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Auto Makers Find Little to Celebrate on Their ‘New Year's Eve’

Auto Makers Find Little to Celebrate on Their ‘New Year's Eve’
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September 3, 1974, Page 51Buy Reprints
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DETROIT, Sept. 2 — It is now New Year's Eve in the Motor City, by the auto industry's calendar.

However, car manufacturers are not cheering. They have much to worry about as they wind up a disappointing 1974 model year and prepare to bring out 1975 models.

The Talk of Detroit

Around Detroit, as automobile people talk, they speculate about several things — executive changes and the uncertain sales outlook.

Top‐level personnel changes are coming up at the. General Motors Corporation in the weeks and months ahead. G.M.'s president, Edward N. Cole, reaches the mandatory retirement age of 65 this month.

General Motors, like a winning football team, prides itself at being too deep at every position, so it has two men groomed for the top job They are E. M. (Pete) Estes, executive vice president for operations, and Richard L. Terrell, executive vice president for automotive. Analyzing the shifts and changes at G.M. has been likened to “Kremlin watchThe G.M. watchers think they see signs that Mr. Estes will replace Mr. Cole. They even cite his recent purchase of a new house as evidence. Some simply think he talks and acts like the man who is going to be net in charge.

Mr. Terrell now holds the top automotive post, but Mr. Estes has had far more experience in it here and overseas—and that‐ is where G.M.'s challenges, problems and opportunities are in the future.

Mr. Cole's retirement and the ascension of eithe, Mr. Estes or Mr. Terrell to the presidency will set off a chain reaction of changes at vice presidential levels.

Rumors already are circulating about who will take over what division. One scenario has Cadillac's gen eral manager, Robert D. Lund, noving over to head Chevrolet, with the present general manager there, F. James McDonald, Moving up to a grouvvice presidency. In any case while there is some uncertainty about the changes this month, there is no question about the big gest move in what is being called G.M.'s game of musical chairs. In November Richard C. Gerstenberg will retire as General Motors chairman. His certain heir is Thomas A. Murphy, now vice chairman of the board.

Mr. Murphy, like Mr. Gerstenberg, is a finance man, and it is considered certain that the corporation's financial staff will continue in the driver's seat. The chairman is the corporation's chief executive officer; the president is its chief operating officer.

The actions on the presidency, the chairmanship and other posts will be taken at G.M. board meetings in New York this month and in November. By practice, however, the board is thought to merely ratify recommendations developed in numerous committee meetings held in the corporation's Fifth avenue building and in its headquarters in midtown Detroit.

Inflation is another topic of conjecture for the auto industry. It is approaching the 1975 model year talking bravely about a modest sales increase but privately worried about what will happen this fall if inflation remains unchecked. Car prices went up $500 in 1974 and are going up $400 to $500 and even more with the start of the 1975 model year. Auto executives are already warning of more price rises to come.

Some auto men are worried whether the controversial antipollution catalytic converters (which cost $100 to $200) required on 1975 cars will hurt sales. The Ford Motor Company's president, Lee Iacocca, said he thought the price might affeet some, sales unless buyers become convinced the converters are worth the meney.

G:M.'s Mr. Gerstenberg said converters would result in annual savings of up to $100 per car on gasoline and maintenance. He said the device would improve gas economy on 1975 G.M. cars by an average of 15 per cent, offvatting the price of the converter.

In any case, auto men are still concerned that cars may be priced out of the reach of many. Even long‐term credit can't help, they feel, when there are only two or three domestic cars priced below $3,000.

One auto company leader noted the industry's sharp drop in earnings. Profits are down at all of the Big Three this year. Chrysler's profit is just ½ of 1 per cent of its sales. Ford says its profit per car is no wdown to less than $100, compared with the normal $350. G.M. says that, even with its $426 average price increase this year, it is still absorbing $400 in unrecovered costs.

Despite all this, executives are talking about sales of 10 million vehicles or slightly above in 1975, compared with 9.6 million in 1974. This year's results will be off about 16 per cent from the 1973 record of 11.3 million. Mr. Gerstenberg, Mr. Iacocca and the Chrysler Corporation's chairman, Lynn A. Townsend, have all recently forecast 1975 sales in the range of 10 million to 10.5 million, which would make it the industry's third best year but still well below the 1973 peak.

Mr. Gerstenberg said in.‐a weekend statement, “Inflation shadows the shorterterm outlook.” While 1975 “may not be the best of all years,” he added, “it will be better than last.”

Auto analysts find the outlook gloomy, and the stock market shows little cause for optimism in the industry. Auto stocks have dropped by one‐half to two‐thirds in value in the last couple of years.

The manufacturers attribute part of their present predicament to the hangover of nearly three years of some form of economic controls. To be sure, sales were at record levels in 1971‐73, but prices were controlled while costs were up. Earnings were still good because, the auto makers said, “we made it up on volume.”

However, volume this year —partly because of the en ergy crisis—dropped at a rate not equaled since the 1958 recession. As a result idleness mounted, with G.M. alone laying off some 84,000 United States workers indefinitely at one time.

Production and sales are still down. In comparison with the situation early in the year, however, things are looking up. In July and August the auto makers even managed two consecutive 10‐day selling periods in which deliveries were above the comparable levels of 1973, the first time that had happened in a year.

When auto men talk about 1974 they shake their heads and say there has never been a year like it. When sales of big cars nosedived as a result of gasoline shortages last winter, small‐car sales zoomed, At one point, a subcompact Pinto wagon was worth more than a full‐size Ford wagon, which at one time cost $2,000 more.

The auto companies embarked on what Mr. Iacocca called hte biggest industrial conversion in peacetime history—to build small cars in plants that once built big ones. Ford's Wayne assembly plant outside Detroit was gutted and rebuilt in a little over two months to manufacture compact cars. G.M.'s Tarrytown, N. Y., plant was down this summer for conversion to production of small Chevrolet Novas.

The auto industry began turning out the new mini models like cupcakes. In some cases, it overdid it—as at Ford, which is going to cut back Pinto production at San Jose, Calif., because of a three‐month backlog of unsold cars. Nevertheless, it is hard to keep count of all the small car lines.

Nowhere is this more evident than at General Motors, the company hardest hit by the big‐car slump this year. This month it is introducing no fewer than four new, lines of subcompact cars, one each for the Buick, Chevrolet, Pontiac and Oldsmobile divisions, with the Cadillac division promised a small car of its own after the first of the year. Ford has two small luxury cars, the Granada and Monarch, and the American Motors Corporation next February will have a subcompact model called the Pacer.

How will the public respond to the new small models, the higher prices and the new Government ‐ required catalytic converters on tap of the controversial lap shoulder belt system on the 1974 cars?

The auto makers frankly don't know but are ready to go either way—gearing up their plants to build more small cars or, if they have to, to lay off more people.

One thing is certain. They are not going to build any more new plants in the foreseeable future, with G.M. and Chrysler both putting a hold on plants under construction. What the auto indusny now has instead are several “swing” plants that can be converted from production of large cars to small and back to large, whatever happens.

The companies have opent a lot of Money tooling up for the new small cars as well as the pollution‐control systems. Mr. Gerstenberg said G.M. alone was spending a record $1.4‐billion in 1974, up from $1.1‐billion in 1973. However, inflation undoubtedly accounts for some of the increase.

There is an air of unusualness about the introduction of new models. Two companies are putting their new cars on sale a few at a time. G.M. dealers can sell whatever cars come in off the transport trucks now. Ford dealers can sell six types of cars now, most of the rest Sept. 9 and the two new models, Granada and Monarch, not until Sept. 27—the “official” introduction date for both G.M. and Ford. Chrysler and American Motors are still sticking with their October‐November introduction date.

In a way, this lengthy, indefinite and low‐key method of putting the 1975 models on sales fits the current state of mind in the auto industry —some fear and much uncertainty. It is more like Halloween than New Year's around Detroit.

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