If you suffer sticker shock when shopping for a new car these days, consider the 1980 base price of the following automobiles: Toyota Corolla 4-door sedan, $5,458; Ford Mustang, $6,408; Toyota Celica GT, $7,209; Mazda RX-7 GS, $9,095.
Though 1980 car prices seem low to us now, they had been spiraling higher at a rate that alarmed consumers back then. A tidal wave of government regulations mandating fuel economy, emissions control and improved safety made it difficult for the less-than-efficient American auto makers to survive during the economic crisis of the late 1970s -- hence the near-collapse of Chrysler. Auto industry regulation can be traced back to Ralph Nader's 1965 expose', Unsafe at Any Speed; from that point on the government feverishly tacked mandate upon mandate on the car makers. The Bureau of Labor Statistics estimated that regulations added $600 to the cost of a new car between 1968 and 1979. In 1981, it was estimated that new regulations would add another $1,000 to sticker prices in five years.
The Environmental Protection Agency and the National Highway Traffic Safety Administration wanted to regulate such things as auto noise and the number of times an auto owner could adjust the carburetor. In December 1980, the House of Representatives voted against requiring that airbags be installed in new cars; that would have added another $800 to car prices. In a poll of business executives, more than 90% blamed federal regulations for the decline of U.S. productivity. The Reagan administration obligingly canceled or relaxed 34 federal auto regulations, saving the industry billions of dollars in capital costs at a time when it could least afford them.
By 1980 the American auto industry had lost its first-place standing to Japan. In fact, Japanese auto imports accounted for a large portion of annual car sales in the U.S. One out of every four cars sold in 1980 were imports. Many buyers in the Seventies concluded that Japanese autos were of higher quality than American-made cars, and were less expensive besides. They also got very good gas mileage, as a rule. With the oil crisis triggered by OPEC's decision to curtail production and raise prices on crude oil, fuel economy was top priority among many American car buyers. The aptly named Dodge Omni Miser got an estimated 50 miles-per-gallon on the highway. So did the Dodge Colt hatchback.
Under the canny stewardship of Lee Iacocca (whose 1984 autobiography broke bestseller records), Chrysler began producing its K-model cars -- plain, gas-efficient, front-wheel-drive vehicles designed to challenge Japanese imports and put the company back on its feet. The $1.2 billion federal bailout helped too, as did the decision by the United Auto Workers to forego $600 million in new wage and benefit increases.) GM launched its new J-cars in early 1981. The Big Three automakers were in dire straits, going $4.2 billion in the red in 1980. Not since 1961 had they sold so few units. Ford and Chrysler suspended production at two major plants in November 1980. Nearly 200,000 auto workers were laid off. Chrysler cut its work force from 160,000 to 85,000.
Detroit wanted Congress and the White House to do something to curtail the flood of car imports from Japan. After all, the auto industry accounted for one-fifth of the country's gross national product and employed one-sixth of its work force. American auto production had declined 30% in three years. As had happened in textiles and electronics, steel and shipbuilding, Americans found to their dismay that in yet another industry the ambitious and fiercely competitive Japanese were selling higher quality product at a low price.
But protectionism was not to the liking of a confirmed free trader like President Reagan, and he sought instead a "gentleman's agreement" with the Japanese by which they would voluntarily curb their exports to the United States. Nearly two million Japanese cars and trucks were sold in the U.S. in 1980, and Reagan wanted a reduction of 25% in that number for at least the next few years. This was a tough pill for Japan to swallow, since exports to the American market accounted for almost one-half of its overseas auto sales. The Japanese foreign minister became an ardent free-trade advocate himself whenever the issue arose, which was ironic since Japan maintained high import barriers to protect its own home industries. Meeting with Reagan in May 1981, Prime Minister Zenko Suzuki predicted a satisfactory solution to the problem. American trade representatives hinted that protectionist legislation was probably just around the corner unless something was done. The Japanese got the message and car exports were curtailed.
By the second quarter of 1981, the Big Three were showing profits again. Encouraged in part by the administration's support of generous new depreciation rules, car manufacturers made much-needed capital investments to improve productivity. In four years Detroit invested twice as much money to produce better cars more efficiently than the federal government had spent to put a man on the moon. Chrysler was doing well enough by 1986 to pay Iacocca a $20 million salary, and announced its intention to repay the federal government for the bailout well ahead of schedule. By the late Eighties, both Detroit and Japan were faring well in the U.S. auto market; in 1987 Americans purchased 10.2 million new autos -- and 20% of them were Japanese-made.