Automobile Industry

1986: Automobile Industry
Archives consist of articles that originally appeared in Collier's Year Book (for events of 1997 and earlier) or as monthly updates in Encarta Yearbook (for events of 1998 and later). Because they were published shortly after events occurred, they reflect the information available at that time. Cross references refer to Archive articles of the same year.

A record 16 million new cars and trucks were sold in the United States during the automobile industry's 1986 model year. The 11.2 million cars sold were exceeded only by the 11.7 million in 1973. Truck sales reached 4.9 million, surpassing the 4.6 million record set in 1985.
Domestic automakers sold 8.1 million cars during the model year, 3.9 percent off the 8.4 million sold in 1985. Imports accounted for 3.1 million cars, up 17 percent from the 1985 figure of 2.7 million. Imports captured a record 28 percent share of the market; the previous market-share record was 27.8 percent, set in 1982. General Motors sold 6.4 million cars and trucks in the model year, about the same number as in 1985. Ford's sales of 3.4 million vehicles represented a decrease of 1.7 percent, and Chrysler showed little change, with sales of 1.85 million. American Motors Corporation delivered 292,134 cars and trucks, off 2.6 percent, and Volkswagen of America, 76,410, up 17.8 percent. Ford's F Series trucks and Chevrolet's C/K pickups were the model year's best-selling trucks, selling 544,191 and 442,580, respectively. The No. 1 car was the Ford Escort, which outsold Chevrolet's Celebrity, 415,521 to 395,860. Korea's Hyundai Excel set a first-year sales record for an import, retailing 112,967 units.
Discount financing greatly boosted sales toward the close of the model year. Glutted with unsold vehicles, GM offered loans on all its 1986 cars and light trucks at 2.9 percent interest, the lowest rate in its history. Ford matched GM's figure, but Chrysler undercut them both with 2.4 percent financing, and AMC offered no-interest loans. Buyers were also offered rebates of up to $1,500. The auto industry had "gone nuts," said Chrysler Chairman Lee Iacocca, who lamented GM's "dumb" decision to produce so many cars that drastic incentives were required to sell them.

The Big Three automakers reported healthy profits through the first nine months of 1986. GM reported profits of $2.31 billion, compared with $2.75 billion during the same period in 1985; Ford showed a $2.5 billion profit, up from $1.79 billion in the first three quarters of 1985; and Chrysler's profits were $1.08 billion, against $1.4 billion during the first nine months of 1985. In a rare event, Ford earned more money than GM in the second and third quarters. AMC lost $111.3 million, compared to a $118.0 million loss during the first nine months of 1985.
In November, GM announced that it would close 11 of its U.S. plants, which employ some 29,000 people, in a move to cut costs and make its cars more competitive. GM described the move as the beginning of a modernization program for its plants.

New Models.
Chrysler introduced twin sporty subcompact hatchbacks, the Plymouth Sundance and the Dodge Shadow, giving the company its first chance to compete with the Honda Accord, one of Japan's best-sellers in the United States. Chrysler also launched the Dodge Dakota pickup, its first entry in the compact-truck market. In the spring of 1987 the No. 3 automaker will introduce the Chrysler LeBaron sports coupe, derived mechanically from the Laser/Daytona series; stretch versions (15 inches longer) of the Plymouth Voyager/Dodge Caravan vans; and a sleek Chrysler/Maserati sports car, dubbed the Chryserati, which will sell in the $30,000 range.
General Motors launched the Cadillac Allant‚, a $50,000 personal two-seater designed by noted Italian coachbuilder Pininfarina. Allant‚ bodies, built in Italy, were flown to GM's so-called Poletown plant in Detroit for final assembly. Equipped with both a canvas top and a removable aluminum hardtop, the Allant‚ was crafted to "cruise continuously and comfortably at autobahn speeds" — about 125 miles per hour — and still deliver reasonable fuel economy.
Late in 1985, Ford introduced the Taurus and the Sable, two distinctly styled models aimed at the middle and upper-middle segments of the family market. With an estimated half-million cars expected to be sold by the end of 1986, the new lines represented one of Detroit's biggest successes in recent years. Ford also extensively redesigned its Mustang and dropped its longtime stablemate, the Mercury Capri. Midway through the 1987 model year, Ford's Lincoln-Mercury Division planned to introduce a Mexican-built compact, the Tracer, and a European-designed luxury car, the Scorpio.
American Motors agreed to assemble Chrysler's largest models in AMC's Kenosha, Wis., plant, the first time one U.S. automaker will build vehicles for another. According to AMC President Joseph Cappy, the deal "may be the beginning of a new era" in U.S. automaking.

Reflecting the strengthening of the yen against the dollar, Japanese cars rose in price an average of $1,331, or 14 percent, between the fall of 1985 and July 1986. During the same period prices of U.S.-built cars rose an average of $726. Prices were raised again on Japanese cars at the beginning of the 1987 model year.
At the start of the 1987 model year, GM raised prices 2.6 percent, Ford 2.5, Chrysler 2, AMC 2.9, Nissan 3.7, Volkswagen 4.2, BMW 5.3, Jaguar 3.3, and Porsche 7.6. Although U.S. buyers paid an average price of $12,355 for a new car in 1986, about a dozen models were available at bargain-basement rates. Cheapest of the lot was Yugoslavia's Yugo, at $3,990, followed by Korea's Hyundai Excel and Chevrolet's Chevette, both priced at $4,995. The Chevette's price was slashed $800 at the start of the 1987 model year. Chrysler and Ford also offered low-price cars to attract entry-level buyers.

The Customer.
U.S. automakers lagged behind Japanese car producers but led European manufacturers in customer satisfaction, according to a survey by the consulting firm of J. D. Power & Associates. Honda was rated No. 1 in the survey, followed by Mercedes-Benz, Toyota, and Mazda. Lincoln, Mercury, Cadillac, and Ford cars were ranked 5th, 12th, 14th, and 16th, respectively, the only domestic cars among the top 16.
Volvo made the industry's only significant warranty change — a three-year guarantee of free 24-hour access to service dispatchers who are authorized to arrange tows and repairs. Included was a $500 reimbursement for room, board, and alternative transport.

Fuel Economy.
The U.S. Department of Transportation extended its 26 miles per gallon fuel economy standard for new cars through the 1988 model year. The original standard set for 1987 cars was 27.5 mpg, but this target was lowered to 26 mpg in 1985 after GM and Ford threatened to close their big-car factories and lay off thousands of workers. If the 27.5 mpg standard had been retained and big-car plants kept in production, GM and Ford would have faced $600 million in penalties. The automakers blamed their inability to meet the original goals on cheaper gasoline, which triggered greater demand for larger cars.
The Chevrolet Sprint E/R, a Japanese-built minicompact with a fuel economy rating of 54 miles per gallon in city driving, topped the federal government's list of fuel-efficient cars for the second straight year. Six other Sprint models (including the Pontiac Firefly and the Suzuki Forsa), two Hondas, and a Subaru, all gasoline-powered, were also on the top-ten list of fuel-efficient vehicles. U.S. leaders were the diesel-powered Ford Escort and the Mercury Lynx, which both recorded 37 mpg and tied with nine other cars for 11th place.

As it marked the 20th anniversary of the passage of federal auto safety legislation, the Insurance Institute for Highway Safety reported that traffic fatalities had fallen from more than 53,000 in 1966 to fewer than 44,000 in 1985; deaths per 100 million vehicle miles had decreased from 5.72 to 2.47 during the same period.
GM became the first U.S. automaker to install rear-seat shoulder safety belts as standard equipment on some 1987 models. GM said it will place them on window seats in all its North American-built cars by 1989. Many Japanese and German carmakers already provide the belts. Ford became the first U.S. manufacturer to provide motorized self-fastening safety belts as standard equipment on some 1987 models. The belts wrap around front-seat passengers when the ignition is turned on and have been built into Toyota's top-of-the-line Cressida for several years.
Present federal law requires automakers to install self-fastening belts or air bags in the front seats of all their cars by 1990 unless two-thirds of the nation's population are covered by mandatory seat-belt use laws by April 1989. A federal appeals court, ruling on a challenge to the provision, said in September that seat-belt laws in 20 states did not meet federal guidelines, making it unlikely that the law would be rescinded. The only U.S. automaker now offering air bags is Ford, which provides them as an $800 option on its Ford Tempo and Mercury Topaz models.

Around the World.
Every major Japanese automaker has now built or announced plans to build an assembly plant in the United States or Canada. Honda's Marysville, Ohio, plant opened in 1982; Nissan's truck factory, which now also builds cars, opened in Smyrna, Tenn., in 1983; and the Toyota/GM-backed New United Motor Manufacturing Inc. (NUMMI), began operations in Fremont, Calif., in 1984. Mazda, in cooperation with Ford, is currently building a plant in Flat Rock, Mich.; Mitsubishi, in conjunction with Chrysler, is building one in Bloomington, Ill.; Toyota will be assembling cars in Georgetown, Ky.; and Yamaha will be producing community transportation vehicles near Atlanta. Fuji Heavy Industries (Subaru) and Isuzu, partly owned by GM, also have plans to build a plant in the United States.
Toyota is now producing its first U.S-built car, the Corolla, at the NUMMI factory, which is also the home of the Chevrolet Nova, the Corolla's American version. Honda began to produce engines in Anna, Ohio, marking the first time a Japanese carmaker has built a major component in the United States. Japan's Toyota and Honda, Korea's Hyundai, and a GM/Suzuki joint venture have announced plans to build plants in Canada. Canadian-built vehicles can cross the U.S. border duty free and are not subject to the export restraints the Japanese government has imposed on its automakers.
Daewoo Motor Co., Ltd., an equal joint venture of GM and South Korea's Daewoo Group, opened an assembly plant near Seoul to produce a front-drive car for export to the United States and Canada as the Pontiac Le Mans. The Le Mans, designed by Opel, GM's West German subsidiary, is based on the Opel Kadett, named Europe's Car of the Year in 1985. GM acquired Toyota's 21.5 percent interest in Britain's Group Lotus, giving GM a 58 percent share and virtually complete control of the sports-car producer.
GM and Volvo White, a subsidiary of Sweden's Volvo, merged their heavy-truck operations to create America's second-largest truck manufacturer, the Volvo GM Heavy Truck Corporation. The new venture, which is 65 percent owned by Volvo, will be headquartered in Greensboro, N.C. America's leading heavy-truck manufacturer is Navistar (formerly International Harvester), followed by Volvo GM, PACCAR (Peterbilt/Kenworth), Mack (owned by Renault), Freightliner (owned by Daimler-Benz), and Ford.
Chrysler sold its 12.5 percent ownership in France's Peugeot for $275 million to institutional investors both within and outside France. Chrysler paid the Italian firm of De Tomaso Industries, which owns Maserati, $33 million to increase its stake in Maserati from 3.5 percent to 15.6 percent. Chrysler has an option to buy up to 49 percent of Maserati by 1989 and 51 percent by 1995. Chrysler also announced plans to export American-made sports cars and minivans to Europe, the first time in decades that a U.S. automaker will export cars in significant numbers to the Continent. Ford acquired a 10 percent interest in Korea's Kia Motors, designer of the Kia minicar that will be exported to the United States in 1987. For about $3 billion, a Libyan holding company sold the 14 percent ownership of Fiat it had acquired in 1976; Fiat itself put up $1.1 billion. Fiat beat out Ford in a bid to acquire a controlling interest in Italy's financially troubled Alfa-Romeo.
In October, GM announced that it would sell its subsidiary in South Africa to a group of investors headed by local GM managers. The company said it had been losing money in South Africa and saw little movement toward ending the apartheid system of racial separation there. The company, the largest U.S. firm doing business in South Africa, will continue to sell automotive components to its former subsidiary.
John Z. DeLorean, the flamboyant automaker who was once the heir apparent at GM, went on trial in October on charges of defrauding investors in the DeLorean Research Limited Partnership of $8.9 million. DeLorean allegedly had the funds transferred from the company — which was working on a gull-winged, stainless-steel-bodied sports car — to his own bank account. The company ultimately failed. DeLorean pleaded not guilty to a 15-count federal indictment. In 1984 he had been acquitted on charges that he had conspired to distribute 55 pounds of cocaine, ostensibly to raise money to save his failing company.

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