Jawboning Autos

Richard Nixon has often insisted that jawboning particular industries to hold down prices is not an effective way to fight inflation--but last week he resorted to it anyway. The President opened a campaign to persuade automakers to cancel a proposed price boost on 1973-model cars, even though the increase seems justifiable under the guidelines of the Government's own Price Commission. By week's end he had won a partial victory. General Motors, whose price moves are usually followed by the other automakers, offered to trim its increases by more than a third, to an average $59 per car or truck. Ford soon followed suit, offering to roll back its price hike to $59 also.

Whether that will satisfy the Administration remains to be seen. Cost of Living Council Director Donald Rumsfeld, who managed the White House side of the confrontation, had pronounced himself "encouraged" by G.M.'s offer. But he had also pointedly added that he hoped that Ford would withdraw its proposed price increases entirely. The Government also began applying delaying tactics. The Price Commission has scheduled public hearings on car prices Sept. 12, at which it will hear such industry critics as Ralph Nader and United Automobile Workers President Leonard Woodcock. By the time the Commission finishes sifting the testimony, Rumsfeld predicted, it will be mid-October before any price boosts can be approved. That would be a full month after the first 1973 models go on sale.

The idea of supplementing formal price controls with White House jawboning came from Rumsfeld. Like other Administration officials, he worries that the public still does not believe that inflation is being defeated, even though the rate of price increases is coming down (see following story). The President is known to share this concern, and apparently thinks that he needs some spectacular victory over inflation to talk about in the campaign. At any rate, he gave Rumsfeld the go-ahead to set up meetings in the White House with chiefs of the auto companies. They were invited by telegram to discuss "the impact" of the price increases that they sought, then urged by Rumsfeld to withdraw their proposed boosts. They were asked to reply by week's end.

The increases, which in G.M.'s case would average $90 a vehicle, seem solidly grounded on cost data. Most of the money would go to cover the expense of installing new equipment that is required under federal law on '73 cars. The mandatory improvements include stronger bumpers, fire-resistant upholstery fabrics and devices to lessen the amount of smog-producing oxides of nitrogen in auto exhausts. In addition, the companies tacked on new costs for improvements in plant safety and factory antipollution controls, also required by law. Finally, the proposed price rises include a small amount covering product improvements initiated by the companies; G.M., for example, will install stronger hood latches on its '73 cars. Under Price Commission rules, companies usually can pass on to their customers increases in real costs, and the automakers' applications appeared to meet that test. In an oddly timed announcement late last week, the Government's Bureau of Labor Statistics calculated the factory value of improvements on '73 models at an average of $95.40 per car.

Cost accounting, however, leaves out the all-important political factors. No industry benefited more than the automakers from the New Economic Policy that Nixon unveiled a year ago; it included cancellation of the 7% auto excise tax, which saved new-car buyers an average of $200 per auto. That move helped to produce a boom that pushed car sales to a record of 9.7 million last year, and that has raised the profits of all four U.S. automakers in the second quarter of 1972 at least 20% above a year ago. By Administration reckoning, it is time for Detroit to pay some dues.

Auto executives at first tried to resist that idea. Chrysler Chairman Lynn A. Townsend branded Rumsfeld's request "arbitrary and discriminatory" and refused to withdraw his company's planned increases--though he acknowledged that Chrysler might have to follow the competition. Late in the week, though, G.M. Chairman Richard C. Gerstenberg told the White House by letter that G.M. would lower its price-increase proposal from $90 to $59. Of that, he said, $5 would be for minor brake and wheel improvements, and the remaining $54 would cover the actual costs of new equipment in the cars (not the plants) required by federal law. G.M. will not absorb the dictated costs on the cars, said Gerstenberg, because "we believe the workings of our economy are endangered when one agency of Government can establish standards that a manufacturer's product must meet, and another agency seeks to prevent the same manufacturer from having at least an opportunity to recover the costs of such mandated equipment."

Rumsfeld planned to announce this week whether the Administration will push for further concessions from automakers. One factor working for the White House: auto executives have some hope that their price applications might be reviewed in a friendlier climate after Election Day. Gerstenberg even stated in his letter that G.M. officials will "reevaluate our position" before next January.

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