Last Nov. 22, in response to a White House letter sent seven days earlier, Martin Marietta Corp. became one of the nation's first major industrial corporations to pledge its compliance with President Carter's voluntary wage and price guidelines.
Chairman J. Donald Rauth sent notices from the firm's headquarters in Bethesda to all Martin Marietta executives across the country within a few hours of Carter's Oct. 24 address on the program, stating emphatically that his firm would be in line with the government's program and mandating their cooperation.
In his letter to Carter, the corporate chief executive said: "This corporation may be deprived of some 1979 earnings that we might have otherwise expected, a situation that, as you said in your letter, is not painless.My view is that it will be only temporarily painful, however, if your program attracts the base of support needed to decelerate inflationary pressures."
By Feb. 13, however, only 207 firms had pledged such compliance. When the deadline for such compliance came two days later, hundreds of firms had asked for extensions. By last week, more than 1,360 firms had filed compliance information and less than 150 had extension requests outstanding.
Organized labor has hardly been an enthusiastic supporter. Inflation has not been stopped, although administration officials found some comfort in last week's wholesale price report showing a 1 percent gain in March, the same as in February, but below a 1.3 percent rise in January.
Throughout the intervening months, there have been a variety of twists and turns to the program itself, including some alleged tightening of the controls over corporations. There have been veiled threats of public pronouncements about corporate violators but no specifics. Some White House spokesmen have criticised rebounding corporate profitability, a goal the president earlier had supported as necessary to create jobs. Moreover, at least until Thursday night, the administration's response to a growing energy crisis had been timid. Debate now ensues on whether the president's new program of castigating the oil industry, establishing new taxes and appealing for 80-degree summer office temperatures is really the right medicine to make America independent in energy, to emphasize to average Americans the seriousness of the problem and the sacrifices they must make.
And Labor Secretary Ray Marshall said last week that a Teamster-trucking industry agreement with wage increases of more than 30 percent over three years could somehow fit inside the administration's wage guidelines (calling for a limit of 7 percent a year).
In this environment, Rauth said last week, "The guidelines to me aren't clear any more."
Rauth clearly is discouraged about the administration's anti-inflation effort, particularly about what he said was the government's own lack of discipline. Initially a strong advocate of what was seen as a balanced and fair attempt to control inflation, Rauth is now critical even though his firm has met all the government requirements and deadlines.
For example, he spoke scornfully about a message from Alfred Kahn, chairman of the Council on Wage and Price Stability, stating that anti-inflation success would come from a combination of "wage and price compliance by business and labor with self-restraint by government." And of a letter from Energy Secretary James Schlesinger urging corporations to encourage car-pooling.
"Self-restraint?" Rauth asked. "Carpools to solve the energy crisis?"
His view is that the government is losing the valuable asset of credibility in seeking to get business and labor cooperation to fight inflation for a number of reasons.
"Energy is the key thing we all look at, and while labor and industry can contribute a great deal, it won't help if the government doesn't get hold of the problem," Rauth asserted. "There's been a lot of talk but no meaningful program. When oil goes up in price, we equate it with cents per gallon at the gas station, and that's not the real issue, which is a survival problem in world commerce."
To date, Rauth said, the government has focused its attention on trying to deal with a scarcity of oil rather than the "real problem" of making oil more available through production incentives and conversion of coal or shale to oil. The government itself must make a huge investment to help industry develop the processes necessary to make the oil, he added.
Rauth also is concerned because he believes the government hasn't cut back enough on spending for itself and partly because he believes the evolving wage and price guidelines are headed in the direction of penalizing productivity and efficiencey.
A lack of productivity gains in the American economy has been cited time and again as a critical weakness in terms of international competition and continued high employment. Rauth said productivity "should be the driving force" behind the anti-inflation program, that there "should be a premium on spending money" to modernize facilities and cut costs but that "nobody's talking about it."
He cites his own company, the largest industrial firm based in the Washington area, as an example of a corporation willing and able to spend its money to build the most modern plants. And Rauth expressed concern that when the fruits of these outlays start showing up in the next year-as lower costs that produce higher profits - Martin Marietta will suffer. If that is the case, where is the incentive for business to modernize.?
Currently, Martin Marietta is in the midst of its greatest capital expansion program, unconcerned about the possibility of temporary recession. This year, a record $280 million will be spent on the heels of $200 million in 1978, $160 million in 1977 and $90 million in 1976.
A new, modern production line at an aluminum rolling mill in Lewisport, Ky., will triple plant capacity. A new $80 million cement plant in Davenport, Iowa, said to represent the industry4s most modern technology, will be started in a few weeks and increase annual output capacity to from 500,000 to 850,000 tons a year. A $30 million metals recycling plant is planned for Lewisport. The efficiency of aluminum smelters in Washington State is being improved.
Rauth contended that, starting in the early 1970s, Martin Marietta "has done its homework well," reacting instantly to the Arab oil embargo by converting many plants to dual energy sourtces and spending $42 million simply to reduce by 15 percent the amount of electricity used in aluminum production. The new cement plant will use 48 percent less energy per ton. Overall company energy consumption has been sliced 9 percent in five years.
Within sight of Rauth and his colleagues, after this massive amount of investment, are substantially reduced costs in key areas. But they also see the current shape of the guidelines, calling for either a deceleration of 1979 prices to one-half a percentage point below the 1976-1977 average or to hold profit margins stable.
"we're as efficient as our most efficient competitors. We spend; that is a key to our success," Rauth asserted.
With increased productivity, there's no doubt Martin Marietta profit margins (profits as a percentage of sales) will grow. Either way, profits will be affected adversely in what could be described as a real penalty for one company's ambitious efforts to improve productivity. Less inventive companies will find it easier to live with the guideliness as now pronounced.
Rauth also expressed no fear about recession. Business was at record levels in the first quarter of 1979. "We talk daily to field people, they would be the first to see shoftening, but I don't see any evidence to indicate recession," Rauth stated. He forecast a strong year but emphasized that even if recession develops late this year or in 1980, Martin Marietta is not going to stop its internal growth.
"We invest in plants with lives of 20 or 30 years and have to bet on an economy over the next 20 years or so, and the particular timing of a slowdown isn't that important," Rauth asserted.
Reviewing Martin Marietta's key business sectors, he said aluminum producers will have a hard time keeping up with demand, which is growing at a faster rate overseas than in the U.S. Construction aggregates must be based in regions of strong building growth such as Atlanta and Denver, and that is where his firm is.
Aerospace is not a normal victim of recessions, and it is strong and growing, with 3,000 employes added in the last 18 months. Dyes for such textiles as denim are in continued heavy demand, and there is a growing demand for the firm's high-quality bricks for steel manufacturing. They cost more initially but last longer.
Rauth also revealed that his company is studying overseas sites for a new aluminum smelter.The cost of U.S. electricity is the main factor because energy expenses are 30 percent of the cost of producing aluminum. Hydroelectric power is the energy source being sought, but Rauth said he doubted that Canada would be selected because of its restrictions on foreign ownership of business there.
Diversfied Firm Has 5 Lines.
Martin Marietta Corp. is a diversified industrial corporation with five major business lines: cement, construction aggregates, chemicals, aluminum and aerospace. Alst year produced record earnings and sales, and recent developments have included a decision to sell and equity investment in Bunker Ramo Corp. to Fairchild Industries of Germantown.
The cement company manufactures portland cement and a variety of masonry and product cements, accounting for 5 percent of U.S. industry volume. In aggregates, Martin produces crushed stone, sand and gravel. Chemical products are marketed to the steel, textile, construction and rubber industries, and they include dysetuffs, lime, organic lines and seal-ants. Aluminum lines include sheet, plate, coil, forgings and primary metal. In aerospace, Martin is engaged in spacecraft, launch vehicle systems, missile systems, fire control, microwave, research and specialty manufacturing.
Some details on the Bethesda firm:
Reveneues-$1.76 billion in 1978 vs. $1.44 billion the previous year, with aerospace and aluminum the largest divisions.
Profits- $136 million ($5.31 a share) in 1978 vs. $102 million (4.03), with aluminum, chemicals and aerospace the largest producers, in that order.
Cash dividends- $42 million ($1.70 a share) in 1978; 31 percent of earnings were paid as dividends.
Return on Common Equity-17 percent in 1978 vs. 15 percent in 1977.
Employes-28,000 at 250 locations in 36 states, Puerto Rico, the U.S. Virgin Islands and 17 foregin nations. CAPTION: Picture, Martin Marietta's headquarters in Bethesda and Chairman J. Donald Rauth: clearly discouraged about wage-price guidelines. Building by James K. Thresher - The Washington Post; Rauth by Martin Marietta Corp.