The Outlook

By now the automobile industry is the Old Reliable of the U. S. economy. In the '20s, it was the U. S.'s great new industry, supplied the expansive push that railroading had given in the continent-spanning days. In the best year of the '30s (1937) the auto industry, with sales of 5,016,437 cars and trucks, led the parade. In the fair year of 1939 the auto industry, with sales of 3,245,000 cars and trucks, was the chief cushion against a real slump. But last summer, as Defense got under way, many an amateur war economist began counting Old Reliable out. Autos seemed to have no part in Defense.

To forge an armaments industry from its steel mills, foundries, machine shops and technological resources, the U. S. started a business boom. Behind all the flag waving, the boom's most striking feature has been the way it has awakened the capital goods industries from their ten-year sleep. But this awakening has also generated new national income, caused a major revival in nonDefense, consumer industries as well. Item: department store sales for August were 11% above 1939. Item: residential building was 20% above 1939. Item: retailers in general, to reload their emptying shelves, have been in an almost panicky rush to buy everything from underwear to refrigerators. Automobile dealers are no exception.

Last week, therefore, Detroit was once more motor-pacing the economy. Its 1941 models (see col. 3) were leaving assembly lines at the boom rate of 100,000 cars and trucks a week. Production men strove to keep up with dealers' orders. Dealers' used car stocks, which ended nascent auto booms in 1937 and 1939, were in the healthy neighborhood of 500,000--not too high. It looked like the start of a banner year.

Thus the industry's salesmen could play their cash registers last week with scarcely a care in the world. But its analysts, meanwhile, looked soberly toward the horizon. Hazy, it seemed to show two clouds.

One was the possibility that Detroit technology--engineers, production men, skilled workers, perhaps machines--might be needed for Defense products, notably aircraft and tanks. In that case Detroit's 1941 models might also have to do for 1942, even 1943. But that prospect made car buyers who thought about it still more eager to buy. Every new car loses about 20% of its value simply by moving off the dealer's floor, sheds further fixed portions of its original value as each new model makes it look more out of date. If there are to be no '42s to obsolesce the '41s, the '41s are obviously a better-than-usual investment. The same reasoning adds value to late-model used cars, helps their sales too.

The other cloud was darker. Many of Detroit's key supply industries are already overworked. Can they continue to fill Defense and consumer needs simultaneously? One narrowing bottleneck is pig iron (TIME, Sept. 23) which Detroit needs for its iron foundries. Another is the foundries themselves, which are being rushed with Defense orders. Still another is the rundown old cotton & woolen textile industry, a large auto supplier which is getting huge orders from Army & Navy. (Already Washington is quietly discouraging Detroit from ordering its wool too far in advance.) Another, vital to makers of accessories, is the zinc industry, for which business is too good for comfort. Zincmen like to sell about 600,000 tons a year, at a tariff-protected price. Their present production rate is 748,000 tons, with another 41,000 tons of capacity on the way. But Defense Commissioner Leon Henderson has a hawk's-eye on their price quotations.

All this meant that automen had to keep a sharp lookout too. Their suppliers--processors of steel, lumber, textiles, etc.--are pretty well covered on their raw material needs into the first quarter of 1941. But if pressed too hard by a booming auto industry these suppliers might suddenly decide that the twin-motored Defense and consumer boom is heading them into inventory trouble--trouble, for once, on the short side. In that case, they might all jump into the commodities markets together, attempt to stock up for capacity operations through the end of 1941. Such a forward-buying movement would create the very shortages they fear, might lead to government priority rulings, moratoriums on tariffs, even price fixing. Detroit's delegation to the New York Auto Show did not have to worry about sales this week. But it had more than fenders and running boards to talk about.

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