December 16

This Day in History

Automotive

Dec 16, 1979:

OPEC states raise oil prices

On December 16, 1979, the night before the Organization of Petroleum Exporting Countries' annual price-setting meeting in Caracas, two member states (Libya and Indonesia) announce plans to raise the price of their oil by $4 (Libya) and $2 (Indonesia) per barrel. (The resulting prices--$30 and $25.50 per barrel, respectively--were among the highest they had ever been.) These diplomatic maneuverings were intended to keep OPEC's "price hawks" from raising them even further; nevertheless, by the end of 1979 the cost of oil had more than doubled since the end of the previous year.

This price hike only exacerbated an energy crisis that had been going on since the beginning of 1979. An Iranian oil-field strike and the January revolution had disrupted oil supplies from that part of the Middle East, and an earlier OPEC fee increase had sent prices inching toward an all-time high. By the time the Iranian hostage crisis began in November, Americans were already dealing with the effects of this "oil shock": long lines and short tempers at gas pumps, panics over gasoline and heating oil shortages, and frustration with the inefficient, gas-guzzling vehicles manufactured by American automakers.

These inconveniences reminded many Americans of the oil crisis of 1973-1974, when an Organization of Petroleum Exporting Countries (OPEC) embargo sent gasoline prices through the roof: By the time that embargo ended, the average retail price of gas had climbed to 84 cents per gallon from 38 cents per gallon. As a result, the big, heavy cars that American automakers were famous for became incredibly expensive to operate--many got fewer than 10 miles to every gallon of gas!--and many people traded their gas-guzzling muscle cars and gigantic luxury sedans for more fuel-efficient compact cars. This episode had not ended well for American carmakers, who had rushed some smaller cars to market without thoroughly checking them for problems and quirks, which in turn contributed to their growing reputation for unreliability and poor craftsmanship. Once the immediate crisis had subsided, most of those domestic compacts were left to languish on dealers' lots.

However, during the 1979 energy crisis, Japanese carmakers gained a reputation for building inexpensive, reliable, efficient cars that were particularly well-suited to the new era of austerity. That year, Datsun, Subaru, Toyota and Honda--whose Accord sedan was one of the most successful cars of 1979--all gained a permanent foothold in the American marketplace.

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