THE AMERICAN automobile industry has always lived on a roller coaster, with sales swinging rapidly from splendid to terrible and back. But this year's enormous losses, some $4 billion from last January through September for the four big manufacturers, are far out of the ordinary. They have several different kinds of causes that unfortunately for the industry, have overlapped in one historically bad period culminating last summer.
Some of the causes are cyclical and will soon pass. The recession may already have lifted. But these unprecedented losses put a new edge on all the questtions about the future of American automobiles and the companies that make them.
Traditionally, automobile companies were able to maintain close control of the rate of technical innovation and the heavy capital spending that it requires. Companies tried to keep the pace adjusted to their resources. The aim was to introduce technical advances fast enough to differentiate a line of cars from its competitors, and from last year's models -- but not fast enough to eat up all the profits. But in the late 1970s, the industry lost control of that crucial rate of innovation. To survive, companies now have to get radically different cars into production rapidly and on a large scale. They can't afford the retooling, but they can't afford to delay it. Regardless of their poor sales in a recession year, they have all been barreling ahead with enormous investments in the new production lines. That's one central reason for the deficits.
Another reason is inflation. It not only drives up their costs for materials, and for interest on the loans that pay for much of the retooling. It also increases wages through cost-of-living formulas. In the automobile industry, the average cost of an hour's labor, including all the fringe benefits, is now around $18, according to the companies -- and, incidentally, labor costs have been rising much faster in the automobile plants than in most other American industries. This very rapid increase in compensation has, in turn, contributed to the current layoffs in the automobile industry.
As for the imported cars, their share of the market is supposed to fall now that all of the American manufacturers are offering small, efficient cars of their own. But that's far from certain.It's also possible that, as automobiles become much smaller and more utilitarian, running on increasingly expensive fuel, Americans will buy fewer of them and the long-term sales trend will no longer continue to point cheerily upward.
There's been a great deal of talk about adjusting the American economy to an era of expensive oil. The costs of the adjustment are going to run high, and they will persist for years. Some of these costs are falling directly onto the people who make cars -- and they are now visible in the industry's deficits.