Auto Industry in Flux

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.