CARS AND OIL By Josh Bayer

TOPICS

  Background

  The Oil Crisis

  The Fall of the American Automotive Industry

  The Revival of the American Automotive Industry

BACKGROUND The

BACKGROUND OF THE ERA

  Starting in the 1950s, the American highway system was built up under the Eisenhower Administration   Under the Federal Highway Act of 1956

  Gas was plentiful and cheap   People believed that gasoline and oil reserves would never run out

  No need for economy cars or environmentally friendly cars

  Led to development of the auto industry

BACKGROUND OF THE CARS

  Before the 1970s, the American auto industry was dominated by muscle cars, built for speed   Muscle cars were fuel hungry

  Muscle cars were built cheaply and sold cheaply   Popular with the buying market since they brought performance to the average man

  American auto industry was centered in Detroit

  The market dominated by “The Big Three”   Chrysler

  General Motors

  Ford 1969 Dodge Charger

MIDDLE EAST CONFLICT

  Before the growth of the Arab oil industry, most Middle Eastern countries exhibited poor socioeconomic conditions for citizens

  Many nations were previously governed by imperial European countries, such as Great Britain and France   After WWII, when imperial nations withdrew, Middle Eastern countries were left in a

political mess

  Tensions high between Arab nations and Israel   Previous Arab-Israeli War only a few years earlier in 1967

  The oil industry brought growing wealth to Arab countries, and their economies and world political power started to grow

  Led to the modernization and development of major cities, such as Dubai, Kuwait City, Tehran, and Riyadh

Dubai, United Arab Emirates Tehran, Iran

Kuwait City, Kuwait

OIL CRISIS The

WHAT LED UP TO THE OIL CRISIS?

  Arab-Israeli War (Yom Kippur War):   Began on October 6, 1973

  Arab armies advanced with new technology received from Russia

  The US, allied with Israel, aided with arms, airlifts, and military equipment

  Aftermath:   Israel gained land, demonstrated its military power

  US targeted by Arab governments for helping Israel

  Anti-American feelings from populations of the losing nations

WHAT LED UP TO THE OIL CRISIS? (CONT.)

  The US became more dependent on foreign oil   American consumption rose while domestic oil production decreased

  Cars at the time were fuel hungry, and therefore national consumption was high

  Organization of Petroleum Exporting Countries (OPEC) increased oil prices   Countries in the Organization of Arab Petroleum Exporting Countries (OAPEC), a

subset of OPEC members, were the main exporters of oil in the world

  Used political and economical leverage to raise the price oil

  Tried to assert their position in the world

  Pushed for anti-Israel policies

  Oil prices increased rapidly Symbol for the OAPEC

THE OIL EMBARGO OF 1973

  Many nations in the OAPEC were part of the Yom Kippur War

  Representatives from those countries agreed to stop trading oil with the US as “punishment”

  Led to inflated oil prices

  World economy shaken – World oil prices quadrupled

  Changes more severe in the US   Price for oil was 7x higher in 1973 than 1972

  Ended in January of 1974

EFFECT ON US ECONOMY

  Due to the dependence on oil in many industries, including the auto industry, and many areas of the US economy were affected

  However, not all areas were negatively affected   Oil producing states, such as Alaska and Texas, benefitted from their oil producing and

refining industries as the rest of the country depended on domestic oil production

  This boom only lasted until 1980 when oil prices started to stabilize

  US aluminum industry grew – As auto manufacturers were trying to make their models more fuel efficient, they started making their cars out of lightweight aluminum

  This new need for aluminum boosted the aluminum industry to new profit levels

Patterns in Domestic vs. Imported Oil US oil production peaked in 1970, and started a slow decline after that. At the same time, as American industry grew, the need for oil grew, too. Therefore, to meet this demand, the US started relying on imported oil. Imports peaked around 1977, the same time as American roads were full of large, fuel consuming cars. This spike in imports fell around 1980, as Americans switched to driving fuel efficient import cars.

EFFECT ON THE US AUTO INDUSTRY

  US automakers suffered greatly

  Since American automakers were not focused on building fuel efficient cars, when the oil embargo happened and gas prices spiked, no one wanted to buy a large, fuel hungry car

  Few people could afford to spend increasing amounts of money on gas

  Led to a shift to import cars

The 1978 Lincoln Continental only Got 7 miles per gallon

FALL OF THE AMERICAN AUTOMOTIVE INDUSTRY

The

POLITICAL RESTRICTIONS

  In the late 1960s, President Nixon set many new regulations on cars sold in America   Needed to have a smaller impact on the environment

  Needed to have better safety features

  Needed to pass new government safety tests

  Auto manufacturers needed to research more safety features to be able to pass the many specific safety tests from the government

President Richard Nixon

SHIFT TO JAPANESE IMPORT CARS

  Unlike most American cars, Japanese cars delivered reliability and good fuel economy at affordable prices

  On average, Japanese cars were smaller than American models and therefore were more economical

  Since Japan had no oil of its own, and relied on imports, the Japanese automakers were used to making fuel efficient cars, since on average the price of gas was higher there

  Japanese companies started building production plants in the US to increase their profit margin

  A “Japanese Big Three” grew:   Toyota

  Nissan (Datsun)

  Honda Toyota Corolla

THE VOLUNTARY RESTRAINT ACT OF 1981

  Limited the amount of Japanese cars that could be imported into the US in an attempt to revive American auto manufacturers

  The US government believed that the American automakers could thrive on the opportunity, given that they had less competition   US auto manufacturers responded with their versions of small Japanese cars, like the

Ford Pinto, Chevrolet Vega, and AMC Gremlin (Comic Book Guy’s car)

  Japanese automakers’ profits dropped due to lower US sales

Datsun 510

JAPANESE RESPONSE

  To save money, Japanese automakers started not only assembling their cars on US soil, but producing parts here as well

  Many automakers known for making cheap, economical cars introduced their fuel saving technologies into newly created luxury brands   Toyota started Lexus

  Nissan (Datsun) started Infiniti

  Honda started Acura

  By selling the same amount of cars, but at a higher price due to increased luxury and technological advancements, Japanese auto manufacturers were able to increase their profit margin

TECHNOLOGY

  Before the 1970s, the Big Three were unrivaled as the major auto manufacturers in the American market   There was no competition to push American automakers into innovating

  Research was low, as well as the amount of new technology coming out on cars

  However, as Japanese imports infiltrated the American market, domestic automakers needed to unveil new technologies to be able to compete with the imports

TECHNOLOGY (CONT.)

  Unlike American automakers, Japanese car companies responded better to competition   Japanese auto companies innovated, and tried to make their cars better than their

competition

  As the auto market fell, American companies tried everything to save a few dollars on the manufacturing of each vehicle   Many safety features were faulty, yet were placed on cars despite their problems, or

were just left out entirely

  American cars were made with cheap materials, and therefore rusted easily   Led to low reliability

  Companies advertised technologies that either weren’t present or did not work correctly   Lawsuits followed, and companies suffered one legal problem after another

REVIVAL OF THE AMERICAN AUTOMOTIVE INDUSTRY

The

AMERICAN INVESTMENTS IN JAPAN

  Wanting to take part in Japanese success, the Big Three invested and bought smaller Japanese companies   Chrysler: Mitsubishi Motors

  Ford: Mazda

  General Motors: Isuzu and Suzuki, partnered with Toyota and produced cars under the name Nummi

  Profits started growing for the Big Three as they expanded their reach beyond the American market

Mitsubishi Galant

AMERICAN INVESTMENTS IN EUROPE

  By investing in European brands, the Big Three were able to increase profits even more   Chrysler: Lamborghini, showed interest in Maserati

  General Motors: Started the Saturn brand to take cheap European cars and make them more luxurious for a higher profit margin

  Ford: Jaguar and Aston Martin

  The Big Three also grew in presence in European markets – Led to higher sales

1986 Aston Martin V8 Vantage

NEW AMERICAN CAR STYLES

  In the years after the recession, American automakers were able to innovate and grow their company through advances in technology and marketing

  Minivans became popular in the 1980s as Chrysler was looking for a way to expand their lineup   Ended up with the Dodge Caravan and the Plymouth Voyager

  SUV Boom: The Sport Utility Vehicle (SUV), which had previously been unpopular in the 1970s due to low fuel economy, started to become popular in the 1980s   Allowed for cheap production costs for the manufacturers, and had a huge profit margin of

around $7,000 - 10,000 per vehicle sold

  “K-Car”: Started by Chrysler to expand their lineup, but use the same cheap, easy to develop, chassis   Were fuel efficient, could carry many people for its size, and were affordable   Were an instant hit in the American market

LEGACY

  Redistribution of wealth to oil producing nations   Gave them outsized geopolitical power

  Left simmering Arab-American political tensions

  Drove Americans to buy smaller, more fuel efficient cars   First, those manufactured by the Japanese, which enabled Japan to thrive for many

years

  Then, those manufactured by US companies, which helped drive Japan into its current economic depression

  American automakers dominate many of the world’s markets and continue the trend of researching and developing new technologies to be able to compete with auto manufacturers in other countries

LEGACY (CONT.)

  Drove innovation in US manufacturing   US auto manufacturers brought out new technology:

  Disc Brakes

  Fuel Injection

  Electronic Engine Control Units

  Electronic Ignition

  Front Wheel Drive

  Unibody Frame

  New car styles   SUV

  K-Car

  Minivan

KEY QUESTIONS

  What led up to the oil crisis?

  How did the oil crisis affect the US and world economy, specifically the auto industry?

  Why was the US greatly affected by the rise in oil prices?

  Why did import cars become popular in America?

  What steps led to the revival of the auto industry?

BIBLIOGRAPHY

  "Automobile Industry in the 1970s." American Decades. 2001.Encyclopedia.com. 16 May. 2013 http://www.encyclopedia.com.

  Sale, Kirkpatrick, and Eric Foner. The Green Revolution: The American Environmental Movement, 1962-1992. New York: Hill and Wang, 1993. Print.

  "How The U.S. Automobile Industry Has Changed." How The U.S. Automobile Industry Has Changed. N.p., n.d. Web. 17 May 2013.

  "Energy Crisis (1970s)." History.com. A&E Television Networks, n.d. Web. 17 May 2013.

  http://en.wikipedia.org/wiki/File:US_Crude_Oil_Production_and_Imports.svg

  "Automotive Industry in the United States." Wikipedia. Wikimedia Foundation, 19 May 2013. Web. 20 May 2013.

  "Japan..History of Imported Automobile." Japan..History of Imported Automobile. N.p., n.d. Web. 20 May 2013.

  "Oil Crisis Effects Automobile Design." Examiner.com. N.p., n.d. Web. 20 May 2013.

  "70's." 70's. N.p., n.d. Web. 20 May 2013.

  "OAPEC HOME PAGE." OAPEC HOME PAGE. N.p., n.d. Web. 20 May 2013.

  "The Middle East and Oil: Economic Modernisation and Political Stagnation."EInternational Relations RSS. N.p., n.d. Web. 20 May 2013.

  "The Middle East and North Africa in a Changing Oil Market by Bright E. Okogu." The Middle East and North Africa in a Changing Oil Market by Bright E. Okogu. N.p., n.d. Web. 20 May 2013.

  "Congress Approves Federal Highway Act." History.com. A&E Television Networks, n.d. Web. 21 May 2013.

  "Arab Israeli War of 1967." History.state.gov. US Department of State, n.d. Web.

  "Yom Kippur War." History.com. A&E Television Networks, n.d. Web. 21 May 2013.

IMAGE CREDITS

  http://static.cargurus.com/images/site/2007/12/11/03/38/1969_dodge_charger-pic-43937.jpeg

  http://www.thekingshighway.ca/PHOTOS/qew-98_xlg.jpg

  http://wallpapersget.com/wallpapers/2012/11/Dubai-Skyline-UAE-1080x1920.jpg

  http://www.listofimages.com/wallpapers/2012/05/cityscapes-town-skyscrapers-city-skyline-cities-kuwait-1152x2048.jpg

  http://www.oapecorg.org/ar/Bahrain%20Conference%20E/Images%20E/OAPEC%20LOGO%20HR.jpg

  http://upload.wikimedia.org/wikipedia/commons/a/a0/US_Crude_Oil_Production_and_Imports.svg

  http://static.comicvine.com/uploads/original/7/71975/1608812-richard_m._nixon__37th_us_president.jpg

  http://www.injoyingjapan.com/img/contenidos/blog/11_designs/japanese-design-highlights-4.jpg

  http://d1vr6n66ssr06c.cloudfront.net/wp-content/uploads/2013/02/1970_Nissan_Datsun_510_5.jpg

  http://trialx.com/curetalk/wp-content/blogs.dir/7/files/2012/11/cars/1978_Mitsubishi_Galant-2.jpg

  http://i358.photobucket.com/albums/oo30/cdkent00/Aston_Martin-V8_Vantage_1977_3-supe.jpg

  http://files.conceptcarz.com/img/Lincoln/78-Lincoln-Contintl-DV_08_HHDT_01.jpg