U.S. joins small car war

Press, 24 September 1980, Page 20

U.S. joins small car war

By

RICHARD THAXTON

in Washington

This month the first of Ford’s petrol-saving “world cars” rolled off the assembly line, in Metuchen, New Jersey, driven by no less a luminary in the race to “reindustrialise” the United States car industry than the Secretary of Transportation,.. Mr Neil'Goldschmidt. More excitement over small cars is due to follow. . Chrysler’s compact K-car is ; about to drive forth into the market — an event to be celebrated by Frank Sinatra in television advertisements. General Motors, meanwhile, is busy marketing its X-car, which is nearly identical to the Chrysler model in design and price. On the success of these late-blossoming, compact cars rides the future of the' United States car industry, which has suffered hugh losses as the petrol crises combined; with a sharp recession to cut sales.. Even General Motors is expected to lose:, money in 1980 for the first time in 59 . years; although •it began its conversion .from production of “gas-guzzling” large -saloons to compacts sooner than its competitors. Most car market analysts believe it will take $BO million of investment and about three years for the American firms to convert fully to small-car production. So far, foreign firms, mainly from Japan, have been filling much of the United States. demand for small cars, and • the foreigners’ share of the United States market has surged to 30 per cent.. . Three years hence, it may be very - difficult . for the United States firms to win ... back American customers who have decided that what. is good for Toyota is good

for America, or at least for them. Accordingly, the United States car companies, the powerful United Auto Workers Union, and other lobbyists have converged on Congress and .the. Administration calling for a .protective tariff to restrict Japanese car imports. - ' President Carter — campaigning hard for re-election — recently responded to the pressure. Last July he urged the International Trade Commission to speed up a decision on whether Japanese imports are harming .the United States car industry enough to warrant a retaliatory tariff. The commission refused to alter its schedule and will not take up the matter until after the November election, but Congress could impose a duty in any case. .

Free Traders, such as Senator William Proxmire contend that such a tariff would ; be. self-defeating, because the •duties would, not speed up United. States' conversion to small-car production, but could easily ignite a trade war, damaging prospects for .the new United States cars when they are finally ready to sell abroad. But there is considerable sympathy for a tariff on Capitol Hill. Meanwhile, the Administration is pushing forward with its programme to “reindustrialise” America, and its vital car industry, with tax cuts to stimulate investment in more efficient production techniques. 1 The programme also : entails ? pruning away many .of ■ the. environmental regulationms: about which the companies. have tomplained so bitterly. Whether the United States, car industry will in fact be

“reindustrialised” remains an open question, yet on the fate of that industry hangs the future of others: rubber, steel, iron, zinc, aluminium. Chrysler, the third largest domestic car company, has only survived due to a $1.5 billion Government-guaran-teed loan. Many car market analysts do not think the loan will be enough, and that Chrysler “will soon be back begging at the trough” and will either become a permanent ward of the Govvemment or a subsidiary of a foreign car firm like American Motors which was recently bailed out by Renault.

Some analysts believe that Ford, and even General Motors, will shrink greatly over the next several years and may form close partnerships with more powerful foreign concerns. If they are correct, the United States car industry’s managers have mainly themselves to blame. More than anything else it was their long-standing refusal to realise that O.P.E.C. has made the luxury car obsolete which led to the humiliating decline, in a once-powerfui industry. Copyright, London Observer Service.