The Shock of Rearmament

U.S. industry's semi-annual reports, now flowing out, show the first boosts and shocks of rearmament. For the most part, earnings are good. Of 413 companies reporting through last week, 242 record higher earnings in the first half of 1951 than in the same period last year. But many a report also makes plain the stunning impact of higher taxes and price controls.

General Motors is the most startling example. Along with other automakers, it complained against auto prices being controlled on the basis of 1950 costs and production rate, arguing that even a slight cutback in auto output (plus the hike in taxes) would bring a much sharper cut in earnings. G.M. was right. Though total sales were actually up slightly over 1950 (to $3.9 billion), G.M.'s net fell 42% to $280 million, its margin of profit from 11% to 7%. The drop, explained Chairman Alfred Sloan, showed the effect of lower passenger car sales, higher taxes (up 40% to $508 million), higher costs without compensating price boosts and "the lower margin of profit realized in defense work." As low-profit defense work becomes a major factor in total production, it will cut earnings of other companies well below last year's levels.

Frowns. Elsewhere in the auto industry, the picture is the same--and further civilian production cuts will soon be coming (see above"). Nash-Kelvinator, reporting for nine months, showed a 40% drop in net (to $13' million) and Studebaker's six-month profit was halved (to $7,600,000). Brightest spot in the automotive field: the newly revitalized Mack Trucks (TIME, Feb. 19), whose net soared from $64,000 to $1,900,000, even though taxes jumped nearly fifteenfold.

Automakers are not alone in their troubles. Even the steel companies, with orders at a peak, are hit. Bethlehem Steel's gross for the first half reached a spectacular $876 million, but a doubled tax load dragged its net down 14% to $49 million. Only by boosting its sales 20% did Inland Steel add a modest 6% to its net ($19 million). Of a dozen reporting electric utility companies, eleven had higher revenues, but four had lower nets than in 1950.

In the chemical industry, where earnings of Du Pont, Victor Chemical and other companies were down, Dow Chemical was a standout. It boosted its net 25% to $41 million despite a 250% increase in the tax load.

Smiling Faces. The oil industry's increase in production since Korea has been big enough to outfoot taxes. Of 16 reporting companies, only two showed a decline from 1950. The $249 million net of Standard Oil Co. (N.J.) was up nearly 60% over last year's first half. Socony-Vacuum's net rose percentagewise even more (to $76 million); Shell boosted its profit from $39 million to $46 million.

The transportation industry is also booming because of the Korean war. For the first five months of the year, the major railroads reported a 40% gain. Thanks to its big traffic in Korea-bound equipment, Western Pacific almost doubled its first half net to $3,800,000. A notable exception: the Pennsylvania Railroad lost $961,966 v. a 1950 profit of $5,000,000. The shipping industry had all sails to the wind: U.S. Lines ($2,500,000) and Moore-McCormack ($3,200,000) both more than doubled their profits. The airlines, cashing in on the upsurge in business & pleasure travel, were even more impressive. Braniff's net almost quadrupled (to $933,000); Northwest turned a deficit of $3,400,000 into a small profit; Western roared through with a $600,000 profit, up 200% from 1950.

Even the lucky companies, who had not been hit by cutbacks, could keep up their earnings only by working harder than they had ever worked before. Westinghouse's President Gwilym Price, who had managed to boost his company's earnings from $27 million to $32 million in the face of a 150% tax rise, summed up: "We now must earn $1.38 for the Government so that we can retain $1 to pay the owners of the company for the use of their property, to pay for debt retirement, replacement of worn-out equipment . . . expansion of production facilities required by the defense programs."

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