that the Big Three are building much better cars now because of the competitive pressure applied by the Japanese. But, added DesRosiers, “The perception is that the gap is still quite wide.” The Japanese have responded by building

larger and more expensive cars. And the appearance of the new dealerships, said analyst Cedergren, reflects the determination of the carmakers, particularly the domestics, to maintain market share even at the expense of making a profit. Said GM’s Atkinson: “I don’t think we’re rattling the coffers with a whole lot of profit. We’re fighting for every tenth of a point of market penetration we can get.”

Larger: With the North American auto industry changing at breakneck pace, nearly everyone has a different idea about what the industry will look like five years from now. Cedergren contends that the North American market will become more like Europe, in which a larger number of manufacturers hold smaller shares of overall sales.

At the same time, foreign carmakers with small North American market shares may be forced to join distribution alliances to survive, said Ceder-

gren. On the other hand, analyst DesRosiers said that GM, Ford and Chrysler must continue to improve the quality of their cars or they will lose even more sales to Honda and Toyota. He also predicts that the Big Three will become the Big Five as Honda and Toyota expand. And that would mean even more turmoil for the auto manufacturers and their employees. But—as the glut builds—consumers seem destined to be the major winners as the battle for North America forces car prices down.




DRIVING TO THE TOP The 10 best-selling cars in Canada, based on retail sales from Jan. 1 to June 30, 1988, and their basic list prices