Towing Detroit
Top executives of the US auto industry were in Washington last week -- and will be back again this week -- looking for a government wrecker. They want some help in towing their industry, a key one to the US economy, out of the host of financial problems it is mired in. Stuck on the side of the road with an inventory of bigger, gas-eating cars no one seems to want, automakers see troubles everywhere they look -- the nation in recession, soaring gasoline prices, plummeting new-car sales, disappearing profits, rising unemployment, and dealerships forced to close in bankruptcy.
That Detroit needs emergency assistance to ease back into the heavy and growing traffic in foreign imports is generally recognized. Congress and the Carter administration have been understandably reluctant to increase government intrusion into the free market system by bailing out the industry, whose problems are at least partly the result of poor management. But a federal panel's weekend approval of $1.5 billion in loan guarantees for Chrysler, the hardest hit of the automakers, reflects Washington's awareness of the political and economic coasts that might stem from the demise of Chrysler or any of the other big automakers. A Chrysler bankruptcy would have repercussions in the steel, rubber, auto parts, and numerous other industries indirectly tied to auto manufacturing -- although how much impact has been open to debate.
Moreover, the Chrysler Loan Guarantee Board took careful note of numerous operational improvements made by Chrysler since it first asked for assistance last summer. And the board sought to ensure as much as possible that taxpayers' funds would be protected. How best to help put the other American automakers back on the road to survival, however, is the question that Congress and the Carter administration must now address.
American carmakers were not prepared for the sudden shift in public demand for small, fuel-efficient cars, which the Japanese and other foreign manufacturers are making and selling right and left. The US industry is responding, belatedly, with an ambitious top- to-bottom retooling and redesign program which will eventually result in more competitive products, but most will not be ready before 1985.
In addition to the Chrysler aid package, the federal government already has taken several initial steps to help the industry. Among other things, it has eased emissions and fuel-efficiency standards to lower costs of compliance. But this hardly seems the most effective way to meet competition from foreign cars, which already get better gas mileage than many American cars.Some small- car imports, in fact, are rated at almost twice the mileage of most US-made cars -- and they are doing so under existing antipollution standards.
The Carter administration is right to resist putting limits or quotas on Japanese and other imports. Such a move would only invite retaliation in other trade areas. Nor would it answer the industry's basic need for a long- term retooling strategy and for sufficient capital to carry out that strategy. Auto executives estimate some $70 billion will be needed to produce the kind of small cars Americans will buy in the 1980s. Use of tax credits and more generous depreciation allowances is one way the federal government could help the industry raise the capital needed to build smaller cars.
Another possibility under discussion in Washington is a program of joint government-industry research aimed at improving US auto technology. Along this line, President Carter has proposed a modest $50 million a year program of matching grants to finance basic research. This would be preferable to the more extreme government involvement envisioned in another, more ambitious bill introduced in Congress. This bill would have the National Aeronautics and Space Administration commission research on automobile engineering projects, much as NASA has done in the aviation technology field. Still another approach, one that might prove workable but should be handled with care, would be a relaxation of antitrust laws to allow companies to cooperate on research.
As for beleaguered car dealers -- 800 dealerships have closed in the last nine months -- assistance in the form of Small Business Administration loans for financing inventories might help. Moreover, if interest rates continue to drop as they have in recent days, that should make it easier for Americans to find affordable financing for car purchases and perhaps further ease the pressure on dealers.
US Transportation Secretary Neil Goldschmidt sees a leaner and more competitive American industry emerging from the current crisis. Detroit's auto executives also look beyond the present recession and see a bright future for those companies that adapt to changing demands and survive. One trend appears certain. American car buyers are demanding quality as well as good gas mileage in their autos. The long-term challenge of management and workers will be to demonstrate that American-made cars are as well built as imports. As one Detroit executive puts it, quality has to become "a management priority."
