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Cheaper Gas Is Letting Detroit Ride in Luxury

February 23, 1986|JAMES RISEN | Times Staff Writer

DETROIT — It seemed like a press release that had been lost for 20 years, only to be dusted off in a different era. In fact, last week's announcement by Cadillac that it will keep making its battleship on wheels, the Fleetwood Brougham, seemed straight out of 1966, not 1986.

The rear-wheel-drive, five-liter V-8 Fleetwood Brougham is for "luxury car enthusiasts who Think Big," Cadillac proclaimed. The auto maker crowed that the Fleetwood, which Cadillac had planned to stop making until falling oil prices and the economic recovery sparked a surge in big car sales, "remains the longest, tallest and heaviest production luxury car in America."

Not to mention that, at a base price of $21,265, it is one of the most profitable cars made by General Motors.

For the American car companies and the industrial Midwest they call home, the decline in oil prices over the last few years--which became a price collapse in recent weeks--has been a mammoth economic windfall that has rapidly helped to rebuild the industry after the worst depression in half a century.

In fact, it's almost as if the Midwestern "Rust Belt" and the Southwestern "Oil Patch" have traded places; the Midwest, which suffered the most from the oil shocks of the 1970s and early 1980s, is now watching gleefully as energy prices plunge, while Texas, Oklahoma and other oil-producing states feel the pinch.

Helped the Most

"There's no question that the auto-producing region of the Midwest is being helped more than any other area of the country by falling oil prices," notes John Hammond, an analyst with Data Resources, a Lexington, Mass., economic forecasting firm. Lower energy prices "will keep economic activity in the region from eroding, and provide real stability in auto sales for at least another year," he says.

Not only have total domestic car sales soared 42.5% since the depths of the industry's slump in 1982, but consumers, no longer worried about the price or availability of gasoline, are buying luxury cars, which carry fat profit margins for Detroit, as fast as the industry can make them. Sales of Ford's huge Lincoln Town Car, for instance, have soared nearly 250% since 1982, while Buick Electra volume has surged 71% and Chrysler New Yorker sales have risen 74%.

Between 1981, when gas prices peaked, and 1984, the percentage of the car market held by mid-size and large models rose from about 39% to about 46%, according to Ford analyst Jacques Maroni.

Now, with gasoline pump prices expected to keep dropping for at least several months, "all of the major domestic firms will be producing their large cars at maximum capacity for the foreseeable future," Maroni predicts.

"The American people are not ready to give up the kind of cars they have hung onto so desperately, and the automotive marketers are trying to respond to that," adds John Grettenberger, Cadillac's general manager.

Industry Was Surprised

But American auto executives were just as surprised as everyone else when consumers returned to big cars. In the gas-conscious days from 1979 to 1982, "downsizing" was the order of the day, and all of the major domestic auto makers were planning to dump their largest rear-wheel-drive cars in favor of much smaller and more fuel efficient front-wheel-drive models.

But the explosive revival in the sales of full-size and luxury sedans has prompted Detroit to keep producing its older models alongside its newest, and the domestic auto makers are racking up huge profits as a result. In fact, the Big Three have just reported earnings of $8.13 billion for 1985, a profit level surpassed only by the industry's record $9.8 billion performance in 1984.

It's difficult to measure exactly how much of the auto industry's recovery in recent years is directly related to falling oil prices. The domestic car companies have also been aided by quotas on Japanese imports, as well as by declining interest rates, lower inflation, and the general economic recovery.

But many of the favorable trends in the economy have been augmented by the rapid decline in energy prices since 1981. Similarly, the latest downward spiral in fuel prices should increase consumers' disposable income, reduce inflation, and further diminish concerns about buying bigger cars.

Boost Domestic Sales

Jack Kirnan, an analyst with Merrill Lynch Economics, believes that the latest collapse in energy prices--which could send average crude oil prices down to $20 per barrel by the end of the year, compared with an average of $26.25 at the end of 1985--should add 300,000 units to total domestic car sales in 1986, while doing little to spur sales of Japanese or European imports.

The return of the big American car has also meant that tens of thousands of laid-off auto workers have been called back to their jobs, and thousands more who expected to lose theirs have continued to work.

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