A High Road for the American Automobile Industry

The oil embargo and subsequent inflation in 1973-1974 had a severe impact on the US automobile industry. US auto sales fell from a high of 9.67 million units in 1973 to a low of 5.8 million units in 1982. During the period 1970-1982, sales of small cars increased, as did sales of foreign cars. Three factors contributed to the change in the composition of US car sales: l. the recession, 2. the increase in government regulations, and 3. the rise in oil prices. The economic recovery and the decline in the real price of petroleum have changed the outlook for the US auto industry. The small car share of the market is declining as the average size of cars sold has increased. Continued expansion in the US economy will accelerate this trend. However, several factors threaten to disrupt an otherwise optimistic outlook for the American auto industry, including: l. quotas on foreign steel, 2. the federal Corporate Fuel Economy Requirements, and 3. domestic content laws.