CHRYSLER'S catastrophic financial losses provide a useful reminder to President Reagan that there's more to economic policy than the federal budget. The budget is the easiest part of the job. Next comes the reality of factories and the people who work in them. The presidential term now beginning will be the four years in which the United States comes to terms with a shrinkage of the automobile industry that is likely to be both severe and permanent.
There's a relationship between Chrysler's chances and the Reagan economic plan. The automobile industry's severe losses in late 1980 were largely the consequence of very high interest rates. Mr. Reagan's plan assumes a return to rapid economic expansion over the the next two years. But it also assumes only a small and tightly controlled increase in the money supply. Those two assumptions are not consistent with each other. Either the high target for growth or the low target for the money supply is going to have to give way. Since the money supply is in the hands of the Federal Reserve Board and its formidable chairman, Paul Volcker, you have to conclude that the prospect for growth is not promising. It looks as though interest rates, for the auto dealers and everyone else, are going to stay high for a long time.
Even if interest were lower, the automobile industry would be under enormous strain over the next several years. It's not only the heavy costs of producing radically new kinds of cars. It's a different kind of market, promising little of the expansion to which the industry has always been accustomed. Regardless of Reagan budgets, employment is going to fall in the automobile factories. The sharpest warnings have been coming from the best friends of the labor movement. Former congressman Charles A. Vanik's trade subcommittee warned nearly a year ago that "the automobile will never regain the place it once held in the United States . . . The years of large auto sales may be over forever, once the conversion to FWD [front wheel drive], quality vehicles is completed." Last month, a few days before leaving office, the previous secretary of transportation, Neil Goldschmidt, published a study of the industry forecasting a loss of 500,000 manufacturing jobs in the auto plants and their suppliers, mostly in the industrial Northeast and Midwest. Even that figure was based on extremely optimistic projections of future automobile sales.
One reason for the decline in jobs is the degree of automation that is now the price of survival in the automobile business. In themselves, the robots are neither a new threat to prosperity nor a dangerous one. American industrial history has always been a process of pushing for higher productivity, discarding old products, introducing new tools -- at each stage paying higher wages and creating new markets. That's the process that the Reagan plan, at its best, is intended to support. But it implies more layoffs, more plant closings and more bankruptcies -- a future that the automobile industry is hardly going to acept unanimously. The industry's sheer size will count for a great deal, and the United Auto Workers Union is probably the most skillfully led in the country. The UAW is not going to settle for the hope that the children of today's unemployed midwestern auto workers might, in the 1990s, find still better jobs, in other parts of the country, in industries yet to be invented.
As the next four years unfold, the Reagan administration will be increasingly torn by the conflicts between its economic plan and the interests of a desperately hard-pressed auto industry. The economic plan correctly emphasizes industrial investment, open markets and competition. Most of the auto companies amd most of their employees will want import restrictions, government intervention and -- perhaps in more cases than Chrysler's -- subsidies. The political people in and around the White House will know that the economic plan jeopardizes an extraordinary opportunity to try to sweep the whole blue-collar middle class into the Republican Party -- the auto workers, the steelworkers, the rubber workers, the machinists.
As you follow Chrysler's troubles, remember that last week's installment of federally guaranteed loans isn't the end of the story but rather the beginning. The Reagan economic plan, in its present form, is hardly more than an early draft. The authoritative version will be hammered out at much higher temperatures than any the new administration has yet experienced.