Evening star., 1941-08-24
Auto EarninQs
To Be Smaller
In Arms Race
Products Closely Allied
To Normal Work Will
Be Most Profitable
Special Dispatch to The Star.

" ANAAt mug co. w lifiS tiiO
cut in automobile production for
the current year will average close
to so per cent, the resultant loss in
revenues will eventually be made up
in defense deliveries, Standard e.
Poors Corp. points out in a survey
just made of the industry.
However, the margins on this bus
lneSs will not measure up to that OBJ
tainable on regular lines. While
the prospect indicates lower overall
earnings, organizations turning out
trucks, scout cars, and similar prod
ucts closely allied tc normal pro-
duction should fare relatively well.
In the model-year just closed, do
mestic and Canadian producers
turned out an aggregate of 5,535 600
passenger cars and trucks. This
represented the second largest out
put in the industry's history. falling
less than $4,000 short of the 1929
peak.
Production was maintained above
the 100000 mark in five of the first
seven months of the current calen-
Oar year. At this high operating
rate, manufacturers were able to
absorb increased wages, rising ma
terial costs and the heavy new taxes.
and still report considerable income
gains over the corresponding period
of 1910.
Truck Division Leads.
Most spectacular production gains
were in the truck division. where de-
mand was spurred by the sharply
rising level of industrial activity.
Output Of all types of commercial
Vehlcles was up close to so per cent
as against slightly better than 20
per cent gain in the passenger car
division. Expansion in earning
power was substantial, despite the
necessity of setting up large reserves
for excess profits taxes.
Despite the high operating sched-
ules, the industry has been unable to
keep pace with retail demand since
February. At the end of that month,
dealers inventories stood at rec
ord high of 100000 cars and rucks.
BY the end of July these holdings
had been cut to less than 200 900,
the smallest for this time of the
year since 1922. The remaining in
ventory Is ragged, with more popular
models extremely difficult to find.
Though this is normally a detri-
ment to sales. dealers anticipate lit
lie difflct1lty this year. The industry
should enjoy the unique experience
OF entering new model year with
all previous years cars sold and q
large order carryover on hand.
New Models on Way.
Current production is running
close to the seasonal low. with the
majority of producers beginning to
step up output of 1912 models.
Changes are largely confined to styl-
ing, but this has been the case for
several years.
Use OF alternate materials has. of
course. been necessary, but this has
not lnterfered with the efficiency
OF the product. In most cases the
alternate is more costly than the
usual material. On the whole. 1912
models should prove equal or su-
perlor to predecessor machines in
both appearance and performance.
With a considerable demand ap-
parently still to be satisfied, the
Industry should have little difficulty
IN selling what it can produce. des-
plte higher prices, excise taxes. and
curbs on installment selling.
. Because so little of the automobile
industry's machinery is adaptable
to defense work, the shift from regu-
lar production is a slow process.
However, there are increasing signs
that progress is being made. Gen.
eral Motors, for example, announces
that defense production during the
first half of this year was 81 per cent
greater than that turned out in all
of 1910. Packard is getting into
swing on its Rolls Royce Marlin
aircraft engine contract, and Chys-
Ter is heading for real volume on
tank production. By the end of this
year, armament production of the
automobile industry should begin to
assume important proportions.
BY early 1912, defense work should
be large enough to offset loss of
revenues resulting from curtailment
OF regular activities. However, evi-
dence accumulating indicates that
earnings on this business will be at
a considerably lower rate than the
industry has been obtaining from
car and truck production. An ex-
treme case was Chrysler's announce
that it earned only $13,295 on de-
liveries of more than $31 ,0O0, 900
worth of defense materials during
the year ended May 81.
Chrysler Profits Low.
OF course, extraordinary costs in
connection with getting into pro-
duction on new lines were RESPONSE
BILE for Chrysler's low-defense earn
ings in this period However. a good
portion of the total deliveries was
made up of motor trucks, produc-
ton of which involved little devia-
ton from normal procedure and
earnings on which should not have
been materially below those on COM
mercial sales.
Presumably, initial losses on de-
fense business will be more than
made up as volume expands, but
anything approaching substantial