Change of Business

The auto industry, just completing the second biggest year in its history, last week faced the fact that next year would be one of its toughest. In Washington, OPM officials and 56 top-drawer auto executives met behind closed doors for an overdue session of plain talk about the wartime role of the nation's greatest peacetime industry. Upshot: not many automobiles will be made in Detroit next year, but a lot more munitions. Bill Knudsen promised to triple the industry's present defense contracts to $6,000,000,000. But as for the 20% cut in '42 new-car production agreed on last May, that "doesn't mean a damn thing now." It will be closer to 50%.

It was high time for this decision. In turning out 5,200,000 cars and trucks this year (1929 record: 5,400,000), Detroit had used up precious tons of steel, aluminum, chrome, nickel--not to mention hours of skilled labor and machine tools --needed for defense. In Army and Navy files were scores of cases where military contracts were delayed while parts manufacturers completed orders for Detroit. Last week J. Leonard Replogle, tough-minded director of steel supply on Barney Baruch's World War I Industries Board, called 1941's heavy automobile production "an inexcusable performance. . . . Will some German historian of the future write: . . . their business-as-usual policy was responsible for their unpreparedness . . . they did not understand war."

End of Chaos. Mr. Replogle's finger was pointed not so much at the automakers as at the indecision of the Government's handling of defense to date. It took the Army, the Navy and OPACS to stir OPM to action on autos. Although Detroit has complained bitterly about the recent rumors of a flat 50% cut in '42 production, no motormaker protested at last week's meeting. Reason: there was hope that chaos, at least, might be over. Detroit was to have an advisory say in how its own transition from automaking to munitions-making could best be done.

The voice was a igman industry committee, to be set up in accordance with the new methods of reorganized OPM (TIME, June 30). OPM asked for nominations, got eleven representing truck and automakers,* will get eight more representing parts makers. Warned OPM, "We don't want any stuffed shirts, or men who won't work like hell. We want the best men you've got."

Once approved by OPM, OPACS and the Department of Justice, the committee will spend all its time at the job, with no pay but lots of duties. Some of them: to tell the Government what kind of defense work each U.S. auto company can best handle; to transmit the Government's munitions plans and requirements to the industry; to allocate raw materials for both defense and automobile production. Opposite it, running things for the Government, will be an OPM section headed by stocky James S. Adams, a Colgate-Palmolive-Peet vice president who now works for John D. Diggers.

The '42s. Even with the best committee in the world, Detroit was obviously in for a hard time. It is due to start production on 1942 models early next month. Engineering-wise, they will not be much different from the '41s. Yet Detroit still does not know 1) how many it can plan to make (this, Knudsen told them, will be decided by the amount of materials available), 2) what it can charge for them, or 3) the material specifications of all the parts.

Detroit engineers have been working nights trying to keep up with materials shortages by finding substitutes. Often rival research staffs have hit on the same substitutes, thus created new shortages. Ford in his '42s has substituted copper radiator shells for brass (which was 35% zinc), plastic horn buttons for zinc, silvered plastic or glass headlight reflectors for brass, Tenite for zinc instrument panels. Chrysler last week planned to make scuff plates from steel instead of aluminum, door handles of chrome-hardened lead, plastic or stainless steel instead of chrome-plated zinc, horn rings and instrument panels out of plastic instead of zinc. All companies planned to cut down on chrome trimming, replace some of it with stainless steel (which merely contains chrome). But these changes were still tentative, depended on whether the substitutes were available when production began.

The Coming Holocaust of Dealers? A 50% cut in auto production will do serious things to Detroit economics. Its effect on employment is the big political reason why Washington has delayed action thus long. A horizontal cut would bring some factories (especially independents) below the break-even point, and would increase unit costs all around. On the other hand, if all production is concentrated in a few units kept at full production (England's Lyttelton plan), who is going to hold the straws that will count the unlucky ones out?

The distribution problem is even worse. No price rise acceptable to Leon Henderson is likely to be enough to cut 1942 demand down to the limited supply that will be available. A stiff excise tax to curtail demand--suggested by General Motors' Alfred P. Sloan months ago and urged upon Congress by both Henderson and Federal Reserve Chairman Marriner S. Eccles--was cut to an ineffectual 7% by the House Ways & Means Committee last week. Result: there may be twice as many people wanting to buy 1942 models as there are cars.

Theoretically this should be a break for some of the 44,000 U.S. automobile dealers--those who survive. In Britain, one-year-old used cars sold last month for 22 1/2% more than their list price new. But Henderson plans a ceiling on used cars as well as new. (One estimate of the number of used-car prices he would have to set: 3,000,000.) Even those dealers who can get cars, therefore, will be prevented from making more than their normal unit profit.

Factory salesmen, as well as the National Automobile Dealers Association, warned dealers to prepare for stormy weather. But auto dealers are slenderly heeled at best, and there will not be enough business for the 44,000 in business now--nor for the 380,000 salesmen, clerks and mechanics they employ. Likely to be hardest hit will be the independents. For that and other reasons, the independents are overrepresented on the new industry committee.

Some Hope. For all these headaches, Detroit was offered only one pill: munitions orders, some $4,000,000,000 worth. From that, no motormaker expected to make the kind of money he was used to. Yet OPM promised to solve one problem by dishing its defense orders out in bigger hunks. Most of Detroit's munitions work so far has been supplementary to automobiles, done in small amounts and in new and separate plants. A really big spate of orders will force the conversion of present automaking plants, tools and man power. Chevrolet, which got a new $89,075,000 War Department contract for 1,000 Pratt & Whitney airplane engines a month, has already prepared to convert all of its automobile facilities in Buffalo and Tonawanda to their manufacture. Other orders: To Ford, $140,000,000 for 4,807 Pratt & Whitneys (in addition to 4,236 already on order); to Chrysler, a $42,000,000 subcontract for Martin bomber parts; to Hudson, a $12,000,000 Martin subcontract. Detroit at last was on the way to filling its obvious wartime role: the nation's No. 1 Munitions City.

* The eleven: Ford's R. I. Roberge, General Motors' Donaldson Brown, Chrysler's B. E. Hutchinson, Studebaker's Paul G. Hoffman, Willys-Overland's J. W. Frazer, Nash-Kelvinator's George Mason, Hudson's A. E. Barit, International Harvester's W. F. McAfee, Diamond T Motor's E. J. Bush, White's Robert Black, Autocar's Robert P. Page.

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