Business: Detroit Hits a Roadblock

Automen and consumers share the onus for a lack of small cars

From the Toyota Tercel driver on the Santa Ana Freeway in Los Angeles to the Volkswagen Rabbit owner dodging potholes on the F.D.R. Drive on Manhattan's East Side, the American-built car has become an object of derision and jokes. All too many American drivers now consider the cars they once fawned over to be simply too big, too heavy and too expensive. As car sales continue a yearlong slump and the auto industry faces its gravest crisis ever, an increasingly anxious public is asking: Why can't Detroit build more and better small cars? Why is it so out of step with what consumers need today?

The answer involves a complex series of market misjudgments by Detroit automakers, heavyhanded Washington regulations that distorted the real price of gasoline and fickle consumer tastes that flipped almost overnight from Big is Beautiful to Small is Super.

The industry's problems are staggering. Sales of U.S.-made cars for the middle ten days of May declined 30%; worker layoffs passed the 300,000 mark for the first time last week; and imported cars now command an unprecedented 27% of the domestic auto market. In Detroit, a town once noted for a cocky, can-do attitude, the mood is somber. Says Ford Chairman Philip Caldwell: "There's more at risk in the auto business now than there has been for a long time. Maybe ever."

The country meanwhile continues to struggle with an economic slump that is sure to drive Detroit's depression still deeper. Durable goods orders dropped a steep 4.2% in April, and retail sales declined 1.2%. Spokesman Jody Powell said President Carter now believes that Americans no longer need to heed his imprecation against credit card use and urged them to begin spending more freely again.

The Federal Reserve responded last week to the economic storm clouds by beginning to dismantle the credit restrictions it had imposed only two months ago. This led to expectations that interest rates will continue dropping in the coming weeks. One encouraging omen was that inflation is perhaps beginning to abate at last. Consumer prices during the month of April rose at an annual rate of only 11.4%, down from the first quarter's horrifying 18.1% yearly level.

Today's moody Motown sound is in sharp discord with the tune played two years ago. Then the auto industry enjoyed its third-best year in history as buyers snatched up the biggest and most expensive cars it made. Today those same high-powered, six-passenger American cars are an anachronism.

With Detroit-built small cars in short supply and considered by many to be of poor quality, Japan has happily filled the void. This year it will sell 2.2 million cars to U.S. drivers. The Japanese auto industry, which was only growing up a decade ago, will produce more automobiles this year than its American counterpart.

Ever since 1913, when Henry Ford fired up the world's first moving assembly line in Highland Park, Mich., to build Model Ts and began paying workers the then unthinkable salary of $5 a day, Detroit has been the center of the American automobile business. All five of the country's automakers (including Volkswagen of America) have their headquarters in Detroit or one of its suburbs.