Early this month, A General Motors AC Spark Plug Division assembly line in Oak Creek, Wisc., churned out the 25 millionth catalytic converter for that auto maker.

A controversial device since making its first largescale debut in 1975, the catalytic converter is symbolic of the virtual all-out war between the automobile industry and the government over how much regulation is needed to help protect the American public, and how much is instead an unnecessary burden to the industry.

What emerges from a look at the overall picture of auto regulation is a portrait of an industry that , although once a leader in manufacturing technology - creating such advanced systems as the assembly line - has lost much of its innovative touch. The problems seem to touch each of the several areas of automobile regulation - safety, pollution control, fuel economy - in varying degrees.

But an unprecendented invasion of foreign automobiles and a federal regulatory apparatus manned by overworked consumer advocates have placed new pressure on Detroit to become innovative once again.All often, what domestic auto makers have said cannot be done already has been done by one or another foreign competitor. But the new pressures have given the auto industry a kick in the tires.

"The engineers in the auto companies love it," said Joan Claybrook, the outspoken and controversial head of the Department of Transportation's National Highway Traffic Safety Administration. "For the first time in years, they are being challenged to meet new safety and emission standards."

What is unusual about all this is that even though Detroit probably has the best auto engineering minds in the world, it has allowed foreign firms to take the lead in the areas of economy, pollution and safety.

"The problem is that most companies and people are innovative only when they see some immediate pay-back for their innovation," said NHTSA's Claybrook. "Because the American motor industry does not insure the cars they sell, they are not concerned with what happens after they sell them because they are not responsible. There has to be something defective or not in the state of the art for them to be blamed."

Claybrook pointed out, however, that "auto makers have been innovative in areas of productivity because there is an immediate pay-back - the same goes for the areas of styling and comfort and convenience."

Claybrook also contended that another reason for the relative lack of innovation in the auto industry has been the "near-term thinking" of the industry. "Planning has been on the basis of short-term cycles like 3 or 4 years at a time," she said. "Rarely has this industry thought in terms of 5, 10 or 15 years. And until they do, they are unlikely to do the kind of basic long-term research and investment.

So innovation in the auto industry has been coming primarily from the smaller suppliers who feed the larger auto makers. Claybrook pointed out that small companies always have been more innovative. And many of the smaller companies were able to jump quickly ahead in manufacturing the equipment needed in a hurry to meet new federal standards.

But domestic firms still were hard hit by foreign auto companies having advertising safety features for a long time and certainly having produced cars with better fuel economy for many years. Imports now make up nearly 20 percent of all cars sold in the U.S., the highest that figure ever has been. And domestic manufacturers export only 10 percent of their production coapared with 50 percent for foreign auto makers

But despite all these problems, there are serious questions about whether government regulation is helping or hurting the competitive situation for American auto makers. And the catalytic converter is as good an example as any. Some foreign producers - notably Honda and Fiat - have been able to reach certain emission control levels without the aide of the catalytic converter, but American auto makers have made it the rule.

The automobile first began being thought of as a major contributor to air pollution nearly 30 years ago, when a California Institute of Technology scientist, Dr. Arie J. Haagen-Smit, pinned much of the blame for Los Angeles smog on autos.

But it was 1970 by the time the government set some standards. At the time there was very little available information on just how much auto exhaust emissions could be reduced, or how it could be accomplished.

After several revisions in proposed standards - most recently last year - the industry finally has settled into a pattern of meeting emission control deadlines that appear acceptable to everyone. The basic strategy decided upon by the government was to set standards for levels of emissions of specific pollutants, and permit the auto makers reach them however they were able.

Lawrence White of the Council of Economic Advisers told a recent gathering of industry representatives and regulators that the standards-type approach has serious shortcomings. "Technologies which might be low-cost but which fail to meet the standards will be ignored," he said. And the standards approach also encourages collusion among large companies. A united industry front against a standard has an excellent chance of forcing the government's hand.

In fact, the auto makers did get together in 1953 to form a joint committee to study the emission problem, following Dr. Haagen-Smit's research. In 1955, the companies signed a cross-licensing agreement ensuring that all manufacturers had access to whatever technology any one of them developed for emission control. While that agreement facilitated the sharing of knowledge, "it simultaneously dulled the incentives for each company to pursue research so as to gain a technological lead on its rivals," White pointed out.

But in 1969, the Justice Department sued the auto makers and succeeded in an out-of-court settlement in breaking up the cross-licensing agreement, which it described as part of a pattern of collusion.

After continual delays, and stronger and stronger complaints from the auto industry that government-mandated pollution levels could not be attained, the auto companies finally bit the bullet and the catalytic converter took hold in the 1975-model-year cars - for better or for worse - and most new-car buyers from that year on were ordered to use unleaded gasoline to fill their tanks.

But partially because of the phase-in requirements, that is, the laws mandating that emissions control gets better as time goes by rather than merely ordering a goal to be reached at a distant time, the industry once again has sought the short-term approach.

Research that might have advanced the introduction of the diesel or other car engines was shunted aside by the auto makers in favor of technology that had to meet gradual-step requirements.

White complained that the government could have given the auto makers more time to reach a tougher goal, and allowed them to spend the necessary time and money to research larger-scale choices.

But Clarence Ditlow of the Center for Auto Safety says that the industry would not have gone even as far as it has had the government not issued specific performance standards. "We wouldn't even be looking at diesel engines today but for the fuel standards," he said.

"Unless there is some kind of tax subsidy or mandate of a particular technology, the manufacturers are content with add-ons," Ditlow said. "The suppliers do the research and development, and the auto maker just tacks it on."

Now the diesel has become the solution for auto makers searching for a way to keep cars large and thus retain existing production lines, Ditlow said.

And Brian Ketcham of Citizens for Clean Air said the government should jump in head first and expand public-participation programs to include heavily technical expertise.

He said recently that "Washington should encourage the development of a corps of technicians who can independently evaluate such matters as auto safety, emissions control, fuel economy."

To be sure, many in the industry are seeking reasonable solutions to emissions control problems. But can you blame one industry executive who said: "We're shooting at a moving target. Everytime we go in one direction, we're accused of avoiding the other."