Loud Backfire from Detroit

Much as they may approve of it in theory, the Ford Administration's war on inflation makes some businessmen nervous: it carries a threat that demand-dampening strategies will hurt their own sales. Last week Chrysler Chairman Lynn Townsend brought that skittishness loudly into the open. Stung by a bad start of the 1975-model year and a third-quarter Chrysler loss of $8 million, Townsend called a Detroit press conference to deliver a blistering broadside against what he considered the chief problem: Ford's program.

Townsend laid the blame for slumping auto sales about equally on tight money and what he saw as an unwise presidential assault on "consumer confidence." In his recent Kansas City speech, Townsend complained, Ford had "told the people not to buy, not to borrow, not to spend." He urged the President to change his tune, arguing that inflation has become less of a danger to the economy than the imminent threat of a "real recession." Already, he said, "recession is here in the auto industry; recession is here in the building industry." The Administration, he went on, must help these industries "get turned around before our problems spread to the rest of American industry."

The implication that the President has some kind of obligation to help sell cars seemed startling to many people, even though the auto industry employs millions of Americans. Nonetheless, Townsend has a point of sorts: there is a legitimate argument over whether the Administration needs to court as serious a risk of recession as it is running in order to fight inflation. Last week

Economist Paul W. McCracken, who is serving as an adviser to Ford, became the first Administration aide to say publicly that the nation already is in a recession and that Government officials may as well "call a spade a spade." McCracken foresaw a "sharp" downturn in the next several months, with unemployment "crowding" 7%--though he predicted an almost equally sharp recovery starting in mid-1975.

Real Trouble. Automen until recently had been optimistic that good sales of the 1975 models would pull them out of a deep slump. Sales rose in August and early September, but they sank again as the 1975 models began arriving in dealers' showrooms. When the results for the mid-October sales period came in last week, they spelled real trouble: industry-wide volume was down 28% from a year earlier. Auto executives now expect to wind up with 9.5 million car sales this year v. 11.4 million in 1973, and to do no better in 1975.

What happened? Although Townsend blames the President, many analysts say that the main problem with 1975-model sales is as plain as the price stickers pasted on the windows of the new cars. The average 1975 car costs about $450 more than the average 1974 model; over the past twelve months price rises have added a total of $1,000 to the cost of the typical new car. More increases are ahead, including a second round that Chrysler will announce on its 1975 models soon. Chrysler claims that as a result of steady rises in its bills for labor and materials, it has been absorbing $250 of "unrecovered" costs on every car that it builds. The company plans temporary layoffs of 4,000 workers at a plant in Newark, Del.; G.M. has announced production cutbacks that will lay off 6,000 employees in four states. At week's end, G.M. announced that its third-quarter profits fell 94% below a year earlier, to a mere $16 million.

Townsend's blast points to a potentially serious political problem for the President: the businessmen who have been his strong supporters may desert him if a recession really begins to bite. Last week Administration aides hinted that Ford may modify his package of anti-inflation proposals, notably the 5% income surtax, if the economic situation warrants it. But the feeling so far is by no means unanimous, even among auto executives, who mostly declined to join Townsend's attack on the Ford program. Speaking at an automotive engineers' convention last week, Ford Motor President Lee Iacocca said that inflation "is so far and away the No. 1 problem that I don't even have a list of 2 to 10 any more."

While reflecting a deeply felt concern, Townsend's very public dissent from what is, after all, an essentially voluntary anti-inflation program could only help weaken confidence in it among both businessmen and consumers. And that could only complicate the Administration's difficulties in successfully treading the fine line between inflation and recession.

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