Detroit Bucks a Buyer Rebellion

In Michigan last week, Governor William Milliken was suggesting a more pointed alternative to President Ford's WIN button campaign. His version: BAC, for "Buy a Car." In a juxtaposition of imperatives that verged on contradiction, some Chrysler dealers were distributing bumper stickers proclaiming: WHIP INFLATION NOW. BUY A CAR. Top auto industry executives were pitching in with efforts of their own. Chrysler Chairman Lynn Townsend declared "a new car is the best buy you can get in America today." Outgoing General Motors Chairman Richard Gerstenberg, in a signed newspaper advertisement, once again made clear that what was good for GM was good for the country. "When you buy a new car," he said, "you help America's economy." Even the United Auto Workers chimed in with plans for an ad campaign to stimulate sales.

It all seemed reminiscent of the "You Auto Buy Now" blitz of the late 1950s. The U.S. auto industry is in its worst sales slump since the recession of 1958. Pressured by a phalanx of woes ranging from high gasoline prices to plunging consumer confidence and virulent inflation that has driven car prices to record levels, sales for U.S. models in early November were running at a paltry annual pace of 5.4 million. That was sharply below the 7.5 million rate for October and nowhere near the record 11.5 million in sales last year.

While U.S. dealers expect to sell around 9 million cars by the end of this year, the performance will be a 23% drop from 1973--the largest annual percentage erosion in any year since 1958. For 1975, the outlook is no brighter. Already, auto layoffs are mounting. They stood at nearly 200,000 last week and could soon reach a frightening 225,000 --about 16% of the industry's work force --if the slump is not reversed.

Really Sloppy. The hardest hit is Chrysler. With a third-quarter loss of $8 million and early November sales down 41% from a year ago, the third largest automaker will shut down all but one of its six U.S. car-assembly plants for more than five weeks, from the day before Thanksgiving until Jan. 6. Only its plant in St. Louis will produce cars. The move, which came as no surprise in view of Chrysler's 120-day inventory of unsold cars, means layoffs and bleak Christmases for 64,200 workers. White-collar workers also face the ax; fully 20,000 will be temporarily dropped at Chrysler. All company officers, from the vice-presidential level up to and including Chairman Townsend, will take December pay cuts. An angry Douglas Fraser, chief of the U.A.W.'s Chrysler Department, blamed the company for "irresponsible" overproduction, noting that the company in September and October built cars at a rate of 136% of sales. "That's really sloppy management," he said.

There was one cheerful note for Detroit's depressed inner city: in announcing the shutdowns, Chrysler said that while the giant Jefferson Avenue plant would be closed until January, it would not close permanently as had been widely feared. Chrysler said that it would keep the plant running at least through the 1975 model year, meaning mid-July. The factory employs about 5,800 people, mainly blacks. Detroit Mayor Coleman Young helped persuade Chrysler to maintain the plant, however temporarily, by noting that the city has given the company a number of property-tax breaks in recent years.

Too High. Other automakers are also putting on the brakes. The industry's supply of unsold cars last week stood at 69 days, a record tempered only technically by the fact that the figure is based on current small daily volume and could shrink rapidly if the pace picks up. Ford, with a 50% third-quarter profit decline and an early November sales dropoff of 36%, is also reducing its work force; layoffs could reach 54,000, including at least 3,000 white-collar staffers in Dearborn. GM's layoffs now total 53,000, and last week the company said that it would close nine plants for part of December, idling 30,000. Reason: GM's earnings have dropped 76.5% so far this year, and early November sales fell 50%.

Though evident only for the two months since 1975 models were introduced, the drastic dropoff in the nation's bellwether manufacturing industry is al ready threatening the recession-plagued economy. The auto slump is stirring fears among economists that sales of such smaller-ticket items as appliances and television sets are in line for further declines as the ripples spread throughout the economy. But the first to feel the effects of a prolonged slump would be steel, rubber and glassmakers, whose products go into automobiles (see diagram).

The squeeze is beginning to be felt among the 50,000 supplier firms that annually feed the industry some $13 billion worth of materials and components. Though many still do a booming noncar business in the current shortage-strapped economy, layoffs are certain to rise if auto sales fail to revive.

Last week Pittsburgh's PPG Industries said it would cut production at several glass plants and lay off nearly 1,200 employees. General Electric, Allied Chemical and General Tire also have announced slump-related layoffs.

There is little mystery as to why the U.S. consumer is giving Detroit such a rough time. As a Detroit industry analyst puts it: "The price of a car sounds just too damn high." Coming off three record-sales years, some letup was expected. But the gravity of the current situation was unforeseen. With the late-summer announcement that 1975-model prices would jump an unprecedented average of $400 per car, buyers flocked to showrooms to make down payments for late 1974s at what seemed to be bargain prices.

When the 1975s rolled out, buyers began a rebellion against almost all Detroit's offerings. Hurting badly are compacts and subcompacts, which cost $3,000 or more. In early November there was a 111 -day supply of Chevy Vegas, a 91-day back-up of Ford Pintos and an 88-day inventory of American Motors Gremlins. Bigger cars are not doing well either, but they are selling better than the compacts, with only a 52-day inventory on hand.

The picture remains gloomy despite record prices for trade-ins. Ford and GM have generated figures showing the apparent ease of new-car purchases leveraged by higher used-car value. A two-year-old, fully equipped Ford LTD, for example, would bring $2,700 now, v. $2,225 a year ago, helping offset the higher 1975 LTD price of $5,243. A two-year-old Chevy Impala, says GM, is worth $376 more this year than last year, while a year-old Firebird brings $725 more. Even so, most owners cannot take advantage of higher values for late models. Reason: trade-in values fall off sharply after two years, and the average age of the American car is 5.7 years; fully 12% are ten years old or more.

Never So Long. Detroit's automen have their own explanations as to why most models are not moving. President Ford did them little good when, in October in Kansas City, Mo., he urged consumers to save more and buy judiciously. Auto executives also blame tight credit for frightening potential buyers and Limiting dealers' ability to keep cars in inventory. Last week Chrysler President John Riccardo was in Washington urging Michigan's Congressmen to push for looser credit.

Auto executives argue that the Government is largely responsible for higher car prices. Ford President Lee lacocca notes that the Pinto, introduced barely four years ago at about $2,000, now sells for almost $3,000, even though a $66 cut was announced last week. A quarter of the nearly $1,000 increase is due to mandated federal equipment. Another quarter comes from such product improvements as disc brakes, solid state ignition and a bigger engine. The rest, says lacocca, "reflects only partial recovery of rising costs of labor and materials." He warns that by 1978 the Pinto will sell for "a little more than $5,000 --that's what will happen if we don't get inflation under control."

The city of Detroit, which rides the auto industry's undulations as if on a roller coaster, has yet to feel the worst of the downturn in car sales. Though auto layoffs have driven joblessness to 11.8% in the city, auto workers who have at least one year's seniority will qualify for supplemental unemployment benefits, or SUB, tacked on to unemployment compensation; the total can go as high as 95% of take-home pay for a 40-hour work week. But SUB funds, supplied by companies as part of the union contract, are not infinite and could expire if big layoffs drag out.

Detroit is supersensitive to auto layoffs; a Wayne State University study shows that for every pink-slipped auto worker, another 1.5 employees in local supply industries would eventually lose their jobs. The same study reports that for every $1 fluctuation in national car and truck sales, Detroit residents gain --or lose--300. The head of a company that deals with all the major Detroit-area manufacturers says that even the biggest ones are holding off payment for services. Says he: "I've never had to wait so long for my money--ever."

Auto executives, many of whom live in suburban Bloomfield Hills or Grosse Pointe, face a gray Christmas, with few or none of the usually generous year-end bonuses. Says a Ford executive: "Hell, my bonus sends my kid to college. And it pays for our vacations and a whole lot of other stuff. If there's no bonus, we have to scrape. And some years there is no bonus, or not much of one. Like maybe this year." Such talk dampens whatever merriment exists at auto executives' parties, which are almost always restricted to people from the same company. Laments one auto-man: "We took a vacation and I bought a car. That took away my buffer. We're saving this year. No vacation in sight."

Making Do. Auto dealers around the U.S. are being hit hard. Sales Manager George Prevost of Baltimore's Suburban Chevrolet views his bloated supply of compact Novas and complains: "My inventory is breeding like rabbits." For bargain-conscious customers, there are deals aplenty. In Atlanta, discounts of $800 to $1,000 on standard-size cars are routine, and 42-month financing is gaining ground. But sales are still falling short of last year's by 10% to 35%. As showroom traffic diminishes, there are fewer and fewer customers to hear pitches, no matter how alluring. Dallas Buick Dealer Bill Curry says: "If we get an opportunity to talk to people, we can make a deal. But we are not getting the opportunity to talk to people." In Milwaukee, salesmen visit with junk dealers to get names of people who scrap cars--as prospects.

Automen, who rank second only to Wall Street brokers in being optimistic during hard times, see reasons why the current slump could be short. Chrysler's Riccardo predicts that new-car buyers who sat out 1974 will eventually have to return to the market. Still, with consumer confidence at its lowest ebb in years and with car prices higher than ever, such optimism seems unjustified. Americans are plainly too frightened to make large-purchase commitments in the current recessionary environment and have decided to make do with their present cars. Their love affair with the car continues; it has just become too expensive to change partners.

*Last week Ford Motor Co. Chairman Henry Ford II called for a 10-c- increase in Federal gasoline taxes to provide money for the poor and unemployed, even though the increase could lead to a further drop in auto sales.

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