Stalled Autos

Hardly was the ink dry on Harry Truman's national emergency proclamation (see NATIONAL AFFAIRS) when Economic Stabilizer Alan Valentine cracked down on the auto industry. He ordered new car prices rolled back to the Dec. 1 level--and kept there for at least three months. After the Government had studied the situation carefully, the price structure would be reviewed to see if the auto companies were entitled to the increases they had tried to put into effect.

The order was a direct slap at General Motors and Ford, which only a week before had turned down Valentine's request to suspend their price increases (TIME, Dec. 18). But it also affected Chrysler and Nash, which had raised prices last week.

Angry automen accepted the Government's mandatory freeze; they had no other choice. G.M. loudly damned the order as "discriminatory . . . ill-considered," if not actually illegal. Said G.M.: "We doubt that this arbitrary action complies with the letter or intent of the price and wage stabilization act." If auto prices were frozen, asked the automen, what about the price of raw materials? And what about wage contracts, which in the auto industry are directly tied to the rising cost of living?

"Irreparable Damage." The U.A.W.'s Walter Reuther, fearing a wage freeze, promptly sided with the industry against "pinpoint" price fixing. If Valentine's order meant that cost-of-living boosts were also outlawed, then the auto industry's long-term contracts with the U.A.W. might be voided, he said, and "irreparable damage" done to the "morale of all American industrial workers." To all these questions and criticisms, Valentine's office replied with a vague statement that it was studying the situation.

This week G.M. sent wires to Pontiac, Chevrolet and Cadillac dealers stopping sales, until further notice, of new cars shipped after the rollback order. G.M. did not say how long the freeze would last. But it looked as if it was done in hopes of getting the rollback rescinded or persuading Washington to roll back raw materials and wages as well. A price freeze, said G.M., would require an "equally arbitrary wage freeze" under the Defense Production act.

While the debate went on, automen were open in charging that they had been double-crossed by Washington. After G.M. and Ford had raised their prices--and Valentine had requested them to rescind the increases--the automen had trekked to Washington with charts and figures to show that labor costs had risen 11% and that materials had jumped anywhere from 7% in steel to 300% in natural rubber this year.

They laid out the charts before Valentine and Price Boss Michael DiSalle and came away from their meeting feeling that they had convinced DiSalle that a price increase was justified. Thus, they were flabbergasted when Valentine ordered them to roll back their prices, a move DiSalle did not agree with.

Profits & Potential. In going after the auto industry, the Government could hardly have given a better example of how not to control prices. The price stabilizers had completely forgotten the lesson of World War II that prices of an end product cannot be effectively controlled unless prices of all the raw materials going into it are also held down. To be successful in his attempt to control auto prices, Valentine would have had to control prices and wages all down the line--in fact, put the lid on a major segment of the entire U.S. economy. The auto industry consumes 20% of the nation's steel, and huge quantities of rubber, paint, fabrics, copper and almost every other major raw material in the U.S.

The stabilizers had assumed that the profits of the auto industry were big enough to absorb increases in wages and raw materials. It was true that the profits of some auto companies had been enormous. But they were big largely because of capacity production. With big cuts in auto production ahead, profits would drop far faster than the actual reduction in volume. In short, the Government's new venture into price control gave businessmen little confidence that the present control program would be a success.

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