Investors, economists and industrial planners always had to weigh a bewildering number of factors in gauging which industries are likely to prosper and which may decline. Now they have a new imponderable of overpowering importance to consider: how much fuel each business will be apportioned under the Government’s allocation plans. President Nixon has already ordered a variety of cuts in fuel distributed to industry generally, but priorities for doling out the remaining supplies among businessmen scrambling for them have not been worked out in detail.
At stake in the decision are not only the fortunes of individual companies and their workers but the extent of the damage that the fuel shortage will wreak on the whole economy; an ill-conceived allocation scheme could badly magnify it. Explains Anne Carter, a Brandeis University economist: “Allocation is not even a question of fairness, although the consumer thinks of it that way. Allocation has to be balanced to provide for balanced production.” In other words, fuel will have to be denied primarily to those industries least likely to have a significant impact on other industries and thus least likely to trigger a severe recession that would boost unemployment beyond the 6% rate now widely expected next year.
Isolating those industries in the tangled web of business interrelationships is no easy job, and economists cannot yet sort out in any detail which industries stand to suffer how much. It is possible, however, to group some industries into four rough classes: those already hurt, those highly vulnerable, those with mixed prospects and a few that are actually likely to profit. A rundown:
Already hurt:
AUTOMAKERS have seen sales fall 11% below a year ago because of climbing gas prices and fear of worsening shortages. General Motors is going ahead with plans to temporarily close 16 plants and lay off 105,000 workers, despite pleas last week from the United Auto Workers that it at least delay the cutback until after Christmas. Chrysler Corp. followed suit, ordering brief shutdowns of ten North American assembly plants that will idle 44,000 workers.
AIRLINES are canceling more flights and stranding some passengers. United last week scratched 100 daily flights starting Jan. 7 and began an expected parade of layoffs by furloughing 950 employees, including 300 pilots. Eastern mailed layoff notices to 360 pilots. United President Edward E. Carlson, who once predicted a 4% rise in airline revenues next year, now expects “zero” growth. The effect on profits is a tossup: airlines will be helped by higher fares and the running of their remaining flights more fully loaded, but hurt by higher costs for jet fuel and ground maintenance of mothballed planes.
Vulnerable:
PETROCHEMICAL MAKERS so far have received a low priority, even though their products are vital to the manufacture of all sorts of goods, from drugs to records. The management consultant firm of Arthur D. Little Inc. forecasts the loss of as many as 1.8 million jobs by workers in various industries next year because of a 15% decline in petrochemical production if allocations are not made more liberal.
BUILDERS, already suffering from a squeeze on mortgage money, have severe new worries. Construction men rage that doling out fuel on the basis of “year-earlier” usage (that is, so much less this month than in December 1972) will unfairly penalize an industry whose project starts are erratically timed, depending on the weather and the availability of workers and contracts. Materials shortages loom too: the manufacture of lime, a key ingredient in cement, requires more energy than any other product made in the U.S., and diesel fuel to run construction machinery is scarce. Economists at a Washington conference sponsored by the Federal Home Loan Bank Board predicted a drop in housing starts to 1.5 million next year, from 2,000,000 in 1973. In turn, such a decline may well affect home appliance and furniture sales.
THE RECREATION INDUSTRY faces a steep decline because the country will have to get over its addiction to automobile vacations—while airline flights are being reduced too. Drive-in restaurants, hotel and motel chains and ski resorts are obvious potential sufferers. Though some ski-resort operators remain hopeful, Frederick Andresen, president of Ski Industries America, worried that a mandatory Sunday closing of gas stations may threaten 750,000 jobs and $2 billion in business. Some analysts expect sales of cameras and film to drop, because they are largely bought by vacationers. Las Vegas is still booming; MGM this week will open a new $106 million hotel. But businessmen are nervous because 65% of the gamblers arrive by car. Nevada Governor Mike O’Callaghan is trying to persuade Amtrak to provide weekend train service from Los Angeles.
EXPORTERS and companies with extensive foreign operations could be hit. The reason is that the Arab oil production cutbacks are likely to depress industry in Europe far more deeply than in the U.S. Argus Research Corp., which analyzes securities, speculates that reduced capital spending in Europe will hurt Westinghouse worse than General Electric, whose foreign operations are mostly in Canada and South America. Kaiser and Alcoa, which market little of their aluminum abroad, will not suffer as much as Alcan Aluminium and Reynolds Metals, which do.
PRIVATE-PLANE MAKERS could well be devastated. Aerospace-dependent Wichita, Kans., three years ago competed with Seattle for the nation’s highest unemployment rate (12%), but it struggled back to prosperity because of aggressive development of executive aircraft by Cessna, Beech and Gates Learjet. They make six out of every ten light planes sold in the U.S. President Nixon, however, has now ordered a whopping 42% cut in fuel for business aircraft, a move that has hit Wichita with all the impact of an antipersonnel bomb.
Mixed Prospects:
OIL COMPANIES have been posting enormous profit increases—up to 90% in the third quarter for Gulf. Rising prices will surely keep profits up, but the oilmen nevertheless have problems: they may have to close some refineries because of an inability to get crude. Mobil last week announced that after Dec. 31 it will “mothball” an East Chicago refinery that has been processing 47,000 bbl. per day of crude for small independent oil companies. Small oil distributors will be really pinched. John Fiore has been supplying diesel fuel to barges, tugs and fishing boats in Boston harbor for 40 years, recently at the rate of 60,000 gal. a week. Last week he sold none, because he could get none.
TRUCKERS have obvious miseries; a few are already being stranded without fuel. But some analysts expect big truck lines to do relatively well, because they will probably get generous supplies of diesel fuel under any rationing system. Small lines whose trucks fill up along the highway may be forced out of business as diesel fuel becomes harder to find. The big lines, then, might pluck the most profitable contracts of the little lines that go under.
Winners:
RETAILERS cash registers are ringing because of panic buying of products that supposedly help consumers to cope with the fuel shortage. One hot item: a clock-operated thermostat that can lower nighttime temperatures automatically after everyone is asleep. Electric heaters are also selling rapidly, as are propane-burning catalytic heaters normally used by campers. The electric heaters gulp energy prodigiously, and the propane type can be dangerous in enclosed spaces because they give off carbon monoxide fumes.
RAILROADS, long starved for profits, should prosper because they use energy efficiently, especially in long hauls.
INSURERS may well consider gasless Sundays a blessing; the resulting drop in weekend driving will reduce their heavy burden of accident claims.
MISCELLANEOUS firms of varied size and description stand to make money from the crisis. Drilling service companies, like the French giant Schlumberger, are profiting from renewed interest in oil exploration. In Maine, the Franklin Stove Foundry Inc. has sold 33% more wood-burning stoves this year than it did in 1972.
The energy crisis has even spawned one boomtown: Taft, Calif, (pop. 4,285). It is on the rim of the Elk Hills Naval Oil Reserve, whose wells will have to help fuel the military (seepage 47). Bank deposits are up 35%, and loan requests have increased 25% over last year; 50 new condominiums are being built.
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