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EDITORS NOTE: While GM, Ford and Chrysler show signs of

June 4, 1992

EDITORS NOTE: While GM, Ford and Chrysler show signs of strength, fractures have appeared in their mighty rivals from Japan and Germany, where economic slowdowns and high costs have cut into sales and profits.

Undated (AP) _ By NESHA STARCEVIC Associated Press Writer

FRANKFURT, Germany (AP) - Those superlative purring engines, flawless paint jobs and luxurious leather seats no longer provide Germany’s car industry a competitive edge.

Quality, the attribute synonymous with many German products, has become too expensive for many car buyers in an increasingly brutal global market.

Rising labor costs are forcing German car makers to look abroad for new production and assembly facilities that would take advantage of cheaper help. Some companies are cutting jobs.

″Our strengths are top quality and a high level of technology that have become worldwide standards,″ said Isfried Hennin, spokesman for the German Auto Industry Federation.

Now, he said, ″these qualities are not enough anymore to compensate for the disadvantages of producing in Germany.″

Erika Emmerich, president of federation, was more blunt in a speech earlier this year: ″No matter how we look at it, we produce too expensively.″

Figures compiled by the trade group show German labor costs are about 25 percent higher than in Japan and the United States and about 40 percent higher than in France or Britain.

Coupled with the shortest working hours among industrial nations, the high labor costs are ″significantly reducing the competitiveness of our car industry,″ said Hennin.

Mrs. Emmerich’s warning came after an exceptionally good year for German car companies. Unification opened the car-starved market in eastern Germany and incited a boom in domestic sales, at a time when other world manufacturers were grappling with recession and weaker sales in their domestic markets.

But the unification effect will fade. The industry now anticipates a 13 percent drop in domestic demand this year and there’s not much optimism that sales will revive much in the United States, the most important foreign market for Germany’s vehicles.

A luxury tax in the United States has compounded the pain, since most German cars fall into the high-priced luxury category. Japan’s aggressive move into the luxury market in recent years also has hurt Germany’s U.S. sales.

Nonetheless, the American market is showing some signs of recovery. Mercedes-Benz reported last month that U.S. sales reached 15,000 vehicles in the first three months this year, 2,500 more than in the same period last year.

For the year, Mercedes expects to sell 62,000 cars in the United States, 4,000 more than in 1991, but still well below the record sales of 99,000 in 1986.

German companies are also losing their edge over European rivals in productivity: by 1990, French auto makers’ productivity was 91 percent of the German rate.

Over the past decade, French labor costs were falling 5.3 percent annually, and British, Spanish and Italian figures were also dropping. Germany’s labor costs in the car industry were rising an average of 0.4 percent annually.

Industry leaders have appealed to the labor unions to keep salary demands low, but that prospect is unclear.

In May, German metalworkers got a 5.4-percent wage hike, lower than their original demand but higher than the employers’ initial offer of 3.3 percent. That is expected to set a pattern for auto companies and other industries.

Japan’s transplants will pose even stiffer competition in Europe. By year’s end, Japanese automakers will have three factories operating in Britain. In 1999, restrictions on sales of Japanese cars in the European Community are slated to disappear.

All this has combined to force leading German car makers to reduce their work forces.

Porsche AG, for example, said Tuesday it would cut 850 employees in the fiscal year starting Aug. 1, adding to the 550 workers already cut. The company said ″business-related layoffs can’t be avoided.″

Adam Opel AG, the profitable subsidiary of General Motors Corp., plans to cut 6,000 jobs over the next five years. Mercedes-Benz is cutting 20,000 jobs in the next 3-5 years, and BMW is eliminating 3,000.

BMW is considering opening a plant outside Germany - possibly in the United States. Audi, Volkswagen’s luxury car division, also is considering a plant in North America. Mercedes reportedly is thinking of a small assembly operation in Mexico.

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