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EDERAL RESERVE BANK OF PHILADELPHIA The Steel Saga Cars and Consumers: Stormy Romance BUSINESS REVIEW is produced in the Department of Research. Evan B. A ld erfe r was primarily responsible fo r the article, "The Steel Saga" and Lawrence C. Murdoch, Jr. for "Cars and Consumers: Stormy Romance." The authors will be glad to receive comments on their articles. Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of Philadelphia, Philadelphia I, Pennsylvania. Steel is a most capitalistic industry; and Penn The mountain-top view affords perspective sylvania is the country’s most steelistic state. So and breadth and an inkling of the industry’s great is the capital required in steel production awesome capital-to-sales ratio. A tour through that the industry must sink a dollar in fixed in the shops, with their great variety of massive vestment for every two dollars of annual sales. For all manufacturing industries the ratio is one machinery, gives further meaning to the capi talistic nature of the business. to three and a half. Why steelmaking takes so Inside the steel mill may be seen monolithic much capital and why Pennsylvania’s leadership blast furnaces— giant structures of great girth is challenged are the themes of this article. that rise skyward with slowly constricting ro In the little city of Bethlehem is a sprawling tundity. Inside a furnace, forever-burning fierce steel plant of many furnaces, mills, and shops, fires smelt the iron out of the ore. Inside the forming a four-mile crescent along the Lehigh shops, Brobdingnagian buckets big enough to River hugging the northwest base of South hold 200 tons of liquid steel are heavily lined Mountain. The company’s shiny new research with firebrick to withstand the white-hot heat of center sits right on top of the mountain. From the liquid metal. The soaking pits are livid that vantage point, you can look down upon infernos where chunky stumps of white-hot steel mounds of iron ore, banks of coke ovens, blast are kept in hot storage awaiting a mauling upon furnace stacks, open hearth shops, rolling mills, emergence. In another shop are power-driven forge shops, finishing mills, storage yards of rolling mills, where an ingot with several tons finished steel products awaiting shipment, two of reluctance to move is forced back and forth office buildings connected by a tree-lined walk under gigantic pressure-rolls that squeeze the way, and miles and miles of interconnecting stubby ingot into a slenderized girder of great railroads that help to make the “ works” an length. integrated steel mill. presses with great gaping jaws that squeeze a Further on are mammoth hydraulic 3 business review heavy angular ingot into a shape resembling a forested hillsides supplied charcoal for fuel. section of a tree trunk for subsequent machining After a short period of firing furnaces with into a polished propellor shaft or a rotor for a anthracite, the industry shifted to coke made turbine. Such are the many mechanical monsters from bituminous coal. The abundance of soft that carry, cut, hammer, squeeze, or bend great coal gobs of steel into innumerable useful products. with the development of Bessemer and open On tramping through such a constellation of hearth steelmaking and discovery of rich iron underlying western Pennsylvania, along steelworking shops, one comes away with a last ore deposits at the western end of Lake Superior ing impression of massive muscles of steel with irresistible force overcoming still other masses gave rise to Pittsburgh as the country’s leading steel manufacturing center. The Great Lakes of metal defying change of shape. afforded low-cost water transportation for ship In sharp contrast to the magnitude and mul ping ore to the back door of Pittsburgh, so that tiplicity of machinery is the paucity of people. only a short overland rail haul was required to It is not to be inferred that most of the machines complete the link. are fully automatic, but it is amazing how so few workers operate so much machinery. For ex ample, three shifts of six men each run one of Steel mills on the waterways the world’s largest blast furnaces that turns out nothing so much as water— waterways for low- 3,000 tons of pig iron a day. cost assembly of the raw materials; waterways, Next to iron ore and coal, a steel mill needs Upon completion of the tour, it is surprising where feasible, for low-cost shipment of finished to learn that you have seen a small steel mill. At products to the markets; water to cool the hot Sparrow’s Point, Maryland, Bethlehem Steel has furnaces, to quench the coke and to cool the a mill that is more than twice as large. Another rollers; water to make steam in the boilers, and huge installation is the Gary plant of the United water for endless washing and cleansing in the States Steel Corporation. finishing mills. Water consumption of the Jones & Laughlin steel mill at Aliquippa, a short dis- STEELMAKING IN PENNSYLVANIA stance down-river from Pittsburgh, averages Pennsylvania makes more steel than any other over 300 million gallons a day— more than state, and has for many, many years. Last year, 50,000 gallons per ton of steel made there. the Commonwealth produced 23 million of the Pennsylvania fortunately has a wealth of water country’s 98 million tons of ingots and steel for and waterways. The affinity of steel for water castings. That was almost one-fourth of the na may not be too apparent in the map of basic tional output, and still comfortably ahead of steel capacity in Pennsylvania, but every mill Ohio. Iron manufacturing, which antedated is by a riverside or lakeside. All of the steel steelmaking, started here in the early 18th cen mills in southeastern Pennsylvania are along tury on the Manatawny, near Philadelphia. Early the Delaware River and its tributaries. The mills forges and furnaces flourished in the Schuylkill, in east-central Pennsylvania are along the Sus Lehigh, Lebanon, and Juniata valleys. Iron was quehanna and its tributaries. The mills in the obtained from local ore deposits, abundant lime northwestern part of the state front on Lake stone quarries supplied the flux, and the heavily Erie, and mills in the western part of the state 4 business review BASIC STEEL CAPACITY— PENNSYLVANIA January 1, 1960 MILLIONS NET TONS ■ ■ OVER 5 are all in the Ohio watershed—the Allegheny, Is Pennsylvania slipping? Monongahela (and their tributaries), and of Pennsylvania is not the only state that has coal course the Ohio River itself which starts at the and water (and iron ore and limestone or access “ golden triangle” and empties into the Missis thereto). The accompanying map of the United sippi, which flows down into the Gulf of Mexico. States shows the 15 leading states with basic The city and metropolitan area of Pittsburgh steel capacity. Note that all but five of the states have more bridges spanning the waterways and are east of the Mississippi. Steel mills that per more steel mills alongside the waterways than form all the operations from smelting the raw any other area of comparable size throughout materials to the making of finished steel products the world. are known as integrated mills, and they have the Pennsylvania’s 39 million-ton capacity is about one-fourth of the country’s steelmaking capacity. Of the 39 million-ton capacity lion’s share of the country’s capacity. Pennsylvania couldn’t possibly hope to retain in the near-monopoly of steelmaking that it once Pennsylvania, 28 million is in the Ohio basin, had. As the center of population moved west 9 million in the Delaware watershed, and over ward, Midwestern and Far Western markets 2 million in the Susquehanna basin. found it too costly to buy their steel from 5 business review BASIC STEEL CAPACITY— UNITED STATES January 1, 1960 Pennsylvania, with the result that steel mills raw materials in some of the new steelmaking were established in the states indicated. For a centers. In many cases, that cost can be reduced its half by using economical water transport. In any nelson on the national market with a pricing case, it is good business to be near the market system designed to keep the “ steel city” competi so that buyers of steel products can be given tive. The system, known as “ Pittsburgh plus,” good service promptly. while, Pittsburgh tried to maintain was abandoned following complaints of Mid western buyers. Finished steel-mill products like girders, axles, As a result of the geographical decentraliza tion of basic steel production, Pennsylvania’s share of the national market has declined. Dur and coils of sheet steel are all heavy products ing the past decade it dropped from 28 to 23 and cost a lot of money to transport overland, per cent. The decline seemed inevitable and may so the sensible thing to do was to build big steel mills near big markets such as Detroit, Cincin occasion no surprise; but it is a bit shocking to a nati, Chicago, Birmingham, Philadelphia, and the Commonwealth also declined in absolute ton Los Angeles. nage, from 26 million to 23 million during the To be sure, it also costs money to assemble the 6 Pennsylvanian to learn that steel production in past decade. That’s somewhat harder to explain. business review STEEL PRODUCTION MILLIONS NET TONS capacity and finds it difficult to compete with new modern mills elsewhere. Perhaps Pennsyl vania is still thought of as a place with the none-too-hospitable “ climate” that prevailed some years ago. Or, perhaps Pennsylvania is just too far East and there’s not much that can be done about that. One reason the steel industry of Pennsylvania is not doing so well as it might is that the entire steel industry of the country is not doing so well either. Steel seems to have lost its oldtime vigor. Let’s take a look at the steel industry of the United States. THE STEEL INDUSTRY OF THE UNITED STATES The steel slippage in Pennsylvania cannot be It might be helpful, at the outset, to get an attributed entirely to companies which operate over-all view of the country’s steel industry. in the state. Leading concerns like U. S. Steel, Such a view is not easy to obtain because of Bethlehem, Jones & Laughlin have not moved the abundance, not the scarcity, of steel statistics. The American Iron and Steel Institute says out of the Commonwealth, although they follow the market by building new mills to the South that the iron and steel industry of the United and the West. Naturally, each company will ex States consists of over 275 companies, with pand capacity wherever it looks most profitable plants located in 300 communities in 35 states. to do so. Perhaps Pittsburgh was overbuilt in the About 85 of these companies make the raw steel first place and is now paying the price of progress. Perhaps Pennsylvania, by reason of required to produce their finished products; its longstanding leadership has too much old further rolling and drawing semi-finished steel PENNSYLVANIA STEEL PRODUCTION AS PERCENTAGE OF UNITED STATES PER CENT most of the other companies are engaged in obtained from the steel ingot producers, and a few produce only pig iron. Over-all statistics are really impressive by their immensity. The industry employs over a half-million workers who receive close to $4 billion in wages and salaries each year. Total net investment in property, plant, and equipment runs into billions, and the industry invested over $15 billion in the postwar period for new equipment and new construction. The industry has enough men, machinery, money, and man agement to turn out more than 150 million tons 7 business review of steel ingots and castings a year; but it has PRODUCTIVE ACTIVITY fallen just short of 100 million tons annually INDEX0957—59— 100) during the past few years. If we had not already tagged the soft coal industry with the adjective “ colossal” in the February Business Review, we would now hang that adjective on steel. We’re just now fresh out of superlatives. The steel slow-up Iron and steel has long been regarded as a basic industry— the basic industry, because ours is a machine civilization. That is axiomatic, and the point need not be labored. The automobile in dustry is the steel industry’s best customer, con sistently taking about one-fifth of the steel in dustry’s shipments. Other big customers are agriculture, appliances, construction, containers, furniture, mining, machinery, railroads, and shipbuilding. In fact, every industry is an oc casional buyer of steel, and so is Note: Recessions— 1949, 1954, and 1958. Sources: Board of Governors Federal Reserve System and American Iron and Steel Institute. every cific uses. Successive new models of automo household. The strange thing about steel is that in recent biles were smaller in size and weight until the years the output of steel has not kept pace with versed. Moreover, since 1958, iron and steel 1962 model year, when that trend was re industrial production generally. This is revealed imports have exceeded the reduced volume of in the chart, which shows steel lagging behind exports. the Federal Reserve Board’s index of industrial The disappointing rate of growth in steel in production, which measures the physical output recent years may have deeper cause than the of the economy. What happened? surface indications just enumerated. Since 1950, As pointed out in the January, 1963, Federal Reserve Bulletin: tonnage of steel production throughout the world doubled. During the same period, steel The failure of steel production to keep pace production in the United States showed almost with the substantial advances in activity in no growth. This is in contrast with growth of major steel-consuming industries reflects sev 25 per cent for steel production in the United eral developments. In part because of the Kingdom, a doubling in Belgium, France, and sharp rise in steel prices through 1958, other Canada, 170 per cent increase in Western Ger materials— concrete, glass, plastics, and alum many and in the U.S.S.R., and fantastic in inum— have penetrated further into markets creases of 300 per cent in Italy and 460 per cent for steel. Technological advances, both in the in Japan. production of steel and in its use, have also In large measure, the faster rates of growth reduced tonnage requirements for many spe- in steel production in some of the countries 8 business review abroad must be attributed to postwar recon On the contrary, they are busily engaged in struction. But there may be other reasons for comprehensive programs of modernization. Any our steel industry’s bottom position on the totem one browsing through the voluminous literature on steel soon comes upon B.O.F. or L-D. B.O.F. pole of growth. Could it be that the steel industry of the stands for Basic Oxygen Furnace, and L-D United States was a bit slow on the postwar means Linz-Donawitz. They are synonomous, at technological uptake? During the past decade, least to the ordinary person. Linz and Donawitz the worldwide steel industry has been in tech are two cities in Austria where the new basic nological ferment, and it is surprising how much oxygen furnace originated, and it is one of the has happened stages of most exciting developments in the steel industry. progress are the German low-shaft blast furnace To clue you in, if you have never been and the rotary process for refining molten pig through a steel mill, most of our steel is made iron, the Belgian development in high-speed in open hearth furnaces. An open hearth furnace casting of ingots and the use of optical instru is a shallow saucerian fireplace walled over with abroad. In various ments in rolling mills, the English studies in refractory brick. It feeds on liquid pig iron blast-furnace oxygen- taken directly from the blast furnace and cold lime-powder process for removal of phosphorous scrap steel, and it takes about eight hours of impurities, the Hungarian use of carbon monox cooking to make a batch of about 200 tons of ide in place of some coke in blast-furnace prac steel. A small amount of steel is still being made tice, the charging hot by the now almost obsolete Bessemer process in sponge iron into electric furnaces, the Russian which air is blown electronic computer to control blast furnace op from chemistry, Mexican the French process for the bottom erations, and new open-hearth design, the Aus of a pear-shaped trian L-D oxygen injection, and converter to burn experiments to make steel directly from iron out the impurities being conducted both here and abroad. of the charge of process of taconite (explained later) is probably the great liquid pig Compared est achievement. There have also been other open innovations; nevertheless, the number of foreign Bessemer On the domestic scene, the development of hearth, the process is much faster, but technological advances is impressive. Unsatisfactory postwar growth in our steel iron. with the resulting quality is inferior. industry is .paralleled by unsatisfactory growth At Jones & Laughlin’s Aliquippa plant, we of our entire economy. The two are, of course, saw the new basic oxygen process in operation. related but the complicated interrelationship of Into a pear-shaped vessel, roughly resembling a cause and effect defies disentanglement. Bessemer converter, is charged about 25 tons of scrap steel and then about 65 tons of molten B.O.F. iron Though steel is going through a time of trouble, amounts of lime, and other ingredients to spice its leaders are not weeping at the wailing wall. the soup. Thereupon the furnace is turned up- from the blast furnace, plus smaller 9 business review ORE . . . TO IRON . . . TO FIN ISH ED OPEN HEARTH FURNACE Courtesy of Bethlehem Steel Company. right and a water-cooled oxygen lance is lowered yourself from the shower of sparks. In about to a predetermined position above the bath. A 20 minutes the fireworks subside, the oxygen turn of the valve causes oxygen to flow at a lance is withdrawn, and the furnace is tilted to a goodly rate of so many thousand cubic feet a horizontal position to pour the finished steel minute from the on-site oxygen manufacturing into a big ladle and from thence into ingot plant; and you can well imagine what happens molds. when all this oxygen strikes the molten iron. Obviously, the foregoing sketch is a lay de It burns furiously, like a monstrous Roman scription for the lay reader. What goes on inside candle, and you need a smoked glass to watch the furnace during the blow would no doubt de it, lest you injure your eyes by the brightness light the heart of a chemist, but would only of the flame, and you wear a hard hat to shield confuse us. Suffice it to say that basic oxygen 10 business review RAIL MILLS furnaces turn out quality steel faster than open hearth furnaces, cost less to install and to day overtake open hearth, the reliable old work horse. operate. Over 5 million of the country’s 98 million The new Industrial Revolution tons of steel produced in 1962 was basic oxygen, The generous publicity that the basic oxygen and almost every week, readers of the Wall furnace Street Journal come upon an announcement of reader the impression that little else of any a new basic oxygen furnace installation some importance has occurred in the steel industry in has received may give the general where in the United States. B.O.F. production recent years. Nothing could be further from the has already put Bessemer in the shade, is now truth. Basic oxygen may well be the steel indus challenging electric steel output and may some try’s “ glamor girl,” but it is only indicative of T1 business review revolutionary developments in the steel industry. Around the turn of the century, whenever a so that the operator knows just when and what to feed the furnace to get the desired results. steel company built a new blast furnace it was The taconite epic is well told in the Minne named after a woman. The “ Lucy Furnace” was apolis Federal Reserve Bank’s Business Review. presumably named after the wife of the chair World War II took a big bite out of the Great man of the company’s board of directors, or the Lakes iron ore reserves, so the steel companies wife of some other official. Just how the custom turned started is not known, but it could be because a blast furnace is temperamental like a woman. plentiful in the Minneapolis district but one of One day Lucy may produce 2,000 tons of pig is too hard and too low in iron content to dump iron; the next day, although fed precisely the into a blast furnace, hence it must undergo same diet and treated exactly the same way as much preparatory crushing and enrichment. It the day before, she’ll produce only 1,750 tons of took a lot of money and experimenting to unlock pig iron, and Lucy’s master wonders why. Well, this new source of iron, but high-grade iron ore why is a woman like a woman? Furnaces are now given numbers instead of to taconite— an iron-bearing mineral the hardest rocks on earth to crack. The rock of taconite origin is now flowing to the blast furnaces in steadily growing tonnage. feminine names, but they are still feminine and Among other developments in various stages temperamental. Nowhere can this be seen more of progress are natural gas, fuel oil, and pow clearly than in the “ diary” of a furnace. For dered example, in a nearby mill, on a big, columnar continuous casting, vacuum casting, high blast blackboard is the full record of the behavior of furnace top pressures, and direct reduction, coal fuel injection in blast furnaces, Blast Furnace No. 2 since she was last blown which is an attempt to make steel directly from in about two years ago. There in plain view is the iron ore without going through the inter a record of her daily diet, her clinical tempera mediate blast furnace smelting. At every stage ture, her blood pressure, the analysis of gas in in the lengthy sequence of processes, from pre her stomach, and of course her daily output. treating the ore to the finishing operations of Heretofore, blast furnaces have been operated steel mill products at the end of the line, new largely by a rule-of-thumb, even though all steel technologies are budding and flowering. Quality companies have their chemists and metallurgists. standards are maintained with the help of digital In a general way, it has long been known what computer control, logging showcases, and televi goes on inside a blast furnace, but now the sion screens portraying continuous views of the technicians are beginning to find out precisely flow of the steel in process to assist detection of and exactly what goes on. irregularities and defects. Furnace operators no longer stuff crude iron The best evidence of the technological revolu ore down the gullets of furnaces; they feed them tion taking place in the steel industry is the iron ore, or pelletized research centers that are being built. One ex ore and, to prevent sour stomach, they adminis ample is the $35 million research center sitting ter specific kinds of limestone instead of any old on top of South Mountain, mentioned at the limestone. Furthermore, the furnace is likely to outset of this article. There, in one laboratory be wired to an electronic data processing device after another may be seen ordinary-appearing sintered (pre-digested) 12 business review people probing the mysteries of ferrous phe begun, and where it will lead is not predictable. nomena with the aid of baroque instruments, With new developments like basic oxygen and bizarre rigs, and a technical library with tomes continuous casting it may be that future steel in many tongues. A steel company’s research mills will be smaller than they are today and team includes specialists in aerodynamics, bi therefore future mills may be built closer to ology, mathematics, their markets, especially if the engineers succeed mechanics, metallurgy, mineralogy, physics, and in developing a new process that will bypass the thermodynamics. blast furnace operation. If this is just a dream chemistry, electronics, that never comes true, there may be new blast Blue collars and white collars furnace technique, however, that may yet result More steel is now being made by less people in the use of other than conventional fuels, to than formerly— and different kinds of people. the joy or despair of the soft coal industry. Or, Between 1950 and 1961, employment in the steel to be considered are prospective developments industry declined from 592,000 to 521,000 on in the electric furnace. Electric furnaces are cur the average. Blue-collar people working in the rently making about one-tenth of our steel and, mills declined from 503,000 to 403,000, reflect who knows, someone may come up with a ing the increased mechanization, in part. During greatly improved electric furnace to make vir the same period, however, white-collar people tually instant steel out of iron ore. Suppose that working in steel offices and laboratories rose were to happen; think what it might do for the from 89,000 to 117,000, reflecting the growing coal industry. Electric furnaces use an enormous emphasis upon research, managerial control, public relations, government reports, and other amount of electricity and, as indicated in our needs for paper work. The time may come when kilowatts out of coal. it will take a ton of paper to make a ton of steel. February Business Review, we get most of our All dreaming aside, there are already enough developments afoot to warrant solid optimism A prediction about the future of steel. The fact is undeniable that the steel industry has been slipping in recent years, but we predict that Whither Pennsylvania steel? the industry is not on the way out. The industry Not quite so solid is the optimism about the is well aware of its difficulties and, as already future of steelmaking in Pennsylvania. Years indicated, is doing something about it. The ago, geography smiled upon Pennsylvania and most hopeful aspect is the new emphasis being therewith she became a great steel state. But placed on research. geography gets rigged by men. They exploit Steelmaking is a slow and cumbersome proc raw materials, build seaways, devise ways of ess by its very nature, and it takes several years utilizing to build a new mill. Research is even slower, but roads and, above all, too many have followed by and by the research dollars pay off— some of Horace Greeley’s advice. them. Steel is still the cheapest industrial metal, and has a lot of work to do. The technical revolution in steel has just lower-grade minerals, abandon rail Remember Fairless? The joy and gladness that came with construction of the new steel mill on the Delaware in the early postwar period? 13 business review Rumors abounded that another company, or ters— presumably the most efficient installations. two, or three, were also about to follow the The iron ore situation is also undergoing leader with new mills in the East and hopefully change. The ore beds at the head of the Great in Pennsylvania, or at least near enough to Lakes are still our major source of supply and expand employment opportunities for eastern continue to exert a westward pull with respect to Pennsylvania. But no more mills came. Pennsylvania. Imported ore, now coming in Instead, other Pennsylvania steel companies greatest tonnage from Canada and Venezuela, built and are building new mills along the shores should and does benefit eastern Pennsylvania. of the Great Lakes to be closer to the expanding Easy access to waterborne imported ore was un doubtedly a factor in the choice of Morrisville markets. Proximity to the market can scarcely be overemphasized, particularly since steel for the Fairless mill. The St. Lawrence Seaway, buyers have contracted the habit of hand-to- however, also affords waterborne shipment of mouth buying of steel. That reduces risks and imported ores right into the big steel manufac ties up less capital for the buyers. Big buyers of turing centers of the Great Lakes. steel, like automobile companies, operate on hourly shipping schedules. Pennsylvania’s primacy in iron and steel goes Pennsylvania will long remain an important steel-producing state because she has an abun dance of coal and limestone, has access to iron back to the days when low-cost assembly of raw ore, and is in an excellent position to supply materials, especially coal and iron ore, played Eastern markets. The advantage of an early start the prominent part in determining the location has very largely turned into a disadvantage in of a steel mill. How far afield a mill must go for the form of too much vintage steelmaking ca its iron ore and coal is still a matter of consid pacity; however, with the technological revolu erable importance but less so than formerly. tion Modern blast furnaces require less and less coal per ton of pig iron produced. Hence coal taking place in the steel industry, Pennsylvania mills may “ catch fire” and share in the modernization enough to hold her own. is a factor of diminishing importance. In fact, a Andrew Carnegie once issued the dictum: battery of coke ovens is no longer an indis “ Pioneering doesn’t pay.” It certainly paid him pensable adjunct of an integrated steel mill. At when he pioneered in the steel industry of Penn least one large integrated steel company is clos sylvania. Modern pioneering uses entirely differ ing down some of its coke-making facilities and ent tools, and no doubt the future of steel in concentrating the manufacture of the company’s Pennsylvania will depend upon how skillfully coke requirements at several strategic mill cen these tools are used. 14 CARS AND CONSUM ERS: A S TO R M Y ROM ANCE No soap opera queen ever had a more hectic romance than the one between Americans and their automobiles. weaken sales potentials. Modern cars have been improved steadily, to be sure, but recent mechanical changes are often along said to be less compelling then the wrap-around without each other, they often are fickle and windshields, power brakes and power steering, jealous. Frequently they squabble and break up pioneered in 1955. And the 1963 models, as a but before long they are back together. group, have not benefited from style changes as Although the “ lovers” The affair is now couldn’t get in its on-again phase. Americans bought about seven million cars in arresting as the all-new, two-toned appearance of the 1955’s. 1962— a figure approaching the all-time record set in 1955. So far this year sales are even better than in the same months of 1962. This happy experience has been something of a surprise. Many observers did not expect recent sales to come anywhere near “ Fabulous ’55.” In the first place, the 1955 record was set THE PRESENT APPEAL After some investigation we found a number of plausible reasons for the reconciliation between cars and consumers. Apparently the auto indus try and the typical buyer once again are in harmony on such things as . . . under forced-draft conditions. “ Blitz sales,” with Style. Most of the 1955 models had a certain showrooms open steadily for 72 hours or more, were common. Advertising became frantic and smoothness about them. Their lines were trim sometimes misleading. Factories pressured deal Styling was in conservative good taste and ob ers to accept more cars and dealers were forced viously caught the public fancy. and true and they were nicely proportioned. to slash prices— at least on less popular models. In 1956 and 1957, however, Detroit took to Consumers were lured by a major relaxation of spangling its cars with chrome and squeezing credit terms and standards. None of these factors them longer and lower. Many drivers were re is present in today’s market to anything like the minded of yesterday’s Glamour Girl who vainly same extent. tries to recapture lost allure with corset and Recently there has been considerable discus cosmetics. By 1958 grotesque tail fins became sion about the decline of the automobile as a the rule as did over-powered engines that would status symbol and the saturation level of car “ pass anything on the road except a gas sta ownership. If true, such things can’t help but tion.” Consumers turned away from their gaudy 15 business re v ie w sweethearts, and total sales in 1958 were little have faded away to the junk yard. From now more than half the 1955 mark. on over five million cars probably Foreign cars caught consumers on the re bound. In 1959 almost 700,000 autos were will be scrapped each year. In contrast, the figure aver aged well below four million in the latter 1950’s. imported, compared with only 60,000 four years High scrappage, earlier. Detroit turned green with jealousy and foundation for new-car demand. of course, provides a firm tried to change its ways. It began to offer Service. Today’s models require considerably smaller cars and more conservative styling. By the time the 1962 models came out much of the less service and maintenance than their prede sleek simplicity of the 1955’s had been recap changed every 6,000 miles, for example. An tured. Speed. After a sensational spurt compact car other guarantees certain parts up to five years. sales leveled off last year at about a third of all but exactly how much is subject to considerable units sold. Standard cars have begun to flex their horsepower again and even the compacts are debate. Suburbs. Suburbanites may be enthusiastic growing longer and wider. In its advertising, about 50-mile hikes but they seldom are willing Detroit is emphasizing speed and power, as it to walk half a mile to the drug store. It is not did in the 1950’s, instead of economy and surprising, therefore, that more than 85 per cent handling ease. of cessors. One manufacturer recommends oil be Unquestionably these features stimulate sales, all suburban households own cars, and Market experts are betting that, deep down inside, most American drivers really covet big, AS THE PIE GROW S BIGGER powerful, Auto product as a percentage of Gross National Product. smooth-riding cars. This doesn’t mean that the buyers would go for the ungainly 1958 extremes any more now than they did then but it does imply that most people want some thing more substantial than the original compacts. Selection. As we pointed out in earlier Business Review articles, the consumer market seems to have split into many separate frag ments— each with different tastes, needs and desires. To attract such a demand Detroit now offers 336 different models ranging from com pacts to baby buses, from convertibles to limousines. Scrappage. The cars sold in the lush mid1950’s are showing their age. Engines are be coming asthmatic, chrome is getting pocked and fenders are rusting through. Based on past aver ages about 25 per cent of all 1955’s already 16 PER CENT business review 20 per cent own two of them. The continued than standard models. Because of the high per growth of the suburbs has been a definite plus centage of compacts now sold, any given level factor in recent auto sales. So has the expanded of unit sales today is relatively less invigorating size of suburban and other families. As the to the economy. The average retail price of all postwar “ babies” reach driving age in record new domestic cars sold declined about $100 numbers, more and more families are discover from 1959 to 1962. Thus, in order to match its 1955 impact on ing one car just isn’ t enough. Stocks. Many of the nation’s 17 million in dividual shareholders took a severe licking when G.N.P. this year, the auto industry would have to sell over nine million cars. the stock market slumped last year. Since then experts think individual investors have stayed WILL LOVE LAST? pretty much out of the market. (The recent rise There is an old saying to the effect that two is said to be due primarily to institutional pur excellent automobile years seldom come back- chases.) are to-back. It appears to be rooted in fact. As the buying cars with money that might have gone next chart shows, year-to-year auto product has Probably many people today increased six times since 1949 and only two of into stocks a year or two ago. the increases were in a row. LESS IMPACT Another question has been puzzling us. If auto THE DETROIT SEE-SAW sales have been so good why hasn’t the economy Year-to-year changes in auto product. as a whole shown more strength? Why hasn’t Detroit’s success sparked a real boom as it did PER CENT in 1955? One answer, we found, is that a seven-million car year today is far less stimulating than it was back in 1955. For one thing the country’s total output is more than 40 per cent larger than it was eight years ago. Auto product1 was 5.5 per cent of Gross National Product in 1955; in 1962 it was under 4 per cent. Although auto imports are down sharply from their 1959 peak they still accounted for a higher proportion of last year’s sales total than they did in 1955. Import sales, of course, do not stimulate our economy nearly so much as domestics do. Compact cars still cost less to build and buy 1 Auto product is a new concept introduced in the February 1963, Auto product represents the total contribu tion of passenger cars to Gross National Product. It includes autos in personal consumption spending, government purchases, business investment, exports and imports. Survey o f Current Business. Since 1962 qualifies as an excellent year, gimlet-eyed experts are searching for signs of weakness in 1963. Some thought last January’s 17 business re v ie w plunge in used-car prices, as measured in the The 1963 model year opened with an auto consumer price index, was a troublesome omen. product of $23.4 billion—-the highest in history The slight gain in February did little to dispel and up eight per cent from the preceding their concern. Increasing weakness in used-car quarter. If history repeats itself there is a good prices would force dealers to trim their trade-in chance that the remainder of this model year allowances and new-car sales should suffer as a will be even higher. This would mean that the result. Sales, however, are holding up well as this is 1963’s will set an all-time unit sales record. written. said, it is only a hint, not a prediction, and is based strictly on past experience. If the past How long they will continue their present torrid pace is the crucial question. How long before the romance cools again? We write this with caution, however. As we were a sure-fire indication of the future, we all In an attempt to find a hint or two about the could afford romances with a different Cadillac future we turned to the Department of Com for each day of the week and two Continentals merce’s new auto product series which is avail on Sunday. able quarterly in seasonally adjusted, annual rates. We examined model years from 1948 through 1962. A computer run showed that a definite cor relation existed between the first quarter of a model year (October-December) and the re mainder of the model year. In other words, a good start often means a good year. We also computed the percentage changes in auto product between the first quarter and the average for the rest of the model year. Then we figured the changes between the first quarter and the preceding quarter— the end of the old model year. The two sets of changes moved in the same direction four times out of five. Put another way, when model introductions show improvement from the previous model closeout the remainder of the new model year is likely to be even better than its first quarter. 18 JANUARY: START OF A TREND? Used car prices in the consumer price index. Not seasonally adjusted. INDEX (1957-59 = 100) FO R THE RECORD Third Federal Reserve District United States Per cent change Per cent change • • • F actory* Departm ent S to re f Employ ment Payrolls Sales Stocks Check Payments Per cent change Feb. 1963 from Per cent change Feb 1963 from Per cent change Feb. 1963 from Per cent change Feb. 1963 from Per cent change Feb. 1963 from mo. ago SUMM ARY Feb. 1963 fro m mo. ago year ago 2 mos. 1963 from ye ar ago Feb. 1963 frc>m mo. ago ye ar ago 2 mos. 1963 from ye ar ago LOCAL CHANGES MANUFACTURING + Electric p o w e r consum ed............ - 1 Man-hours, t o t a l* .......................... 0 Employment, t o t a l............................. 0 0 W a g e in c o m e *.................................. -2 2 C O N S T R U C T IO N ** 0 COAL PRODUCTION + 1 - i - i + 1 + 3 -1 0 + + -1 0 1 1 1 3 0 + + 2 + 3 + 4 0 + i + i 5 5 + + 6 3 + 5 + 1 mo. ago ye ar ago mo. ago ye ar ago + - + 2 - 3 Lancaster............... TRADE*** Department store sales................... + Department store stocks................. B A N K IN G (A ll member banksl D eposits.............................................. Loans.................................................... Investments......................................... U.S. G o vt, securities..................... O th e r................................................. Check paym ents............................. + + + -1 4 3 1 2 1 2 2 9t + 3 0 + + + 5 8 5 0 + 18 + 4t - 2 + + + 5 8 5 0 +17 + 4f + 1 + 1 + 2 - 1 - 1 + 2 -1 6 + 3 + 7 + 11 + 5 - 3 +25 + 15 + 3 + 6 + 11 + 4 - 3 +25 + 12 PRICES Consum er............................................ ‘ Production workers only. “ Value o f contracts. ‘ “ Adjusted fo r seasonal variation. ot + l't + l't 0 0 + 0 1 + 0 1 f2 0 Cities ^Philadelphia 1 2 i + 2 - 3 + 3 0 + 2 - 1 + 4 - + ye ar ago 6 + 6 1 + 1 + 12 + 0 1 - + - + mo. ago year ago mo. ago year ago - ii -f 6 — 5 + 16 - + 10 9 + 5 + 3 5 - 4 - 3 -1 8 + 3 5 + 1 + 5 -1 4 + 3 0 + 1 +n -1 5 + 5 3 - 4 + 1 -2 1 + 7 Philadelphia.......... 0 - 2 Reading.................. 0 - 2 S cranton................ 0 - 5 0 - 1 T re n to n .................. + 1 + 2 - 3 + 5 W ilke s-B a rre . . . . + 1 - 1 - 2 - 2 + 2 + 7 - 2 + 6 -1 7 + 4 W ilm in g to n ........... - 1 + 4 - 3 + 10 - 4 + 4 - 4 + 1 -3 4 + 4 1 2 - 2 - - 6 0 - 3 + 5 -1 6 + 2 Y o rk ........................ - - - 3 3 7 0 ‘ N o t restricted to c o rp o ra te limits o f cities but covers areas o f one o r more counties. fA d ju sted fo r seasonal variation.
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