Studebaker Up & Out

Studebaker Corp. was not the first motor casualty of Depression but it was by far the biggest. The venerable South Bend, Ind. concern which Clem and Harry Studebaker founded as a wagon works in 1852, was brought low not by the usual affliction of reduced sales, but by a legal snarl over a mid-Depression effort to expand. In 1932 Studebaker purchased White Motor Co. (trucks) only to have the deal blocked by minority White stockholders. Upshot was a receivership. Last week it looked as if Studebaker would be both the first motor maker to shuffle off its financial troubles in court and the biggest reorganization yet completed under the new Federal Bankruptcy Law (TIME, June. 18).

Not long after the receivership early in the New Deal, Studebaker's longtime President Albert Russel Erskine shot himself to death in his South Bend home. Active direction of the company had already passed to the two vice presidents, Paul Gray Hoffman, an able salesmanager who first made a fortune for himself as a distributor in California, and Harold S. Vance, in charge of production. With Ashton Bean of White, they formed a triumvirate of receivers who never let their organization slip an inch.

Since the receivership Vice President Hoffman has sold 83,000 cars turned out by Vice President Vance. Though sales so far this year are up 38%, Studebaker, like most independents, is still losing money. Despite a modest profit in the June quarter, nine-month figures showed a total of $666,600 in red. But there has never been any doubt that Messrs. Vance, Hoffman & Bean would eventually work out a reorganization.

The plan they submitted to the Federal Court in South Bend last week bore the mark of long cogitation by their lawyers, Manhattan's famed firm of Cravath, de Gersdorff, Swaine & Wood. It satisfied all classes of creditors and it left Studebaker in rock-sound shape. High points:

1) White Motor will be segregated from Studebaker, its stock being used in part to pay off Studebaker bondholders and creditors. Balance of the claims will be met with common stock in a new Studebaker Corporation.

2) Old Studebaker preferred stock will be exchanged for new common and the right to subscribe to new convertible debentures. Common stockholders will get nothing but the privilege of subscribing to the debenture and new stock.

3) Underwritten by Lehman Brothers, Field, Glore & Co., Hayden, Stone & Co. and Goldman, Sachs & Co., the offering to old stockholders will provide $5,500,000 in cash for the Studebaker treasury. The bonds pay a nominal 6% but until 1938 only 3% is a fixed obligation, the balance accruing if not earned.

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