"They insist on producing gas-guzzlers," President Carter said last week when asked what ailed Chrysler. But that view, while widespread, is almost certainly dead wrong. It understates the Chrysler problem.
For what is going on here in Detroit is a rapid change of gears for the whole industry. The switch has strained all the auto companies, and it is having on Chrysler -- because of bad management and weak finances -- an absolutely devastating impact.
The staring point for change was the Arab oil embargo of October 1973. Prior to that, the major American auto producers had made only intermittent and halfhearted efforts to wrest the market for small card from foreign makers. Afterwards -- on Dec. 23, 1973, to be precise -- General Motors decided to go for broke in the production of fuel-efficient cars.
In rapid succession GM brought out a down-sized Chevrolet, the Chevette; a down-sized Cadillac, the Seville; and -- this year -- a front-wheel drive car (known as the x model) for its Buick, Olds, Pontiac and Chevrolet divisions.
The radical shift cost billions for new equipment, and in the early years GM weathered troubles galore. It had to close a score of plants, lay off thousands of workers, cut its dividend, borrow $600 million and see its share of the market for domestically produced cars decline sharply.
Now, however, the corner has been turned, and GM is flush. Last year it earned more money than any industrial company in history. Last week it concluded an exceptionally generous three-year contract with the auto workers.
More important, GM has transformed itself as a company. It is more highly integrated than before, and has more control at the center. Instead of being an American company with foreign divisions, it has become an international company selling to a world market.
With Volkswagen, Toyota and Fiat as the big competition, GM no longer feels constrained to limit its share of American production to 51 or 52 percent. It is aroudn 60 now, and can go higher -- which spells big trouble for the American competitors.
Ford, by deliberate decision, did not go all-out for smaller cars in 1973. During 1974 and 1975, as buying big cars came back, Ford did relatively well. The more so as it had strong foreign earnings from long-standing operations abroad.
But Ford now faces huge expenditures to catch up with GM in down-sizing its cars. It's sales in this country dropped sharply as a result of the gasoline shortage last spring. Apart from foreign earnings, the company is not making money. With Henry Ford II stepping down this year and a new management team coming on, the future is cloudy.
As to Chrysler, it was out front on small cars in 1973, and has tried to keep the lead ever since. A far greater percentage of its production is in small, fuel-efficient cars than is the case with GM and Ford. "I sure hope," President Lee Iacocca said in a press conference here in Detroit last week, "that the myth that Chrysler is in the gas-guzzling monster business has been buried."
But making money on small cars is very hard. Moreover, in moving toward smaller cars, Chrysler has been working from a weak base. During the 1960s, the management took flyers in real estate and car-leasing. Chrysler started foreign production belatedly and at very high costs.
Worse still, it adopted in the 1960s a policy of producing cars for a company pool rather than to dealers' orders. When buying tailed off sharply after the oil embargo and after the shortages this spring, Chrysler was stuck with massive inventories. According to Iacocca, that policy this year alone cost the company "as high as $700 million cash and up."
Meeting the Chrysler problem, accordingly, is not, as President Carter seems to think, just a matter of down-sizing cars. Nor, as Secretary of the Treasury G. William Miller seems to think, does it mean a government loan of less than the $1 billion Chrysler originally sought.
The problem is to think through Chrysler's future role in a rapidly changing auto industry and then make available what the country needs. That may imply giving federal aid -- which would be far closer to $2 billion than $1 billion. But it also may mean organizing a bankruptcy in ways that would change management the better to save what is truly vital -- engineering skills, productive capacity and jobs.