Oil Shock I and the American Automobile Industry

Oil Shock I
In October 1973, OPEC (Oil Producing and Exporting Countries) placed an embargo on oil shipped to the U.S. as a result of American support to Israel during the October 1973 Yom Kippur War.40 Gasoline, already in short supply since the United States had reached its peak of oil production in 1970, suddenly became very scarce and more costly. Lines formed at virtually every gas station that had gas. At a number of stations, color-coded signs or flags indicated availability. Eventually, even-odd license plate rationing took place, as did a federally-mandated reduction in the interstate highway speed limit to 55 miles per hour. Gas station customers, once accustomed to service that included the washing of windshields and oil checks, now waited three hours or more. The situation led to shortened tempers and fist fights, even in laid-back southern California.
OPEC thus used oil as a weapon, and it was a weapon used well. The embargo not only brought the United States to its knees in terms of unemployment and inflation, but also increased the profits of OPEC members nearly seven-fold between 1972 and 1977. Gas prices, responding to a nervous spot market, climbed 70 percent. Along with the embargo and further price increases, OPEC announced a cut in oil production. Leonardo Maugeri recounted that, “Total Arab oil production in September 1973 had reached 19.4 million barrels per day; in November, 15.4 million.”41
Conspiracy theories abounded as the price of gas ran up. Were the Arabs or the oil companies at the heart of the problem? As studies subsequently demonstrated, it was neither. Rather, the decrease in supply wasn’t the chief cause of Oil Shock I and its impact. Looking back to that time of fear and confusion, Maugeri claimed that “considering as well additional output from other parts of the world, there was never a shortfall in supply. It was not loss of supply, but fear of possible loss that drove up the price.”42
Federal government action in response to the oil embargo of 1973 and 1974 was largely ineffectual, and indeed even made things worse. In response to the inflation that followed, the Federal Reserve Board attempted to contract the economy by raising interest rates, and in so doing only deepened the recession. President Nixon, already facing a crisis in confidence over Watergate, called for a $410 billion “Project Independence,” based on American efforts to develop synthetic rubber during WWII. Nixon’s proposal sought to make America energy independent by 1985, a worthy goal that none of the energy experts in Washington thought possible. Nixon’s successor, Gerald Ford, emphasized supply rather than a curtailment of demand on the part of Americans, and thus encouraged the development of nuclear power plants, an initiative that that hit a brick wall after the Three Mile Island accident in 1979. Politicians were adverse to placing blame for the energy crisis on those who were most responsible, namely the American consumer, who used a disproportionate percentage of the world’s petroleum supplies and owned more automobiles per family compared to other developed nations.
What Oil Shock I meant to the auto industry, however, is our focus. Its consequences were far-reaching, for Detroit responded by making what were undoubtedly the worst cars in its history, while at the same time Japanese manufacturers made high quality and very reasonably priced products that consumers grew to love.
Prior to the first oil crisis and following a whimsical cycle of trying to meet consumer needs, Ford introduced a new “world” economy car, the Pinto, and GM the Vega. The Pinto was particularly interesting in terms of manufacturing processes, as it was perhaps the first modern “world car,” the result of a global assembly line that included engines and transmissions from Great Britain and Germany. It had only 1,600 major parts, as compared to anywhere between 3,500 and 9,000 in a full-sized car. These cars could be fixed by a novice mechanic with a handful of tools, making it a do-it -yourself car. Light and fuel efficient, the Pinto, however, was subsequently deemed dangerous as its gas tanks were prone to rupture, its occupants trapped by doors that had jammed shut upon rear impact.43
The Vega was also a light, four-cylinder economy design. From the beginning, however, it was built at a new state-of-the-art GM facility in Lordstown, Ohio, where worker dissatisfaction soon boiled over, leading to deliberate worker sabotage of cars coming off the line – one one such example being Coke bottles being placed in doors prior to final assembly. Also, Vega engines were based on a new aluminum block design and quickly proved to wear and burn oil far before they should have.
The American automobiles made between 1974 and 1979 were generally of poor design and poor quality. For example, my father’s 1979 Chevrolet Malibu mated a V-8 engine to a small metric THM-200 automatic transmission, an arrangement that led to repeated transmission failures. One of my coworkers during this period, an African-American proud of his ability to purchase a new Oldsmobile, soon discovered that it had a Chevrolet engine. Emissions controls that included smog pumps, decel and exhaust recirculation valves, and a maze of vacuum lines under the hood, resulted in day to day driveability problems that included dieseling and hard starting.
It was no surprise, then, that within this void a new global competitor emerged: Japan.