Tuesday, July 19, 2016

The 1979 to 1980 Oil Crisis and the American Automobile Industry: An Introduction





Any notion of having a discussion on car culture without placing it in critical historical context is fraught with difficulties, particularly when dealing with the recent past. And it begs the question as to whether culture reflects, anticipates, or follows the political, social and economic environment. The structure of the automobile industry, its geographical locus of activities, management-union relationships, assembly line processes, government oversight, market dynamics, consumer preferences, and the products themselves have all changed dramatically during the past thirty-five years. Car culture(s) remains significant; but profound generational differences related to the so-called “love affair” with the automobile exist. Take where I live, Dayton, Ohio, for example. On any summer Friday night gray-haired men and a few of their wives gather around hot rods and cars from the 1950s and 1960s in a defunct car dealership lot.  On Saturday morning a very different group of folks – mostly young people with their wives and girl friends and middle aged enthusiasts, meet for cars and coffee at an upscale suburban shopping village to look at tuners, newer sports cars, and a few odds and ends. Further, a large number of Millenials avoid cars or at least love of the car, altogether.  Having moved back to the heart of Dayton, they find entertainment in the historical Oregon District.
Despite the contentious discussions that continue to surround the future of the automobile, however, the car still powerfully influences contemporary literature and music and shapes the lives and lifestyles of many Americans from all classes. Our selective study of the automobile and American life has pointed to a number of significant discontinuities that had an enormous effect on ordinary people and their everyday lives during the post-WWII era, but two events stand out. One was the Oil Shock of 1979, and the other was the Great Recession of 2008, which for the automobile industry really began as early as 2006. 2

Oil Shock II, the Big Three, and Japan
The immediate cause of Oil Shock II was the overthrow of an unpopular government in Iran. However, increased global oil demand and the nation’s inability to formulate an energy policy centering on reducing demand also contributed to an event that took the United States into uncharted economic and political waters. Shah Muhammed Reeza Pahlavi led a repressive and authoritarian regime in Iran, but he was also seen as a friend of the United States and key to the stability of the region.  Iran had stepped up production after the 1973 Oil Shock, thus contributing to Western recovery. But beginning in 1978 a revolution took place that ended in 1979, when in the words of Lee Iacaocca “the Sahh left town.” In his place was the hostile government of Sheikh Khomeni as the grand ayatollah of the Islamic Republic, and the subsequent decline of 4.8 million barrels of oil per day, or 7% of the world’s output. Prices doubled between April of 1979 and April of 1980, due more to speculative hoarding than actual supply shortages.  And inflation in the U.S. rose in an alarming fashion, up to 15 % annually, eventually falling to 4% by the end of 1982 after Federal Reserve Bank monetary policies were implemented. [endnote]
The non-cyclical economic decline resulting from Oil Shock II resulted in record Big Three deficits. In 1980, Chrysler, as previously discussed, faced bankruptcy as it lost $4 billion that year. In similar fashion, Ford incurred a $1.5 billion deficit, and GM $8 billion. Job losses followed:  six assembly plants were shuttered, some 200,000 workers lost their jobs, and unemployment in the automotive sector rose from 3.9 percent in 1978 to 20.4 percent in 1980. An industrial transformation in the U.S. followed. Subsequent developments led MIT industry analyst Martin Anderson to state that the changes in the auto industry “constituted the largest shift in technological, human, and capital resources in U.S. industrial history.”3
            American manufacturers found themselves making the wrong sized cars, often in outdated assembly plants. Meanwhile, the top Japanese brands – Toyota, Datsun (Nissan) and Honda – increased their sales 29% between 1979 and 1982. In response U.S. makers began to introduce new, smaller and fuel efficient cars, like the Ford “world car” Escort, the Chrysler K- Car, and the GM J-Car. [endnote]
In response to this sharp economic downturn, automobile executives closed plants and began massive capital investment initiatives to regain their competitive advantage. Among other things, they bet that robots could replace assembly line workers. The widespread implementation of these robotic devices resulted in the shop floor being radically different than those associated with mid-twentieth century Fordism. Presses, while still in use, no longer were central to the auto manufacturing process; rather, images of robotic arms stretched over unitized steel shells that were moving rapidly down the line represented the changing industry. The threat from robots was so significant in our culture at that time that one scholar has suggested that the popularity of “The Terminator” film, released in 1984, was a consequence of fears concerning the automated assembly line. It was perhaps satisfying then, that at the end of this movie Sarah terminated the Terminator, and sent what was left to the melting pot.4 However, in the real world automobile workers were largely powerless subjects in an irreversible transition where global competitiveness demanded lower labor costs.
 Oil Shock’s Lessons Not Learned

            A serious response to the oil crisis as it related to the automobile in America came from Lester Brown, of the Worldwatch Institute. In 1979 Brown, with Christopher Flavin and Colin Norman, coauthored Running on Empty: The Future of the Automobile in an Oil-Short World.27 Brown’s analysis, obviously rushed given the circumstances of the oil crisis, was based on common sense. He advised American manufacturers to market fuel-efficient automobiles while working on new technologies. Furthermore, Brown clearly pointed out that oil supplies would be depleted in the long run, yet in the years after the oil crisis subsided, few took Brown and others seriously. By 1985, large cars, mini-vans, trucks, and sport utility vehicles filled dealers’ showrooms and lots. Manufacturers made huge profits on these larger vehicles, while claiming that consumers demanded these excessive forms of transformation. And thus lessons from Oil Shocks I and II were not learned, promising research projects in alternative fuels and power systems were abandoned, and large numbers of light trucks emerged on the American scene.

5 comments:

  1. Interesting until the conclusion which begins at "By 1985" which reveals that this is simply an agenda blog. So, not one I'll revisit.

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    1. What do you mean by agenda blog? the only agenda I have is writing history. That is my job. Explain, please?

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    2. It's not so much what you wrote as how you wrote it. It's not the car manufacturers job to figure out a solution to the oil crisis. It's their job to give the consumer what they want faster and better than their competitor. You imply some moral imperative on the part of the manufacturer to solve the crisis. It's not their's to resolve.

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    3. Interesting comment that gets at the heart of one point of contention when looking at the post WWII U.S. auto industry. Your point is that the industry is or should be totally market driven. Another view is that the industry makes what it wants, and often can ignore consumer demand. That explains the rise of the imports. Do manufacturers -- especially when you consider the Big Three -- influence and shape the market? Or try to do so?
      So this is not a simple matter. I think both forces come into play. But whatever the case, the government as a countervailing force intervened after 1975 with its CAFE standards. Of course, the burgeoning of light truck sales and their exclusion for a time from CAFE mucks this issue up even more.
      After the early 1970s the industry lost the autonomy it had, and now its product mix is the result of a matrix of forces that influence it beyond executive decisions.
      I don't know if I have clarified your point or fogged it up.

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  2. My parents & their friends responded to the crisis by buying smaller vehicles than they liked; when prices stabilized, the Plymouth Champ was traded for a T-Bird, the Ford Courier for a full-size Ram, the Chevy Celebrity for a Chevy conversion van. Detroit didn't force folks to upgrade to bigger vehicles, and many folks never did go back to 'living large'. The long term lesson is that automakers must be sure to offer a full-range, less they once again be caught with nothing to sell when gas hits $4/gal. Japan, Inc. had a leg up in the 70's/80's not because they had a full-range of what America might want, but because they had decent small cars. It took them a long time to flesh out their product line to what it is today. I would agree, it isn't the automakers job to fix a crisis, but if it expects to survive such a thing, it had better have the right products in the showroom.

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