Lifting the Lid on Autos

The motorist who planned to save money by trading a fuel-gulping full-sized car for a more economical compact got some bad news last week: not only is the full-sized car worth less as a trade-in, but the compact is going to cost a lot more. In a move that surprised even harsh foes of wage and price controls by its timing, the Cost of Living Council exempted the auto industry from wage and price regulation. By week's end Ford, General

Motors and Chrysler announced price increases that will add $133 or more to the average retail price of 1974 cars. The biggest percentage increases will fall on hot-selling compact and subcompact models, though Ford's Mustang II compact is slated for no hike.

The emancipation of the auto industry was the latest step in the Administration's plan to phase out Phase IV on a lingering, piecemeal basis (TIME, Dec. 3). In recent weeks, controls have been lifted from the zinc, lead, cement and fertilizer industries in an attempt to encourage companies to boost production of these scarce items. As a result, prices for these products have shot up, in some cases by 50% or more. But in freeing the carmakers, COLC Chief John Dunlop was reverting to an earlier policy goal: permitting higher prices now in exchange for a modicum of price stability in the future. Unwelcome as the auto price increases may be to new-car shoppers, they amounted to considerably less than what some of the automakers had sought.

Dunlop apparently thought that the time was ripe for the move because the Big Three have just wrapped up new three-year pacts with the United Auto Workers that only marginally exceeded the Administration's guideline for wage hikes. These settlements may ease the spiraling labor costs that have contributed to rising car prices in the past. Moreover, Dunlop got from Ford and GM, the industry's price leaders, a pledge to limit wholesale price hikes on 1974 model cars and trucks to an average of $150. In the wake of that agreement, Ford boosted suggested retail prices on most of its cars by an average of $179 or 3.8%, while GM lifted its by $ 133 or 2.8%. Both companies and American Motors also agreed not to raise the retail price of small cars by more than $150. But this sum is a greater percentage of the base price of compacts than it is on full-size autos. Chrysler made no formal commitment, but Chairman Lynn Townsend predicted that competitive pressures would keep its prices in line with those of its rivals.

Which Next? Because the agreements set an overall average for the auto companies' model lineups, the prices of some cars, especially luxury models, will rise higher than the $ 150 average. Not so with gas-guzzling full-sized models, which have been spurned by buyers this year because of gasoline shortages and the threat of rationing. The price of optional equipment -the industry's great profitmakers-will soar; there is no limit at all on how much can be charged for such gadgets as stereo tape decks, power steering and vinyl roofs. Automatic transmission in a Ford Pinto, for example, will now cost $217, up from the old price of $170.

The scrapping of controls on cars, together with earlier exemptions, leaves more than half of the private economy operating free of wage-price supervision. But the COLC must still decide which industry to decontrol next. The leading contenders: steel and chemicals, both of which pose thorny economic and political conundrums.

Some chemicals have been in short supply in the U.S. because world prices are higher than controlled U.S. prices. The steel industry maintains that it needs a 5.3% across-the-board price increase, partly in order to finance badly needed plant expansions. But the COLC is reluctant to decontrol these industries because steel and chemicals are basic products from which a myriad of other goods are manufactured. Permitting their prices to go up would surely create a ripple of new inflation that would spread through many other industries. Such a surge would add to an inflation rate that even Eternal Optimist Herbert Stein, chairman of the Council of Economic Advisers, concedes may breach 7% in 1974.

qed qed qed The Government, paradoxically, is getting tougher with banks. Last week the Committee on Interest and Dividends asked ten large banks to justify increases in their prime lending rates to 10% from 9 1/4%. If CID concludes that the hikes violate voluntary guidelines, it could bring strong pressure to roll back the increases.

This file is automatically generated by a robot program, so reader's discretion is required.