The Auto Industry Sees Red

Detroit leads a parade of low earnings reports ad tidings poured forth from many of the largest U.S. corporations last week. Reports on their business between July and September were distressingly poor. The stale economic climate choked off profits in most sectors of the economy, from steel and chemicals to mining and building supplies. Data Resources, Inc., a Lexington, Mass., economic forecasting firm, projected that corporate profits had fallen 5.8% from the same period a year ago.

The greatest shocks were felt in the auto industry. All three major carmakers took baths in red ink. Ford's third-quarter loss of $595 million was the second largest in U.S. history.* General Motors' $567 million deficit and Chrysler's $490 million were nearly as disastrous. Chrysler Chairman Lee Iacocca predicted that the three companies' combined losses on their North American operations this year could reach $8 billion. "Maybe, as Carter said, we need a Marshall Plan for this industry," he added.

Detroit's huge losses were a poignant reminder of the U.S. auto industry's continuing problems with slow sales and tough foreign competitors. Said Automotive Stock Analyst Arvid Jouppi: "The industry is now in a crucial period. The Big Three must stop the bleeding."

Despite all the reports of Chrysler's troubles, Ford appears to be the automaker with the most serious woes. So far this year, it has lost $1.2 billion, a stunning red mirror image of its $1.2 billion profit during the first nine months of last year. Even Ford's once prosperous overseas operations lost $26 million in the third quarter, in contrast to a $402 million profit in 1979.

Of all the American automakers, Ford was least prepared for the sudden shift in consumer demand to small, fuel-sipping cars. It will take another two years before the company has a sufficient lineup of front-wheel-drive autos to compete with General Motors, Chrysler and foreign imports. The company was also hit last week by the second lowering in its long-term debt rating this year; Standard & Poor's gave Ford's corporate bonds a simple A, rather than AA, rating. The change will make it much more expensive for the company to borrow the money needed to retool plants for small-car production.

The poor third-quarter company reports were centered primarily in some of America's oldest industries. Data Resources estimated that steel companies' earnings fell 96%. U.S. Steel profits were down 12.7%, and the company would have lost money except for the sale of $77.8 million worth of its cement division and some real estate. Bethlehem Steel lost $32.3 million in the third quarter, as contrasted with a $74.8 million profit during the same period a year ago. Chemical giant Du Pont reported an earnings decline of 61%. Since the housing industry had been especially hard hit by high interest rates, building supply manufacturers also took a beating. Boise-Cascade's operating profits dropped 40%, and Johns-Manville's were off 54%.

Even the once seemingly impregnable oil companies, which last year at this time were posting profit increases of about 100%, had more modest earnings growth between July and September. Profits for the industry as a whole were up just 7.6%. Exxon's earnings grew by 18%, but Gulf Oil's fell by 41%.

The poor quarterly reports show that some U.S. corporations have yet to escape from the mire of recession, despite signals that the slump is over. The Government reported last week that its index of leading economic indicators, which seeks to predict future business trends, jumped 2.4% in September, the fourth consecutive monthly increase. Yet interest rates continue to rise like an incoming tide. Major banks last week hiked the rate they charge their best corporate customers another half point to 14.5%. That could easily snuff out any strong economic recovery, and it may mean that business reports for the fourth quarter of the year will be as bleak as those released last week.

* U.S. Steel still holds the dubious record for the worst ever. Its loss for the fourth quarter of 1979 was $668.9 million.

This file is automatically generated by a robot program, so viewer discretion is required.