Auto sales were off to a rousing start in 1979. Sales of domestic vehicles in the first 10 days of the year were up 23 percent.
Then all hell broke loose.
On Jan. 16, 1979, the Shah of Iran was overthrown, and the Ayatollah Khomeini came to power. He cut Iran's oil production, which reduced shipments of crude oil to the United States. Gasoline prices soared, and the American economy plunged into a recession. The threat of a gasoline shortage and rationing created long lines at gas stations. It was 1973-74 all over again.
The recession brought double-digit inflation and sent interest rates up to 20 percent. Consumer confidence evaporated. What was a recession for the rest of the nation was a depression for the car industry.
The oil crisis eventually forced the U.S. automakers to resolve their quality and gas mileage problems.
Practically overnight, consumer demand turned from gas-guzzling large cars - Detroit's specialty - to gas-sipping small cars, largely built by Japanese companies.
The recession was just beginning when dealers gathered in Las Vegas in February 1979 for the annual convention of the National Automobile Dealers Association. Automotive News said dealers at the meeting were uneasy. Their tension would increase; they had yet to feel the full impact of the recession.
A year later, at the 1980 NADA convention in New Orleans, the energy crunch, a sluggish market, unchecked inflation and general money problems dominated discussion.
The domestics' loss was the Japanese manufacturers' gain. Toyota, Honda and Datsun were already building small cars that were fuel-efficient.
General Motors, Ford Motor Co. and Chrysler Corp. came under fire for not anticipating the trend toward small, fuel-efficient cars. Pundits argued that American carmakers should have learned their lesson in 1973-74, when the Arab cartel of oil-producing nations cut off the U.S. supply of imported oil and created the first energy crisis of the 1970s.
Also hanging over the manufacturers' heads was the first set of federal corporate average fuel economy standards. They required a fleet average of 18 mpg by the 1978 model year, rising to 20 mpg by 1980. The average was 13 mpg in 1973.
U.S. manufacturers did begin downsizing their products in the early and mid-1970s. Chevrolet launched the Chevette in the fall of 1975, and Chrysler's subcompact front-wheel-drive Dodge Omni and Plymouth Horizon went on sale in January 1978. Earlier, in 1970, Ford had introduced its subcompact Ford Pinto/Mercury Bobcat twins; the AMC Gremlin and Chevrolet Vega also debuted that year.
In April 1979, GM introduced its X cars -*the Chevrolet Citation, Pontiac Phoenix, Oldsmobile Omega and Buick Skylark - its first fwd compact cars.
Still, most of the Big 3's offerings were big, rear-wheel-drive gas guzzlers.
Lee Iacocca, Chrysler president during the 1979 energy crisis, defended U.S. makers in Iacocca: An Autobiography . He said they sold big cars because that's what people wanted. 'We ourselves had thousands of unsold Omnis and Horizons. And our small Colt built by Mitsubishi was not selling even with a $1,000 rebate,' he wrote.