When Vicki Kriner was ready to replace her Suburu GL, she did something she hadn't done in years: She bought American. In fact, Ms. Kriner, who owns an Owings Mills day care center, bought a vehicle made by Chrysler, a company whose brushes with bankruptcy symbolized the problems of U.S. automakers in the late 1970s and 1980s.
"When I took the test-ride, I was convinced," Ms. Kriner said last week of her Jeep Cherokee, manufactured by Chrysler. "The ride was great, and the price was reasonable."
That combination of quality and price is helping Chrysler Corp., Ford Motor Co. and General Motors Corp. regain long-lost customers.
And recent financial reports show that the Big Three can make money as well as good cars -- combined second-quarter profits hit $2.5 billion.
But for all the progress in cost-cutting, quality improvement and product development, the U.S. auto industry faces serious challenges.
Among them: the burden of years of crippling losses, a still-substantial gap with Japanese automakers in quality and productivity, uncertain labor negotiations and a reliance on tariffs to keep out competitors.
If the Big Three can't meet those challenges, the entire U.S. economy is likely to suffer.
GM, for example, accounts for 2 percent of all goods and services produced in the United States, and, after numerous cutbacks, still employs 450,000 people, including 3,500 in Baltimore.
When the number of U.S. jobless claims recently dropped by 60,000, to 336,000, economists attributed the change to rising auto production.
Such issues, however, seem miles away from the nation's showrooms. With the average age of the U.S. auto fleet at eight years -- a level that hasn't been reached in more than four decades -- consumers are rushing in to buy cars.
At the Bob Bell Chevrolet dealership in southeast Baltimore County, best-sellers include the Geo Metro and the Chevrolet Cavalier, a 10-year-old model still popular because its price is under $10,000.
Sales are so strong, says a salesman, Stuart Brooks, that the dealership is turning over 100 percent of its inventory each month and would be selling more but for factory bottlenecks.
His experience is mirrored by statistics showing that auto sales hit a three-year high in the first half of 1993.
Although sales dropped in July, 1993 is likely to be the strongest year for vehicle sales since 1990.
People "need autos, interest rates are low and they just feel more confident," Mr. Brooks said. "Everything has just come together."
In the past, many of those new-car buyers would have chosen Japanese autos, with their reputation for reliability and value.
In the first six months of 1993, though, U.S. automakers have cut into Japanese companies' market share, slicing it to 27.6 percent, from 29.2 percent.
The reason: U.S. manufacturers are benefiting from fundamental changes they have undertaken, as well as from temporary factors that could vanish in the future.
Among the more permanent changes: an emphasis on quality and lower costs.
Lean production techniques, for example, have raised U.S. autoworkers' productivity to near-Japanese levels. From 1979 to the number of U.S. autoworkers needed to produce a vehicle dropped from about five to three for Ford and Chrysler, although GM lagged, with 4.5 workers needed, according to a recent study by Harbour and Associates, a Michigan consulting firm. Japanese auto companies, by comparison, needed fewer than three workers.
Productivity "is not quite as high as the Japanese, but for all intents and purposes, that gap has been closed," said Ron Harbour, who runs Harbour and Associates.
That means lower costs for consumers. Today, U.S. cars enjoy a $2,000-to-$3,000 price advantage over their Japanese competitors, a margin increased by the record strength of the yen, which drove up the cost of Japanese cars last year by between 4 percent and 7 percent. By contrast, the Big Three increased prices by just 1.6 percent.
Detroit has boosted quality, too. J.D. Power and Associates, which measures new-car defects, reported that quality rose 17 percent among 1993 U.S. models. Quality rose among Japanese cars, too, but by just 10 percent, the consultants reported.
Still behind Japanese
But in both quality and productivity, U.S. automakers have ground to make up. J.D. Power's study, for example, showed that Japanese cars have 92 defects per 100 vehicles; American-made cars had 113 defects, and European cars had 128 defects.
The top four divisions for quality were Japanese: Lexus, Toyota, Infiniti and Acura.
Ford's Lincoln division ranked fifth -- one of three U.S. manufacturers in the top 10. The others were GM's Buick and Saturn divisions.
In the showroom, this can mean that some consumers still shun U.S. models.
"For some people, it's a mind-set," Mr. Brooks said.
And despite productivity gains, a study by Morgan Stanley Inc. shows that health-care costs remain a serious handicap for U.S. manufacturers. About $900 of the cost of each U.S.-made car is related to automakers' health-care costs, compared with $300 for a Japanese car.
This $600 cost advantage keeps U.S. cars from regaining even )) more market share.
Tariffs restrain importers
Trade is another issue that could hurt the Big Three. An obscure 25 percent tariff aimed at Volkswagen vans in the 1960s is being used today to make Japanese trucks and some vans more expensive -- a practice that industry executives want retained.
The tariff is crucial because light trucks, vans and sports vehicles account for 40 percent of auto sales -- and could climb to 50 percent by the decade's end. Thanks in part to the tariffs, foreign competition is negligible.
Last year, for example, Chrysler's truck sales jumped 28 percent, followed by GMAC, with 18.7 percent; Ford, with 15 percent; and Chevrolet, with 8.5 percent.
This category includes the Cherokee that Ms. Kriner bought -- a luxurious, smooth-riding truck that barely resembles the bouncy vehicles of yesterday.
Another concern for the Big Three is labor negotiations. Afte reporting several quarters of solid earnings, U.S. automakers will have a hard time persuading the United Auto Workers union to make more concessions to productivity.
Although a strike seems unlikely, few expect the unions to mak big concessions in the near future.
Chrysler leads the way
The new Cherokee is one reason why Chrysler has, by many measures, become the top U.S. auto manufacturer, after having nearly gone bankrupt twice.
Compared with Ford, which has been weakened by th European recession, and GM, which is still struggling to right itself, Chrysler develops and produces cars as quickly and as successfully as its Japanese competitors.
"Chrysler has been bringing out new models all the time, whil Ford and GM haven't," said Scott Whitcomb, a salesman at Heritage Dodge/Jeep/Eagle in Owings Mills. "That's one reason why they're so successful."
While Chrysler is riding smoothly, the two other automakers ar hitting some bumps.
Ford has continued to post profits, and its Taurus outsold the Honda Accord last year to become the nation's best-selling car. But Ford earned only $236 for each car and truck it sold last year -- one-third of Chrysler's profit margin. One reason: While Chrysler and GM have cut unprofitable fleet sales to car-rental agencies, Ford has pursued such sales.
Ford also has aggressively leased autos, a practice that ma hurt automakers. Ford guarantees customers a specific repurchase price on its cars, which could be worth less than anticipated.
Concerns that Ford's leasing terms are too generous recentl caused Salomon Bros. to cut its recommendation on Ford's stock from a "buy" to a "hold."
"They should be minting money," said Jack Kirnan, an analyst at Salomon Bros. But leasing and fleet sales have thinned Ford's profit margins.
Of the Big Three, GM might face the most serious challenges. As Chrysler and Ford snap up new-truck buyers, GM has been unable to update favorite models or to convert factories to truck production. That's a legacy of GM's $30 billion in losses over the past three years.
Baltimore's Broening Highway factory, for example, makes th popular GMAC Safari truck and Chevrolet Astro vans, but both models are 10 years old. Company officials say no plans exist to introduce new models at the factory.
Still, GM's aggressive cost-cutting campaign -- in which 21 plants will close in the coming year -- puts the company on course for its first profitable year in three. GM also plans to introduce new models in coming years.
"The bottom line is that this is a lousy market for selling cars despite the economic uptick," said Joe Bohn, a senior editor of Auto News magazine. "And [the Big Three] are still making money. That says something about their success."