Business: Detroit Hits a Roadblock

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The auto-buying public's splurge on big cars was encouraged by the Federal Government's ill-conceived energy policy. Because of a complicated pricing system in which cheaper domestic oil holds down the cost of imported crude, the U.S. driver was enjoying Government-subsidized fuel. Between 1974 and 1978, gasoline prices actually declined 5% in real terms. With no lines at the pump and relatively inexpensive gas, people had no real incentive to buy small cars. Says Transportation Secretary Neil Goldschmidt: "There was an opportunity that was missed in 1973-74 at the time of the embargo to send a message about fuel economy and energy." The renewed interest in big cars peaked in the fall of 1978, just as the Shah of Iran was toppling and the world was heading for another energy crunch. There were waiting lists for big Ford Lips and Dodge St. Regises. GM was considering converting a Chevette plant to the production of full-size models, and Ford was rationing V-8 engines. But when gas lines developed in the spring of 1979, history repeated itself as farce. Consumers again demanded small cars, which the American industry could not provide. This time the Japanese were ready to step in and seize the market.

Detroit argues with validity that not even the best intelligence in the world could have predicted the oil supply cutoffs and staggering price increases of the past seven years. But there is now no longer any doubt that big cars are dead. "The large cars that we've known really belong in a museum," says Ford's Caldwell. By 1985 Detroit will be ready with a complete line of autos no larger than the compact Ford Fairmont. But the enormous complexities of the industry prevent it from modernizing any faster than that. New small cars with totally redesigned engines and transmissions require new plants and facilities to build them. The time from drawing board to showroom floor can take up to seven years.

The industry's task is made still more difficult because it is caught in a massive cash squeeze to pay for building the new cars. That is a burdensome task for mighty GM, whose first quarter profits were off 88%. And it is an extraordinarily difficult one for Ford, which lost $164 million during 1980's first three months. In effect, the auto companies must sell off their fleets of outdated autos in order to earn the money to produce the next generation of vehicles. Detroit every year is spending $13 billion on the needed plants and machinery. That is more than it cost the oil companies to build the Alaska pipeline.

Perhaps the greatest challenge to the Big Three will be winning back customers who have defected to the Japanese or Europeans. Says United Auto Workers President Douglas Fraser: "Once a consumer purchases a car that is well engineered, has good durability, is well serviced by dealers, logic dictates they're going back to where they've had good experience." Though GM has been able to maintain nearly all its market share during the past six months at 47%, Chrysler's has fallen from 7.7% to 6.4%, and Ford's has slumped from 20.1% to 15.3%.