Detroit's Worsening Plight

Automen meet with the President as sales continue to sink

It looked like a trustbuster's dream. Last Wednesday the top executives of General Motors, Ford, Chrysler, American Motors and Volkswagen of America all sat down at the same table in the Washington offices of the Motor Vehicle Manufacturers Association for a lunch of asparagus vinaigrette and tomatoes stuffed with chicken salad. But the automen were not fixing prices; they were coordinating strategy for a meeting just after lunch with one of the industry's most powerful critics, Jimmy Carter.

The President had asked them to the White House at the urging of Transportation Secretary Neil Goldschmidt, who has been studying the industry for the past six months as part of the Federal Government's loan guarantee to Chrysler. Goldschmidt's investigation convinced him that the auto manufacturers were in very deep trouble, even discounting the woes of a recession downturn. Two weeks ago, Goldschmidt gave the President a 20-minute graph and chart show to demonstrate the seriousness of Detroit's plight. Concerned, Carter immediately agreed to a meeting with the carmakers and United Auto Workers President Douglas Fraser. While no specific action came out of the White House gathering, the fact that it was held could be the first sign of an intensified Administration effort to help Detroit.

The American auto problem is simply that customers are not buying the products that the U.S. turns out. The day the automen descended on Washington, new sales figures for the first ten days in May showed a staggering 42% decline from levels of a year earlier. And last May's figures had already been distressingly low. The plunge put the industry at the lowest sales level of any ten-day period in 22 years and represented an annual selling rate of only 5 million cars. Just two years ago, Detroit sold more than 9 million (the record: 9.7 million in 1973). More than a third of the Big Three's 750,000 workers are already idle. And by the end of the year, a total of eleven manufacturing and assembly plants will be shuttered.

To try to move some of their merchandise, two companies last week reinstituted rebates. Chrysler is mailing checks for as much as $1,000 to buyers of its '79 four-wheel-drive models, and Ford is offering up to $500 on big Fords, Lincolns and Mercurys.

For last week's meeting, Chrysler Chairman Lee Iacocca and President J. Paul Bergmoser were driven up to the White House's northwest gate in a wine-red, four-door Dodge Omni (24 m.p.g. city and 31 m.p.g. highway). They not only dramatized their company's commitment to small cars but successfully upstaged their GM and Ford colleagues, who arrived in larger, albeit "down-sized," Pontiac and Lincoln cars. Right behind Iacocca came the United Auto Workers' Fraser in a compact, light blue Plymouth Horizon, with the $7,200 sticker price still on the window.

The group assembled in the Cabinet room with the President, the Vice President and four Cabinet officers. For the next hour and a half, while Carter took notes in his careful schoolboy handwriting, the executives made their pitches in descending order of company size, beginning with GM Chairman Thomas A. Murphy. They spoke of the need for tax incentives to help customers buy cars and to aid the companies in modernizing, for regulatory relief and for easier credit conditions. Though auto loans were specifically exempted from the Administration's March credit restraints, the President was astonished to hear that money for car loans had evaporated and that dealers were losing as many as half their sales because potential customers could not find financing.

The biggest issue on everyone's mind, however, was rising foreign imports, which now account for 27% of the cars and trucks sold in the U.S. But the automakers were split on the issue. Chrysler's Iacocca wanted a "gentleman's agreement" with the Japanese to cut back exports; Ford's chairman, Philip Caldwell, and the U.A.W.'s Fraser wanted still tougher restrictions; GM's Murphy opposed forcing a halt in imports from Japan. In the midst of his plea for pressure on the Japanese, Fraser looked across the polished table and saw Murphy about to start a rebuttal. Said the U.A.W. leader puckishly: "Now, Tom, keep quiet. I didn't interrupt you."

Though some of the automen had private reservations about meeting with a President who has often told them their troubles are of their own making, they emerged from the White House sounding more optimistic. "There's no specific plan," said Fraser, "but I think there's a chance that one will develop now." The executives hope that the President will do something fairly quickly to ease the credit restrictions now strangling new-car sales. Said Ford President Donald Petersen: "I think we got across to them that even with the rapid decline in interest rates, the problem is so severe that there has to be some action taken to be sure that banks make credit available."

But the automen admitted that tax incentives and other federal aids will be slow in coming. None expects any of the emission and safety standards changes that they have been demanding. Imports are a tougher issue. While the President agreed to raise the trade problem with the Japanese at the Western economic summit meeting next month, the auto executives doubt he will do much beyond jawboning. The reason: import restrictions would mean higher-priced small cars and raise the flame under U.S. inflation. But the industry appeared at least reassured that the Administration has finally recognized trade as an issue.

Despite the soothing words from the White House, Detroit has many difficult miles to go before next fall, when new lines of American cars that can compete with the Japanese arrive at dealer showrooms. Said Iacocca last week: "The next six months to a year are going to be pure hell."

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