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Show We're A Nation On Wheels, And Vulnerable According to the Babson's Reports Inc., the dynamic growth of our auto industry over the years has made us one of the most highly motorized mo-torized people in the world. The U.S. is really a nation on wheels, and so we are particularly par-ticularly vulnerable to the escalating es-calating costs of gasoline, not to mention its availability. SEVERAL CLOUDS are overhanging the near-term outlook for this key domestic industry. Not only are the price jumps on the world oil market adverse but also the industry has to contend with several other potential temporary tem-porary negatives. To be sure, there are some bright spots, but these mainly relate more to the longer-term longer-term direction of the industry. in-dustry. Near term, the auto field will have to digest some year-to-year slippages in production and sales, major labor contract renewals, increasingly stringent government regulations, some inventory imbalances, and rising raw material and labor costs. DESPITE THE aforementioned aforemen-tioned drawbacks, we do not leel that a disaster is in store for this industry. We estimate, es-timate, in fact, that in the current calendar year volume shrinkage will be in the order of 12 percent from 1978's level of 1 1. 3 million units, barring a major economic catastrophe or severe labor problems. Viewed from a broader perspective, this estimate of lower volume still provides a relatively healthy operating climate for the automakers and numerous supplier firms involved. Overall, slightly slower sales and profits could still mean only a mild year-to-year contraction. IN ADDITION, the breathing spell may well give Ihe automakers further opportunity op-portunity to increase their facilities for turning out smaller models. The recent action of OPEC ministers in jumping up the price of oil by at least some 9 percent (with added surcharges in certain cases) once again highlights the dilemma confronting the manufacturers. Not only is auto output labor-intensive but highly energy-intensive-is well. OIL PRICES wTll be a critical cri-tical factor in .the automakers' au-tomakers' upcoming financial results. As opposed to the embargo situation in late 1973, however, at least fuel is available for the most part to the motoring public. Still the situation may spark a real rush to small cars and added downsizing efforts, as is evident when consumers become truly anxious over possible gas shortages. The pricing action on imported im-ported crude oil could relieve - some of the earlier pressures on automakers in regard to the government-sponsored corporate average fuel economy (CAFE) standards. Certainly, any relief connected connect-ed with the miles-per-gallon mandate would be welcomed by Detroit. NO DOUBT the negatives abound, but we feel the automakers au-tomakers are very much up to facing the problems. Stumbling blocks are not new to this industry, and in the past the manufacturers have made a respectable showing despite their troubles. The longer-term outlook is much more favorable. Top-heavy inventories could be dissipated dis-sipated by innovative sales promotions, contests, or bs cash rebates. Another favorable factor for future sales is the increased efficiency of many of the newer models. Also, the demographic profile indicates that a great number of people are coming into the prime car-buying brackets. AND, AS always, wear-and-tear factors mean a constant need tor replacement parts, though dramatically increased labor and materials costs may persuade per-suade many consumers to trade in older models rather than try to fix up the cars they are now driving. Overall, the longer-term prospects for the auto industry in-dustry are encouraging. Hence, the Research Department Depart-ment of Babson's Reports has been advising clients not to sell their auto common holdings. hold-ings. It is better, we feel, to ride out the projected lackluster period ahead and retain the issues for eventual recovery and appreciation. |