Sales of 1982 model cars have slumped badly, below even the expectations of Detroit's executives, which weren't very much to begin with. October sales at an annual rate of 7.2 million units were down 23 percent from October--and all of the drop was in American-made cars, imports holding steady.
The resulting losses for General Motors, Ford, and Chrysler in the third quarter of the year, taken together, begin to look like the national debt--and the outlook for the current period is about as bleak. Perhaps the most hopeful thing going for the industry is the blatant new subsidy provided by the Economic Recovery Act, which allows a profitless company to sell off some of its investment tax or depreciation credits to corporations still making money. Thus, Ford "sold" $100 to $200 million worth of its credits to IBM, which will lower taxes for both companies--making the federal deficit that much higher, of course.
There's no doubt that the car industry is in a terrible bind: at a time when President Reagan himself has had to acknowledge that the nation is in a recession, when there are rising fears that unemployment will become even more pervasive, the high prices of new cars have scared buyers out of the showrooms.
"Sticker shock" and high interest rates have discouraged all but well-heeled customers. The average car buyer seems unpersuaded by Detroit's insistence that U.S. consumers must get used to a $10,000 minimum price tag for a small car.
Detroit always has a way of trying to recover last year's losses by boosting prices, or making you buy, as standard equipment, a load of stuff that used to be optional. The result is that a lot of potential buyers, like myself, have resolved to keep the old bus patched up and running until it absolutely quits.
On the optimistic side, some analysts say that there is an extraordinary correlation between the cycle of home building and auto sales. Thus, says economist Alan Greenspan, "a revival in housing may yet impart a large dose of expansion to the tail-end of the 1982 model year." That, of course, will require a steady and substantial drop in interest rates, and like most observers, Greenspan is not sure that's going to happen.
But even if there is a modest uptrend later this year or early next year, the real question that plagues the auto industry is whether it has suffered what amounts to a permanent loss of business.
Economists Robert Gough and Scott Mayfield of Data Resources Inc. suggest that "the fundamental level" of auto and light-truck demand may have been permanently reduced by as much as 1.5 units annually as a result of the energy "realities" of the 1970s.
The "energy realities," of course, are the two major oil-price shocks that forced the industry to respond to consumer demand for smaller cars, and which have dramatically changed driving habits.
After the first OPEC price boost, auto sales plunged. From a high of 11.4 million in 1973, sales fell to only 8.5 million in 1975. Retail gasoline prices soared from 39 cents a gallon to 59 cents, an increase of 51 percent.
With stable oil prices, car sales nudged their way back to 11 million in 1978. Then there was the second major round of OPEC oil price increases in 1979 and 1980, which pushed the cost of a gallon at the pump to the $1.25 range and up this year.
By the spring of 1980, car sales were below 8 million units annually. According to Gough and Mayfield, "consumers have become acutely sensitive to the high share of their income going to energy-related needs, and have taken definitive steps to reduce their automobile budgets, particularly in the last three years.
"By downsizing their purchases, prolonging the lives of their cars, and cutting back on the level of car ownership, consumers have significantly reduced the fundamental level of automobile demand."
This doesn't mean that auto sales won't pick up at all in 1982 and 1983, if the recession eases and interest rates slip off a bit. The potential for some kind of recovery is there because of the pent-up demand of the past two years, Gough and Mayfield say.
But the improvement isn't likely to be spectacular, they contend, mostly because it will be hard to reverse newly acquired driving habits. Moreover, the population of young adults in the United States will be declining for most of this decade, another factor that will depress what they call the fundamental levels of demand.
All of this implies that the auto industry is in lots of trouble for the long haul unless energy prices show an actual decline, which may be too much to hope for. It illustrates the absolutely critical importance of cooperation between management and labor to boost productivity to get costs down. If that doesn't happen, American cars may suffer the British fate, losing ever larger shares of the market to the Japanese.