The automobile industry led the economy into the recession. Now, according to Thomas A. Murphy, chairman of the General Motors Corporation, "We're going to lead the economy back."
Interviewed in his 14th-floor Detroit office, Mr. Murphy also told the Monitor:
* General Motors' recent price increases of 1.9 percent on its 1981 cars do not cover the automaker's rising cost of emission-control devices and other hardware mandated by the government. The price GM sells its cars to the dealer -- called the dealer discount -- is actually down for some cars, but unchanged for GM's smaller cars. "We recognize the trend in buying and go with the flow in terms of pricing," he said.
* In his view, the downturn in the economy will be short but the recovery will be modest. "The only thing that's preventin us from selling cars," he said , "is the lack of consumer confidence. . . . Uncertainty is our biggest problem. People delay making purchases from a month to two years depending on how confident they feel about the economy." Already, he related, "the used-car market has rebounded, and this is bound to help the new-car market. We are stepping up production now to meet expected growth and restore dealer stocks, which were badly depleted."
* Interest rates will not rise markedly during the recovery. This should help the industry, because it was badly hurt during the Federal Reserve Board's credit tightening moves in March. The Fed's actions, Mr. Murphy commented, were not supposed to affect the auto industry adversely, but they did, because banks stopped extending credit to auto dealers.
* General Motors will post another loss in the third quarter, a model changeover period. However, it's still too early to tell if it will show a loss in the fourth quarter.
Mr. Murphy shudder when asked why the automobile companies were so slow to react to the shift in demand to fuel-efficien cars. It is a criticism that he has heard often, and he is quick to inform a visitor that it takes some historical perspective to understand why the auto companies were not ready for the massive shift ot small cars. Gasoline were been cheap, he intones, and still is underpriced. And the size of the American family unit has until recently mitigated against small cars.
Furthermore, he said: "You have to look at the waves of small cars that have been produced and died of malnutrition -- the Henry J, Nash, Corvair -- demand for small cars was not there unitl 1979. Even the VW bettle, which was big in the '60s because to some degree it was challenging, not goodlooking, but dependable and economical, and had some success in the market, is now gone."
Even in 1973, he said, "after the oil embargo and the long gas lines, our main worry was how to make more family-size cars. As late as early 1979, our biggest problem was how to make more full-size cars. You know, up until 1978, foreign car sales were going down."
What triggered the rush to small cars?
"The misallocation of gas by the government in early 1979 resulted in the perception of shortages when there were none," the GM chairman replied. Then, he went on, the foreign manufacturers got lucky because they had large surpluses of small cars they could sell in this country. "They didn't anticipate the gasoline crisis. It's just that they always made small cars."
As for General Motors, the world's largest automaker is turning out fuel-efficient cars as fast as it can. GM's two assembly plants that turn out the X-cars are working double shifts and overtime. The company currently has a 48-day supply of the cars. So he tells a visitor, "If you want one, I can get it for you." Normally, the wait for a new 4-cylinder X-car in a specific color, with specific options, could take several months.
GM is alos intensifying its efforts to better the government-mandated fuel standards. Mr. Murphy said that by 1985 it will produce a passenger car fleet that averages 31 miles per gallon.
Recently, Lee Iacocca, chairman of Chyrsler Corproration, said Chrysler's fleet average would be 30 m.p.g. by 1985. The federally mandated standard for 1985 fleets is 27.5 m.p.g. In 1974 GM's average was 12 m.p.g. and for the 1981 models due in the showrooms in a few weeks it is 21.8 m.p.g.
Despite the remarkable rise in the number of fuel-efficient foreign cars sold in the US, Mr. Murphy said he doesn't believe the reason people buy cars has changed much over the past 25 years.
"There is still a lot of emotion involved in buying a car," he explained, "and people buy cars for a lot of different reasons, including, for example, what the neighbors will think."
Furthermore, Americans still like performance, although he added, "I wouldn't say they are hot rodders." Mr. Murphy had a chance to get a consumer's reaction firsthand recently when his son borrowed the keys to a new Oldsmobile equipped with a diesel engine. "The car didn't have the pickup and response he was accustomed to," Mr. Murphy related, "which is just the way a fuel-efficient diesel acts."