By Keith Crain, Crain News Service
DETROIT (Oct. 16, 2013) — The U.S. automobile industry was a pretty nice place to work in the 25 years or so that followed World War II.
The Big 3 really were the Big 3—General Motors Corp., Ford Motor Co. and Chrysler Corp. owned most of the market, with American Motors getting a few crumbs. Volkswagen A.G. and some other European imports made waves, but mostly it was a very good time for the U.S. companies.
Gasoline was cheap, around 25 cents a gallon. Oil was about $3 a barrel. The only thing auto engineers had to be concerned about was turning out cars each year that were bigger, more powerful and more stylish.
Then it happened: the Arab oil embargo that started in October 1973 and lasted until March 1974. The car business I got to know when I arrived at Automotive News in 1971 would soon disappear.
Before that cataclysmic event, it had been smooth sailing for American auto makers. From year to year, market share among the Big 3 would vary, perhaps, 1 percent. Everyone was doing well, especially auto dealers. No one worried about the Japanese car makers.
For another story on how the 1973 oil embargo changed the auto industry, click here.
The muscle car from Detroit was king. It didn't matter that it got less than 10 mpg. Those were the times of Sunoco 260, the highest octane fuel you could find, and it fed those high-compression engines from Detroit.
Washington was barely noticed by the auto makers. The new National Highway Traffic Safety Administration (NHTSA) seemed mainly concerned with protecting Americans from unsafe cars brought in from places like Italy and Japan.
Safety regulation was just emerging as an issue. I recall our Washington editor, Helen Kahn, telling me about a young lawyer named Ralph Nader who came by her office a few years earlier. He was working on a book about auto safety.
And then there was a war.
They called it the Yom Kippur War. It was fought by Egypt and Syria against Israel from Oct. 6 to 25, 1973. Although we might have given Israel some help, it wasn't our war. At least we didn't think so. Still, the Arabs got angry, and the Organization of Petroleum Exporting Countries (OPEC) stopped selling oil to the U.S.
And the world and the car industry changed forever.
The price of gasoline skyrocketed, and when consumers panicked so did Detroit. Little engines were installed in big cars, and they were not very good.
The Japanese began to import cars that had not seemed right for Americans but suddenly were. And now those little cars, with their high quality and, most important, high gas mileage, began to appear on the lots of used-car dealers and Japanese motorcycle dealers—because those guys became new-car dealers for import brands.
After a few years, gasoline prices stabilized, and the U.S. companies felt confident again—as if the old days were back. Only they weren't. A second oil shock touched off by the Iran hostage crisis in 1979 caused gasoline prices to shoot up again.
This time the government decided to take over distribution of gasoline, and it was a disaster. There were long lines at filling stations as the government worked out a system in which some people could buy gasoline on even-numbered days and the rest on odd-numbered days.
The need for fuel efficiency spawned some of Detroit's worst mistakes. Small cars: Vegas and Pintos and Dusters and diesels. And Cadillac's V8-6-4 cylinder deactivation system, a device that turned out to be a black eye for General Motors. It was on the market only a few years.
Everything was rushed—and too often it was wrong.
Ed Cole, a brilliant engineer who rose to be president of General Motors, vowed during the first oil crisis to increase GM's corporate fuel economy by 50 percent, from 12 mpg to 18 mpg, within a decade.
Congress thought that was a fine idea, and in 1975, the year after Mr. Cole retired, it created corporate average fuel economy (CAFE) standards that required auto makers to achieve a standard of 27.5 mpg for cars by the 1985 model year, raising Mr. Cole's target by 50 percent.
But in these 40 years, the U.S. has never set a comprehensive energy policy the industry could live by. Congress created CAFE, then ignored the issue for decades. That is, until it decided in recent years to raise the car and light-truck standards in knee-jerk fashion, ultimately to the equivalent of 54.5 mpg by the 2025 model year. What was needed was a moderate and constant approach over the years.
We have never fully responded to the 1973 oil crisis. Our dependency on foreign oil has risen dramatically in the past decades, but our government has kept its head in the sand.
Forty years ago—it was the end of innocence.
Keith Crain is editor-in-chief of Automotive News, a Detroit-based sister publication of Tire Business, and chairman of Crain Communications Inc., TB's parent company. He can be reached via email at firstname.lastname@example.org. He wrote this column as part of Automotive News special reports on how the 1973 Arab oil embargo changed the automotive industry.