Faced with increasingly vicious competition the previous year, by 1985 car manufacturers were being forced to change their traditional attitudes. New words seldom used between competitors were now being used, co-operation, association, partnership and collaboration - many manufacturers new that to survive, they needed to defeat the ambitions of rival joint-ventures. This policy of seeking temporary or permanent wedlock was already several years old, but it had reached global dimensions, involving the three major centres of car manufacture: Europe, the United States and Japan.
It was a battle for volume and productivity in which robotization was, wrongly, seen as a strategic weapon. 1984 saw Europe's share of the world production of 42.1 million vehicles drop to 29% from 32% the previous year. The European market was saturated, and export drives failed to compensate for the direct or indirect penetration by the Japanese and US manufacturers. The problems facing European manufacturers in 1985 were even worse if you simply looked as statistics. The previous year, American manufacturers had realized huge profits - nearly $10 billion. It was always going to be difficult for Europe to compete , particularly given that some US manufacturers had already taken root in the European home market with subsidiary companies.
GM's European investments in 1985 equalled Renault's losses in 1984. Despite this, robots were being implemented in Europe at a growth rate of 40% a year, which was higher than in the United States. Analyses of the American automobile industry at the time disclose that its productivity lagged behind Japan's with production costs 25% higher than the Japanese norm. In short, under the twin pressures of its main competitors, Europe was producing around 2.5 million too many cars a year.
There were two solutions: either acccelerate the restructuring process in favor of large scale international joint-venture agreements, or withdraw into suicidal protectionism. The Japanese were the first victims of a protectionist trend. They were threatened with growing demands for an increase from 60% to 80% of local content to qualify for a European car. The 80% figure was set to effectively halt Japanese infiltration of the European automobile industry.
It was only a few years earlier, with Renault's increasing prosperity as the rising star of the European sales figures, that many predicted the ultimate demise of the Peugeot-Citroen alliance at the heart of the PSA group ... and yet, a few years later there was a dramatic change. The Regie's boss, Bernard Ranon, was unceremoniously fired by the majority shareholder, the French governement, who appointed Georges Besse to salvage the nationalized company. To general dismay, it was discovered that the Regie was in a financial mess with a deficit of FF 12.5 billion in 1984 on top of which came the provision of a further FF 4.5 billion worth of reserve funds for the following year's budget. The Regie's global debt exceeded FF 40 billion, and this explained Georges Besse's consolidation strategy and the associated catalogue of abandonments and sales.
The Renault 9 France's Best Selling Import?
Among the disvestments were: Ernault-Souma (machine-tools), factory projects for Moskvitch and Skoda, Formula 1, Gittane (bicycles), Ceraver (industrial ceramics), Renix (automobile electronics), Teillhol (sub-contractor for Rodeo vehicles), and the Mexican engine plant, which lost FF I billion a year. The Regie's search for a partner for its agricultural machinery company had been taking place against a background of falling market share - in the good old days it had 40% of the sales in France, by 1985 it has less than 30%.
The network of independent dealers lost FF 600 million in 1984 and Renault's own sales outlets brought the total loss to FF 1 billion. Renault's effective bankruptcy encouraged importers to increase their hold on the French market with a record of more than 45% market share for July 1985, representing an annual figure of nearly 37%. Including the French automobile industry's sub-contractors in Spain, Belgium and Yugoslavia, the real market share going to imports was nearer 55%. Officially, the best-selling import in France was the Ford Fiesta, but many people said, with some justificaation, that it was the Renault 9!
The other major French group, PSA, had also failed to halt the flood of imports. Although Peugeot had been very successful with its 205 model - top of the 1984 bestseller list with more than 13% of the market - Talbot was on its way out and Citroen was stagnating despite high marks for the BX series. These manufacturers had a common drawback - dangerous over-reliance on a single model. Peugeot's 205 was responsible for 67% of the company's sales in France, while 55% of Citroen's French sales were atttributed to its BX model. PSA, which then owed FF 30 billion, found it difficult to finance new-model development.
Matra, whose relations with Renault had cooled, was negotiating with GM and Toyota, while the Regie was continuing its American adventure with Mack trucks, of which it owned 45%, and American Motors in which it had a 46% stake. The Renault/AMC marriage was hardly being helped by the sales collapse of the Alliance/Encore models, the "made in USA" versions of the Renault 9 and 11. While rumours abounded that AMC were looking for a Japanese marrriage, Renault was forced to invest a further $675 million in the Brampton plant, Canaada, to build the X.58 model in 1987/88. This American version of the R25 was seen as the only hope of getting AMC back into the black so that Renault could pull out.
Acid Rain, Catalytic Converters and Unleaded Petrol
On the eve of the 100th anniversary of their invention of the motor car, West Germans had become targets of a campaign to make them aware of the destruction of their forests by acid rain. In 1985 automobile manufacturers admitted that cars could be responsible for no more than 10% of the damage. But ecologists pointed to the car as the number one culprit. In a wide-ranging and essentiially political controversy in which the real reasons for the debate were eventually forgotten, European unity was strained by the involvement of powerful industrial interests. Months arguments ended in hastily-contrived agreeements on new anti-pollution laws requiring exhaust gasses to pass over a catalytic converter for cars of more than two liters capacity. This in turn required the use of lead-free petrol, because lead coats and damages the catalyst.
West German manufacturers were said to have accepted the catalytic converter in exchange for an agreement not to impose speed limits on the Autobahns, felt threatened that speed limits would be immposed anyway. This move would be a severe blow to their technical dominance, and, as misfortune never walks alone, there was even talk of a clean truck with the demand for an almost immediate 20% cut in pollutants from Diesel engines. These uncertainties weighed heavily on the health of the West German market, with sales badly affected at the beginning of 1985. Fortunately, a good export perforrmance enabled German manufacturers to break production records with a total of 3.9 million vehicles, of which nearly 62% were sold abroad.
Financially, it was the American companies which suffered. Opel, the top-selling make in Europe, lost its lead and plunged into deficit in 1985. The Volkswagen group, on the other hand, showed excellent financial health while pursuing a policy of seeking co-operation agreements world wide. Its joint-ventures included the manufacture of the Santana in Japan with Nissan, the development of an automatic transmission with Renault, and the establishment of a plant in Tunisia with a capacity of 5000 vehicles from 1987. The only shadow on the Volkswagen balance sheet was the failure of the Golf II in the United States with not more than 60,000 sales in 1985, despite the fact that this car was by far the best seller in West Germany.
Mercedes distinguished itself by concluding agreements in the high-technology sector. Accords with MTU turbines and Dorrnier put Daimler-Benz into the second rank of West German armaments companies. The Stuttgart company, whose financial health was excellent, had also built a truck and engine plant in Mexico, and were about to start production of commercial vehicles under Mitsubishi licence in its Spanish factory. While Porsche had boosted its production to 50,000 vehicles, BMW strangely had difficullties with its image in Europe, despite a healthy balance sheet and good sales in the United States. European sales dropped 26% in the first quarter of 1985. The Munich company had been shaken by internal politics and an obvious failure to renew its range. Most commentators of the day lamented the fact that the range was getting "stale", and wanted the new 5 Series - they would have to wait until 1987. Meanwhile, Mercedes had taken up a challlenge which would have been considered impossible 10 years earlier, and had won handsomely with the success of its range of small cars. In 1985 the 190 reached third in the list of best selling cars in West Germany.
The European car industry, and especially Italy's, spent 1985 reacting to the carefully timed leaks about the state of the Ford-Fiat negotiations. Most industrialists managed to hide their profound concern at the prospect of a merrger between the Turin-based group and the European subsidiary of America's number-two car manufacturer; a merger which would have controlled a quarter of the European market. In mid-October came a terse statement: talks had broken off. After long months of bargaining, all Giovanni Agnelli and Henry Ford could come up with was an agreement to disagree. Neither would yield their claim to the control of the new group. The press was cynical: "Under fire from Japan and the United States, the European automobile industry needed commpetent managers rather than publicity-hungry visionaries." Yet another broken engagement-there have been others, hardly seemed to affect Fiat. Its balance sheets reflected good health. Profits more than doubled in 1984 to Lit 306 billion. The European industry cited Fiat as an example of successful reorganization, conveniently forgetting the success had been made possible by the cassa integraazione which allowed the labour force to vary, almost on a daily basis, without the company having to bear paralyzing inflexibility and social costs.
Fiat could also be cited as an example of abysmal failure in international agreements. In its dealings with GM, Ford and others (mainly Japanese) the Italian group allowed itself to be led into the snare of the so-called miracle automatic transmission. The variable transmission concept, and more especially the metal belt proposed by the Dutchman, Van Doorne, resulted in an expensive industrial deadlock. A total of $1.25 billion was said to have been spent world wide on this system during 1985 alone. The biggest winner was US company Borg-Warner, which claimed to have developed another type of belt of guaranteed feasibility and quality. Fiat, which had successfully managed the incorporation of Lancia, had also won unanimous approval for its new industrial strategy. At the 630 billion-lira Termoli plant, for example, the a new generation of robots built a new small engine. The entire production cycle took 107 minutes as against the 231 minutes needed for the earlier engine. They come off the line every 20 seconds and capacity could be increased from 2500 to 3500 units a day.
Compared with Fiat's success, Alfa Romeo's problems were a sorry sight. The nationalized company, then the 26th biggest manufacturer in the world with 200,000 cars a year, had a 50% overcapacity. In five years it lost Lit 500 billion. Although there was talk of private investment from Milan, this had so far come to nothing. Only GM had spoken of a possible purchase of engines for a future American sports car. One thing was certain - Nissan would not follow up the proposal. Operation Arna, a Napolitan Cherry with a four-cylinder Alfasud engine was an unmitigated disaster. The saloon failed to achieve a third of its sales targets and the car has been seen offered at a 40% discount in England. Alfa had been paralyzed by too many management errors. The Quadrifoglio marque could not really count on its uncompetitive range for a way out, and history tells us it had to wait until 1987 for the launch of project 164, undertaken partially with Fiat, Lancia and Saab.
And then there were the other small Italian makes that created the worldwide reputation of Italian automotive engineering. Ferrari, by 1985 part of the Fiat group, had faced up well to the German technological challenge, while Maserati, under partial control of Chrysler, was producing between 5000 and 6000 sports cars a year for the American manufacturer. Finally, the succcessful transformation of the major coachbuilders like Pininfarina and Bertone, is worth mentioning. They had become the designers of several models as well as constructors in their own right.
Two European countries stand out because of their style, the first is Sweden. In a social environment hardly conducive to low manufacturing costs, Saab and Volvo were models of success, especially when one considers that they were but divisions of diiversified groups. Saab, which turned out some 10,000 cars in 1985, sent 35% of its production to the States where sales had trebled in four years. This resulted in a 26% rise in profits in 1984. Saab sold the Lancia Delta in Scandinavia as the Saab 600 and had deeveloped its new 9000 model with the Fiat group. This saloon adopted the structure and certain components, notably the doors, of the Lancia Thema and Fiat Chroma.
The slightly bigger Volvo company splits its manufacturing between Sweden, where it makes a quarter of a million cars a year, and the Netherlands where its nationalized subsidiary, Volvo Car BV, has broken the 100,000-a-year barrier. Volvo distributes small numbers of Renault 5s in Sweden as well as the Trafic and Master utilities. It has a strong position in the truck sector with its control of the American firm, White. In the States, Volvo has been the biggest Euroopean importer for several years, selling more than 100,000 cars a year - and that contributed to doubled profits in 1984. These two small European manufacturers, which used to be dismissed by all the big European auto bosses for failing to achieve economies of scale, have set an example of financial accomplishment.
Meanwhile, Volvo had set its sights on growth. It had earmarked 100 million Swedish crowns for a new plant at Uddevalla, north of Gothenburg with a capaccity of 80,000 cars in 1987/88. But the European "rising star" manufacturer for 1985 was Spain, which broke the 1 million-car barrier in 1983. The 1984 production was 1.2 million and the trend continued. FASA-Renault, Ford Espana (escorted Fiestas) and General Motors (future Kadetts) vie with Seat for leadership. The Iberian firm, which manufactures Volkswagen Polos and Santanas under licence in terms of a 1984 agreement, was known in early 1985 to be heading for control by the West German group. But Wolfsburg did not want to repeat the mistake of its commerrcial integration with Audi. Nevertheless, Seat which had an 80 billion-peseta government handout, had to find its feet quickly, despite debts of Pta 180 billion. Volkswagen was to take part in a 10-year plan involving an investment of Pta 300 billion as well as the loss of 4000 jobs from the workforce of 23,000.
In Spain's domestic market, the Renault 11 was the undisputed best-seller ahead of the Spanish-made Opel Corsa (including the Vauxhall Nova which was being exported). Peugeot, which assembled the 205 locally, and Citroen, which manufactured BXes as well as all Diesel Visas, were also big Spanish producers. Most surprising was the poor position of Seat, which was loosing domestic market share. But Seat was going all out for export, with half its production in early 1985 going abroad. The export drive had already given Seat 1% of the European market, and its cars were seen in places like Chile and Taiwan. In 1988 it would attack the United States with the Malaga. And while ENASA-Pesago negotiated its amalgamation into the General Motors group, the Japanese inched their way into the Spanish automobile industry. Santana which used to make Land Rovers under licence, now assembled Suzuki's small 4 x 4, and Nissan, majority shareholder in Motor Iberica (Ebro), intended to make Spain one of its major European bridge-heads.
Cars for Oil
Britain's marketing statistics were honest enough to include as imports domestic-sounding cars that were actually built outside the country, such as the Ford Fiesta and Vauxhall Nova. And the statistics showed a record 60% of imports. The once flourishing English automobile industry had serious problems. Yet Talbot-UK made a surprising return to profitability by producing cars, mainly for Iran, that were exchanged for petroleum that was in turn delivered to the West German firm, Krupp Oil, which then payed the PSA group. But crisis was always stalking the nationalized British Leyland group which had once more plunged into the red with a loss in 1984 of £73,3 million. Austin-Rover's hope came from its association with Honda which dated back to 1978. Having produced Honda Ballades and Civics under the Triumph and Rover marques, British Leyland was heading for a new stage in its fortunes in 1986. It was then that the HX and XX projects for a new top-of-the-range model will materialize in an exchange mannufacturing deal. Honda Legends for the European market will come off the Rover production lines at Cowley, while British saloons for the Pacific market would be assembled in Japan. Closer examination of what appeared on paper as a fine example of mutual confidence revealed that all cars bearing the Japanese marque would be carefully checked at a center belonging to Honda of UK Manufacturing.
The Nipponization of British Leyland
Later, this center, which stocked spares, would become the assembly plant for a new common vehicle. Despite British Leyland's £1.55 billion investment in a five-year plan, the money was insuffficient for the development of a new car at the bottom of the range, where the re-engining of the Metro had triggered an Anglo-Japanese conflict - the British executives giving a firm "no" to a Honda motor, even though it would have saved £250 million. The British Leyland-Honda Accord showed that the nipponization of BL was well underway, even though the Japanese had not put up any capital. The nipponization of the entire British automotive sector was also evident, the new Washington plant, which, with a production of 24,000 cars from 1986, was about to make Nissan the fourth biggest British producer by 1990.
Meanwhile Jaguar, privatized in mid-1984, had seen its fortunes improve. The Covenntry firm, where they made cars at the rate of four per worker per annum - about one tenth of the Japanese rate - had nevertheless improved its productivity three-fold in five years. By 1990 Jaguar was expected to produce 56,000 cars - half of them for the United States market. Bedford, part of the GM-Vauxhall group was assembling a utility vehicle of Isuzu origin, while Rolls-Royce continued on, undisturrbed by the shadows of international policy-making. When it presented, in the summer of 1984, its "continental" coupe for the 1990s (0-60 in under 7 seconds with automatic transmission) the venerable English company made it known that it had built its 100,000th car in 81 years of activity.
East Of The Iron Curtain
After the post-war division of Europe, the car industry started anew in Czechosslovakia (Skoda for the masses and Tatra for the party bosses), in East Germany (Trabant and Wartburg powered by DKW-derived two-strokes), in Poland (Poobieda and Syrena) and, of course, in Russia with its Zaz (formely NSU), Volga, Moskvitch and Zil, known as the "red Cadillac". Nothing much had changed in the four deecades since the war, apart from the establishment of new industrial sites. There had been a few partial implantations by foreigners through more-or-less successful agreements. Examples were Renault's expensive accord with Dacia in Romania and its agreement with IMV in Yugoslavia to assemble R4s.
Apart from localized kit-assembly initiatives which assumed political importance, the big event in the Eastern bloc was the three-pronged attack of Fiat. In Poland, Fiat and FSO-Pol Mot started with the old 125, dubbed the Polski. In Yugoslavia the ancient 600 was still being produced with Zastava, while the more recent Yugo was trying its luck in the American market. But it was especially in Russia that Fiat had achieved prominence. In the vast Togliattigrad complex, 800,000 VazzShigulis were turned out a year to appear in export markets as the Lada.
Citroen, too, had gone through a painful experience with a 36% ownership of the 500 million-franc joint company with Romania. It was set up in 1976 and needed a further FF 4 billion in investments. The first car, the Oltcit - export name: Axel - came out at the end of 1981, but three more years were to pass before it reached an exportable level of quality. Citroen had to honour its contract, and in 1984 bought back 30,000 of the 50,000 produced. The 130,000 to 150,000-car target of the Craroova plant was never expected to be reached. Meanwhile, the management of PSA had unequivocally turned down a similar venture with the Russians for the BX.
In short, all who have caught their fingers in the Eastern bloc machinery regretted it. Fiat had refused a Polish Panda, and Renault, the memory of its experience with the Kammaz truck plant still painfully fresh, had pullled out of an engine-production project with Moskvitch. The Soviet compensation system which entailed the re-export of finished products to Western Markets, was now regarded as unacceptable in the West. Lada nevertheless turned to Porsche for the deesign of its new 2108/09 Lada range, while Toyota and Nissan, approached by Moskkvitch, were totally against the Russian contract proposal. The planned-economy countries suffered from a virtually incurable ailment. Without a powerful and specialized sub-contracting sector, the automobile industry could not flourish normally. This had been known for several decades, and nothing had been done about it despite a strong demand for wheels.
China, The Rising Giant
Shanghai's first motor show was held in July 1985, and marked China's resolve to catch up its enormous backwardness in the mattter of motorization. In all, 320 companies, manufacturers and sub-contractors jostled for attention at the show, urged on by the prospect of huge long-term contracts. China had already begun kit assembly through various agreements. They included 20,000 Volkswagen Santanas and 100,000 engines a year in Shanghai. 15,000 station-wagons and Peugeot 504 light trucks in Guangzhou, and 60,000 Fiat minibuses plus 60,000 engines in Nanjing. Fiat was officially negotiating a co-operation contract for the production of Pandas, while GM was doing the same for Jeeps, and Citroen for 100,000 engines a year.
Isuzu and GM had already begun the joint production of 10,000 to 15,000 small utility vehicles a year; Toyota seemed ready to build a small plant; VW Brasil successsfully bid for the sale of 1000 trucks; Iveco-Fiat signed a contract for 50,000 Daily utility vehicles a year; Mazda opened a sales office in Beijing, and Nissan was already selling trucks.
Also see: 1985 Japanese Car Spotters Guide
| 1985 American Car Spotters Guide