Detroit's "Total Revolution"
The fuel crunch and federal demands speed the shift to smaller models
"Almighty God," intoned the solemn speaker, "we thank thee for the wheel. For the person who made it into a vehicle. For those who produce it. And bless us who use it. Amen."
For the 550 dark-suited industrialists who stood with bowed heads, the unusual invocation by Detroit City Councilman David Eberhard was as right and natural as the Pledge of Allegiance. The prayer opened the weekly luncheon of the Economic Club of Detroit, the automobile capital of the world, and never before have the men who put the U.S. on wheels had more reason to seek divine intervention. Over the next half dozen years, the edgy managers of General Motors, Ford, Chrysler and American Motors will need all the help they can get.
Their once seemingly invincible industry, which last year produced 15.4 million vehicles in the U.S., provided jobs for 14 million American workers in the automotive and dependent industries and generated more than $100 billion in sales around the globe, is facing the most daunting challenge in its peacetime history. For two companies--Chrysler and American Motors--the struggle could become a matter of survival. All the manufacturers are straining their technical, financial and managerial resources to the limit in an upheaval that will be felt at many levels of business and to one degree or another will touch the lives of almost all Americans. Says Chrysler Chairman John Riccardo: "In the next six years the industry faces a total revolution."
The automakers are rushing to meet by 1985 a series of sweeping and sometimes contradictory Government regulations aimed at improving gas mileage, lowering engine pollution and improving safety. The auto companies are spending staggering sums to comply with the regulations as well as to shrink the highway cruiser and develop new, more conserving engines for powering it. GM alone will lay out $5 billion in capital spending this year. Still, Government pressure increases for even sharper and faster change. Transportation Secretary Brock Adams has called on automakers to achieve even greater gas economy by doing "nothing less than reinventing the car." One of his goals is a fleet that will average 50 m.p.g. by the year 2000.
Many automen are shocked and angered. "We're breaking our butts trying to get to the numbers that Adams has got for us already," grouses Riccardo. Adds a Ford executive: "What he's calling for is the repeal of the law of thermodynamics." For all their misgivings, however, the industry's leaders have lately begun to realize the full dimensions of the problem facing the country. Says Henry Ford II: "The fuel issue is a national problem, and it has to be got at."
The industry is barreling head on into the energy crisis that is changing American auto-buying habits. Cars and trucks use up 40%, or 7.4 million bbl. a day, of all the petroleum burned in the U.S. The oil price explosion has sent the average cost of gasoline from 350 per gal. four years ago to 700 today, and that figure is sure to rise as a result of the latest increases by Iran, Kuwait, Libya, Algeria and other OPEC members. Spot shortages of low-polluting unleaded gasoline are already occurring, and its price is expected to climb to $1 or more a gallon in the next year or so.
To meet the public's and the Government's demand for cars that are less thirsty as well as less polluting, Detroit has no choice except to accelerate its pace of change. Says General Motors President Elliott ("Pete") Estes: "We have made tremendous progress over the last four years. But in the next five years we're going to make that look like child's play."
Next month GM will roll out its basic lean cars for the 1980s. In the splashiest and costliest auto introduction in history, the company on April 19 will start selling its new compact X cars. Departing from the secrecy that surrounds most new models in Detroit, GM added to the hype by allowing plenty of tantalizing pre-introductory glimpses of these autos. Almost everything in them, from axles to windshields, has been redesigned to save weight and spare gas, and the company has poured $2.5 billion into the project so far. The stubby X car will replace four of GM's existing compact models; it will be sold by four GM divisions, each of which will give it a slightly different body, as well as a different name. Chevrolet's model will be called the Citation, and it will replace the current Chevy Nova. Three other divisions will use the same names that they now have on their compacts: Pontiac Phoenix, Oldsmobile Omega and Buick Skylark. The cars will be classified as 1980 models, giving them a five-month sales lead over the later-starting competitors that will come out when the model year formally begins in the autumn. Between April and September, GM aims for sales of 325,000 X cars. Company executives talk of selling 1 million of the cars by the end of 1980. (By comparison, GM sold nearly 5.4 million vehicles of all kinds last year.)
Weighing 2,500 Ibs. and having a wheelbase of 104 in., the new cars will be 800 lbs. lighter and 20 in. shorter than the compact cars they replace. But they will be slightly bigger and heavier than Chrysler's Dodge Omni and Plymouth Horizon and about 14 in. longer than Ford's Fiesta-three cars that GM's competitors have already introduced for the new era. Engineers estimate that the X cars will average 26 m.p.g. The cars will list for $4,100 to $4,500 with automatic transmission as an option. Independent, noncompany drivers who have already tested the X cars say that they perform well.
Like some other recent new models, the X cars will have front-wheel drive; with FWD, engine power is delivered to the front wheels to pull the car. European manufacturers have long been using FWD, but the U.S. industry began and grew up with rear-wheel drive, and Detroit's chiefs regarded changing to FWD as prohibitively expensive.
They are switching now mainly because FWD rules out the need for a power line to the rear wheels. That eliminates the floor hump caused by the transmission and provides more interior room, which will be an important selling consideration as cars shrink on the outside. FWD also permits the use of a transverse engine, which is laid in sideways; that allows for a shorter hood and, in turn, lighter weight and reduced fuel use. Steering is tight on FWD cars, and they corner sharply, which could be a problem for American drivers used to the looser steering on rear-wheel-drive models. Because the engine, the heaviest part of the vehicle, sits over the front wheels, FWD cars get excellent traction, especially on snow and ice.
In late 1977 Chrysler led the way and introduced the first small American-made cars with FWD, its Omni and Horizon. Despite unfavorable and unfair publicity given to the models' steering capability by Consumer Reports, both cars have become sales leaders in Chrysler's otherwise slow-moving stable. Ford's FWD entry, the European-made Fiesta, has also proved extremely popular.
The Fiestas and GM's Chevettes and X cars are the forward patrols in Detroit's new assault on the rapidly changing global car market. Partly because of the Government's costly regulations, profit margins on sales are sinking; at GM, the industry's most efficient producer, they declined from 8.3% in the 1960s to 5.5% in 1978, which was a near record sales year. American firms are pressing to expand sales in European, Japanese and Third World markets that tend to be more profitable than the U.S. because they have less stringent regulations and a much bigger growth potential. Detroit's new drive has led to a race with the automakers of Europe (and Japan) to develop a "world car"-a tough, economical model that is suitable to all climates and conditions. To hold down shipping costs the car's interchangeable components will be produced at various points around the globe. Huge production runs at assembly plants located in key markets will bring down costs, and thus potentially the car's price to consumers.
Ironically, U.S. cars will become more competitive in the world" because of the Government demand that most unnerves Detroit's executives and engineers: to cut gas consumption enough to achieve a corporate average fuel economy (CAFE) of 27.5 m.p.g. in 1985, up from 19 m.p.g. in 1979. The National Highway Traffic Safe ty Administration (NHTSA) has made that target exquisitely difficult. Company chiefs had assumed that the mileage in creases would be spread equally over the five years. But NHTSA Chief Joan Claybrook, a former Nader Raider, decreed that from 1981 to 1983, the companies' average fleet averages must jump by 2 m.p.g. annually. In 1984, the schedule calls for a gain of 1 m.p.g. and in 1985, % m.p.g. The carmakers want the mileage gains to be spread out equally over the years or, better yet from their viewpoint, stretched to 1988. Either change, they argue, would give Detroit's overworked engineers more time to develop new technologies and substantially reduce the risk of costly failures. The automakers have considerable political power, but the fate of their fight will depend largely on the future availability and price of oil.
Despite the mileage standards, the manufacturers are determined to go on making full-size, six-passenger cars. As GM Chairman Thomas Aquinas Murphy told TIME Detroit Bureau Chief Barrett Seaman, "It's one thing to talk about reinventing the automobile to get one that will go 50 miles on a gallon. It is another thing to talk about fleet averages. That means you have got to have some cars that get a lot more than 50 miles a gallon if you are going to have the bigger alternative models people in the past have found they needed to pull a trailer or car ry a full-size family." The only way to sat isfy both the conflicting demands for in creased mileage and full-size cars is to make ever lighter models while sacrificing as little interior space as possible. To accomplish that, the industry is experiment ing with a bewildering variety of new materials and technologies.
Most important, the days of the classic, gasoline-burning internal combustion engine are clearly numbered. The most likely replacements for big cars are the diesel engine, which is championed by GM, and the stratified-charge gasoline engine, being developed by Ford.
The diesel, widely used in trucks and some European cars, offers 25% better fuel economy than conventional engines. Installing a diesel has about the same results as trimming 1,000 Ibs. from one of GM's largest cars. The company, which began offering the engine as an option on some Oldsmobiles and Cadillacs in 1977, expects to sell 190,000 diesel-powered cars and light trucks this year, or about 4% of all GM autos. Barring further Government interference, the com pany expects to expand production of diesels throughout the coming decade.
Here, too, Washington regulators are putting up roadblocks even though, ironically, the diesel meets all present emission standards. Unlike conventional engines, diesels give off tiny specks of soot known as particulates. In January the Environmental Protection Agency proposed that a limit on diesel particulates be set at 0.2 grams per mile (g.p.m.). The diesel on GM's 350 Oldsmobile now throws off 0.8 g.p.m., and nobody in Detroit knows how to reduce that level in full-size cars without losing power. The agency announced that it will set a final standard later this year after hearing from the auto companies and consumer and environmental groups. A fierce battle is certain.
The diesel has other shortcomings: it is costly (GM charges $287 extra for it), starts poorly in cold weather and some times causes a car to vibrate. Ford, the No. 2 automaker, regards the diesel as a back-up and hopes to ride into the future on a stratified-charge "proco" (programmed combustion) engine. In it, the fuel is essentially divided into two mix tures of gas and air, one of which is "rich" (high on the gas) and one "lean" (high on air). The two mixtures are burned in sequence in the combustion chamber, and this produces 20% more mileage and few er emissions than conventional engines. However, the proco requires high-pressure fuel pumps and complex fuel injec tors that must be machined to microscopic tolerances. Ford is putting up a pilot production line to find out if it can massproduce these parts. If the company suc ceeds, it plans to introduce the engine in limited numbers in model year 1984.
GM, Ford and Chrysler are also taking yet another look at the battery-operated electric auto, seeking to find ways to overcome the car's perennial draw backs of limited range and performance. Typically, GM is in the lead. The company is testing an electric power pack in some of its subcompact Chevettes. The "Electrovette" runs on 20 twelve-volt batteries, which are partially recharged every time the brake is applied. The car can achieve speeds of up to 55 m.p.h., but it can travel no more than 50 miles before it needs recharging.
Chrysler has teamed with General Electric to produce under Government contract two cars for experimentation by the Department of Transportation. "The weakest link is still the battery," says Chrysler Top Engineer Sidney Jeffe. As a result, the main focus of research today is to find the right combination of materials and chemicals that will enable bat teries of the future to store more power in less space.
Detroit is also reassessing the way it designs its cars, and the real buzzword these days is aerodynamics. The aim is to cut air resistance to cars by making them more "slippery," thus increasing fuel efficiency by as much as 10% to 20%.
Aerodynamics research has led to hoods that are more sloping, recessed door handles and exterior mirrors that are sculpted to reduce wind drag.
In addition, the automakers are installing thinner doors and chopping off front and rear overhang to reduce weight. Ford recently pared 5 lbs. from its doors by slimming window glass by 2 mm to 3 mm. Engineers are searching for more lightweight materials for the 15,000 or so parts that make up an automobile. Prime problem: high cost. Substituting ultrahigh-strength steel for the usual low-carbon steel can save 15% to 30% in weight; aluminum provides a 50% to 60% saving, and graphite 60% to 70%. But these materials cost two to three times as much as low-carbon steel. Urethane plastics are also being used successfully in some soft bumpers, but plastics are made from oil, and their widespread use could greatly increase demand for petroleum.
Frustratingly, the twin objectives of more mileage and less pollution often fight each other. The pollution control systems that are mandatory on new models, notably the catalytic converter that requires the use of unleaded gas, force cars to burn 5% to 10% more gasoline than they would without such requirements. Emissions from new cars have been reduced 80% from the uncontrolled levels of twelve years ago, but in 1981 that total must reach 96%. Chrysler Vice President Sydney Terry echoes a common lament in the industry: "Achieving the last 4% or 5% is going to cost as much as all the rest put together." Ford executives calculate that, from 1978 to 1981, the industry will have to spend $59 million for each gain of one percentage point, and they argue that the cost is not worth it. Says Ford President Philip Caldwell: "More hydrocarbons will enter the atmosphere by applying a gallon of oil-base paint to a wall than by driving a car 8,000 miles under '81 standards."
The overall cost of auto regulation is breathtaking. Economist Colin Loxley of Wharton Econometrics estimates that GM, Ford and Chrysler will spend about $18 billion between 1979 and 1985 to reach the various pollution, mileage and safety goals set by the Government. Most of this inflationary cost, of course, will be borne by the buyer. According to GM's Estes, the price of a typical GM car by 1985 will be $945 more than it would have been without the regulations.
The automakers brought much of their troubles on themselves by their earlier stonewalling of all regulations, many of which are judged basically desirable by society. The manufacturers' typical rejoinder to any new standard was "Technologically it cannot be done," or "It can be accomplished on a limited basis, but not for mass production." Today the automen are more cooperative, but they have difficulty getting a fair hearing from the public or Congress, both of which often discount their arguments in advance. Admits Estes: "We've got a serious problem with our credibility." Thus the regulators have felt free to override industry objections to bloated costs and the unnecessary risk of rushing into unproven technologies that may not pay off.
As the industry's plight becomes all too apparent, however, there are signs that the regulators are becoming worried and softening their attitudes. Two weeks ago, Adams conceded that the "companies' resources are stretched in meeting the standards by 1985." For the first time he raised the possibility that the Government might help Detroit develop new engines and designs by allocating federal funds for research and development. But he stopped short of relaxing the Government's rigorous regulatory schedule.
The costly demands of regulation stand to weaken competition within the industry. GM will gain strength, Ford will at least hold its own, while Chrysler and AMC will probably lose ground. The bigger the company, the less trouble it will have meeting the standards. GM last year sold almost half of all the vehicles bought in the U.S. and registered sales of $63 billion, roughly equal to the gross national product of Switzerland. GM is able to spread fixed costs across a much greater volume than its competitors can, and it can spend more for experiment and developing new hardware. As Chrysler President Lee lacocca notes: "At Chrysler, if I had three potentially big-selling cars, I would have to choose one to go with. At Ford you'd say 'go with two'. At GM they say, 'Bullshit, let's go with all three.' "
The outlook at the glasshouse head quarters of Ford in Dearborn, Mich., is a bit less cheery than at GM. The company had sales of $43 billion last year, and so far this year has man aged to hold its share of the market for U.S. makes, about 27%, vs. 60% for GM. Ford's compact Fairmont is moving well, but sales of its subcompact Pinto are down because of publicity over faulty gas tanks on earlier models, which sometimes exploded when hit from the rear. The much publicized ousting of Iacocca as Ford's president and the threatened lawsuits against Chairman Henry Ford II have also hurt. To scrub up its image, Ford has been working extremely hard to ensure safety and reliability.
Chrysler is in trouble, despite sales of $17 billion that make it the nation's tenth largest manufacturing company. Its share of the U.S. market has plunged from 16.3% in 1968 to 10.1% in 1978. Though the small Omni and Horizon are selling fast, Chrysler's big cars, the St. Regis and the New Yorker, are not moving well. The company lost $204 mil lion last year. To raise money, Chrysler is on a selling spree. From the sale of its European operations to Peugeot, the company picked up $230 million in cash, along with a 15% share in the French firm. Last week Chrysler, pleading for help in meeting its expected $7.5 billion cost of complying with federal regulations by the mid-1980s, asked its suppliers to cut their prices by 1% to 2% and start ed speaking with Michigan authorities for special state aid.
Chrysler's future will depend largely on whether Iacocca can improve the company's cars and modernize its aging plants on a limited budget. Says Arvid Jouppi, Detroit's leading independent auto ana lyst: "They might as well call lacocca 'Last Chance.' " Last week, in a typically unorthodox marketing stroke, Iacocca set out to steal customers from his former employer. On his corporate stationery and over his printed signature, he sent letters to more than half a million Ford car owners, urging them to switch to Chryslers. He enclosed his gold-colored business card and advised the Ford customers that if they flashed it in Chrysler show rooms, they would be shown "every consideration."
AMC, which has only 1.5% of the market, has effectively retired from the redesign race. President W. Paul Tippet confirms that company policy is to wait for the developments to come from other companies, and then buy the technology from them. While still building some of its own small cars, AMC will concentrate on the macho four-wheel-drive Jeep market that it has profitably cornered. An agreement to assemble American-built French-designed Renaults is also in the works, and will take effect in the 1982 model year.
The downsizing of American cars is sure to shake up the world auto business. The new technology being developed in Detroit is also suitable for Europe, Japan and developing nations. Since Chrysler has pulled out of Europe, the main beneficiaries of the new trend are GM and Ford, which have flourishing manufacturing operations in Europe, Australia and elsewhere abroad.
Ford, long considered "the GM of Europe," has much the stronger position overseas. Today Ford Europe provides close to half of the parent company's earnings. Small wonder that the company today is run by a bunch of the division's alumni known as "the European Mafia." Or that Ford has one of only two world car prototypes in existence, the rakish Fiesta, which gets 38 m.p.g. The model is assembled at three sites in Germany, Belgium and Spain from components made in England, engines made in Spain and transmissions made in France.
Now GM, which last year had foreign sales of $11 billion, vs. Ford's $13 billion, is speeding to catch up, and, with its fat pocketbook and drive, it might overtake Ford in the next decade. GM .has the other emerging world car in its popular Chevette, and its X cars are prime candidates for world status. Estes aims to increase GM's unit sales abroad by 8% a year through 1985, making major pushes not only in Europe but also in Mexico, South America, Korea, Japan and Africa.
West German and British manufacturers profess to be unconcerned, but Giuliano Lonardi, worldwide marketing director for Fiat, recognizes the challenge. In his view, U.S. firms not only have the billions needed for mass-producing a world car, but through their suppliers they can turn out a tremendous flow of parts in many countries. Says he: "This enormous access to components is the greatest strength of American efficiency in production." Japan's Takashi Ishihara, president of Nissan Motor, speaks as if the American challenge is a war. Says he: "We find ourselves on the eve of intense international competition with American automakers in the small-car market, which hitherto has been the Japanese makers' stronghold. From now on we will have to map out strategies on a global scale and deploy our forces dynamically."
The production, marketing and organizational power of the U.S. giants will be hard to beat, despite their current woes from Washington. Says Jouppi: "GM and Ford will pretty much determine what the cars of the future will be. There just isn't anyone around who can compete effectively. Between them they will divide up two-thirds of the world market and leave the remaining third for the rest." In the meantime, ready or not, the auto-buying public can sit back and enjoy one of the most tumultuous periods of change since the car replaced the horse.
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