Auto Industry in Flux

May 10, 1974

Report Outline
Economic Impact of Declining Sales
Industry's Growth and Concentration
Options and Outlook in Troubled Times
Special Focus

Economic Impact of Declining Sales

Concern That Slump Might Wreck Economy

So far 1974 has not been a happy year for the American automobile industry. Sales have plummeted, production has been cut drastically, thousands of workers have been laid off, dealers have been plagued with huge inventories of cars they cannot sell, and declining profits have forced two of the Big Three auto manufacturers—Ford and Chrysler—to announce cutbacks in capital spending. General Motors, the largest and hardest hit of the companies, feels pressured to increase its spending on production of smaller cars.

Detroit's woes send shivers through the economy and invite comparison with the 1958 recession, which was preceded by an auto slump. That the industry has such an impact on the nation's economy is hardly surprising. More than 10 per cent of the gross national product is devoted to buying and maintaining automobiles and building roads for them. Auto manufacturing consumes 73 per cent of the rubber used in the United States, 41 per cent of the malleable iron, 36 per cent of the glass, 29 per cent of the tin, 16 per cent of the steel and 8 per cent of the aluminum. One worker out of every six in this country is employed in an automobile-related business.

Causing—and compounding—the current problems is a shift in demand from large to small cars spurred by gasoline shortages and high prices, inadequate supplies of raw materials, federal safety and pollution standards, and agreements with the government not to raise car prices beyond certain levels. One reason for the bleak picture has been an overproduction of big luxury cars and a dearth of compacts and sub-compacts. The shift in consumer demand for gas-saving small models accelerated after the Arab countries imposed an oil embargo on the United States last October in retaliation for U.S. support of Israel. The lifting of the embargo in March soon began to ease winter-long gasoline shortages but did nothing to keep prices at the pump from rising.

ISSUE TRACKER for Related Reports
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May 16, 2003  SUV Debate
Oct. 26, 2001  Auto Safety
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Jul. 25, 1997  Aggressive Driving
Oct. 16, 1992  U.S. Auto Industry
Apr. 27, 1990  Curbing Auto-Insurance Premiums
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Aug. 31, 1984  U.S. Auto Industry: Strategies for Survival
Feb. 23, 1979  Auto Research and Regulation
Apr. 28, 1978  Automotive Safety
May 10, 1974  Auto Industry in Flux
Apr. 18, 1973  Auto Emission Controls
Jan. 13, 1971  Auto Insurance Reform
Jul. 27, 1966  Fortunes of Auto Industry
Jun. 04, 1965  Automobile Safety
Jul. 10, 1964  Automobile Insurance and Traffic Safety
Nov. 19, 1958  Small Cars
Apr. 17, 1957  Better Driving
Jul. 01, 1954  Competition in Automobiles
Mar. 23, 1954  Automobile Liability Insurance
Dec. 24, 1952  Highway Accidents: Causes and Remedies
Aug. 21, 1945  Automobiles in the Postwar Economy
Sep. 02, 1938  The Market for Automobiles
Oct. 26, 1932  Outlook for the Automobile Industry
Dec. 10, 1929  Condition of the Automobile Industry
Jan. 30, 1928  Automobile Fatalities and Compulsory Insurance
Dec. 10, 1927  The Status of the Automobile Trade
BROWSE RELATED TOPICS:
Import Quotas and Customs
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Motor Vehicle Industry