Goodbye, gas guzzlers; hello, CAFE, econoboxes, imports and hard times
This story originally appeared in 100 Event That Made the Industry, an Automotive News special issue published on June 26, 1996.
Paul Conte stared forlornly out the window of his Long Island, N.Y., Cadillac showroom. Outside, blocking the entrance, a line of cars snaked slowly along the road, creeping toward the Mobil station next door. The guy had been struggling for years,' Conte says of the gas station owner. 'Now he had a fistful of money 4 inches thick, and he didn't take credit cards.'
Until the oil embargo exploded in October 1973, neither automakers nor consumers worried about the price of gas, or how plentiful it was. Then, suddenly, queues of desperate drivers materialized. Those lines, shown on TV and splashed across front pages of newspapers, symbolized the 1973-74 oil embargo, the most serious perceived threat to Americans' freedom of the road since gas rationing in World War II.
Despite the wait, despite the lines, motorists insisted on topping off their tanks as often as possible. It was a lifestyle change as well as an economic change. Many dropped vacation and business travel plans. Small vehicles, previously regarded as undersized for American family needs, became hot commodities.
Even when they hit the highway with a full tank of gas, drivers couldn't legally drive as fast as before because Congress mandated a 55-mph speed limit - and threatened to withhold federal highway funds from states that refused to adopt and enforce the lower limit.
Meanwhile, dealers like Conte wrung their hands.
We were losing money. We were bleeding, he recalls. Customers canceled orders for Cadillacs. He put the shop on a four-day workweek and laid off some salespeople. Buyers who still wanted a Cadillac got lower trade-in allowances for their big Buicks, Cadillacs and Lincolns. He considered acquiring a franchise for smaller cars, but none were available.
We were demoralized, recalls Conte, who now owns Paul Conte Cadillac in Free-port, N.Y., not far from the original dealership where he endured the oil embargo. We were locked into the business and felt nothing could go on forever. Luckily for us, some customers said, 'I may have to drive less but I'll never give up my Cadillac.
The crisis began when members of an international cartel, the Organization of Petroleum Exporting Countries, or OPEC, reduced their own oil production and imposed the embargo on the West as a result of the Arab-Israeli War. The Arab cutbacks accounted for only 7 percent of world supply, but that proved enough to trigger panic among oil companies, governments and consumers. Bidding went wild. OPEC raised its prices to record highs.
Conte's observation came true: The embargo didn't last forever. But when it ended in 1974, it had forced major changes onto the U.S. auto industry and the consumer.
The 1976 corporate average fuel economy standards were one significant legacy, University of Michigan business historian David Lewis explains. U.S. makers had felt the American dream tied in closely to large cars, no matter how much gas they guzzled.
After you got those CAFE requirements, you had to rethink your fleet, Lewis says. You had to have a smaller car even if you couldn't make money from it. At that time, the typical U.S. car weighed 4,000 pounds.
Manufacturers then thought of what would be called econoboxes, somewhat smaller and lighter,' Lewis says. Automakers assured their customers and dealers that smaller cars were coming, but redesign and retooling took time.
- Spurred manufacturers to design smaller, high-mileage vehicles.
- Led to federal CAFE standards.
- Promoted use of new and lightweight materials.
- Made Big 3 more sensitive to consumer demands.
- Created a deep market for small imported cars.
- Forced marginal dealerships out of business.
- Induced domestic dealers to add import franchises.
- Made drivers slow down to the 55-mph speed limit.
By the end of the decade, however, General Motors was selling X cars, Ford Motor Co. introduced the Granada, and Chrysler Corp. had the Dodge Omni and the Plymouth Horizon. Late in 1980, three 1981-model helpers arrived: the Ford Escort and the Dodge Aries/Plymouth Reliant K cars.
It wasn't that producers wanted to make small vehicles-because that's not where the money was - but you needed entry-level cars to meet CAFE requirements and to get young and first-time buyers into showrooms, Lewis says.
The average efficiency of U.S.-made cars improved 40 percent from 1974-90. But the sharp increase in the number of vehicles on the road offset the fuel savings, as did the proliferation of light trucks and vans.
Meeting government-mandated goals and customer demand required engineering advances, shifts in design theory, development of new materials and more use of existing lightweight materials such as aluminum and plastics.
For GM research engineer Don Pozniak, the oil embargo and the changing demands on the industry brought both excitement and frustration. From a pro-fessional standpoint, it was an exciting period because we had significant challenges, recalls Pozniak, now a technology applications manager in GM's Pow-ertrain Group.
GM and other makers were squeezed on one side by the oil embargo and on the oth-er by impending 1976 emissions standards. That was the starting point of engineers hav- ing to deal with seemingly conflicting requirements of attaining better fuel econ- omy and decreasing emissions, he says.
There was a lot of opportunity for invention here because we didn't know how to achieve those objectives. We took multiple paths to do research and development to decide which way to go. It was fun.
Historian Lewis points out a second major change for the auto industry: Japanese cars seized a big chunk of the market. Not only did they sell much better than before, but as soon as people found the Japanese cars had good quality, they never looked back. Some people haven't bought a Big 3 car since. Conte describes it as 'the beginning of Japanese cars getting a foothold in this country. They started to pour them in here. Higher prices also produced an international recession, and most OPEC countries nationalized their oil fields.
Steve Foley Sr., who had an Oldsmobile dealership in Chicago in 1973, believes the industry is better off as a result of the oil embargo.
For one thing, it shook out dealerships that were not well run or properly financed, says Foley, who now owns Steve Foley Cadillac in Northbrook, Ill.
For another, he says, it prompted an attitude switch among manufacturers to better satisfy their customers. 'GM's position at the time was 'design a nice car and the people will flock to you.' Today, it's 'design a car the customer wants.
Without the oil embargo and the demand for high-mileage imports, it's questionable how many dealerships would have added European and Japanese lines alongside their domestic franchises. At the same time, the dramatic end of cheap, secure sources of oil set the groundwork for joint enterprises between U.S. and foreign automakers.
And fuel efficiency became and remained a major component of marketing and advertising.
Could it happen again? Actually it did, in 1978 when the revolution in Iran virtually shut off that country's production and exports. The public panicked again, bidding went haywire again, prices rose again and, by the end of 1980, crude oil cost 19 times more than a decade earlier. Again, a worldwide recession occurred.
And a short-term price rise followed Iraq's invasion of Kuwait in August 1990.
Lewis believes another oil crisis is possible.
In some ways we haven't learned a thing,' he says.
Look at the price of gasoline. Look what will happen to the auto companies if the price goes up and there's a shortage. Utility vehicles, pickups, minivans and vans will take a big hit, and that's where the money is.
You can reach Eric Freedman at email@example.com.