Now There Are Four

In South Bend, on a cold grey day with gently descending snow, workers poured from the plant in shock and anger. In Hamilton, Ont., the news was greeted with elation, and men quickly lined up to apply for jobs. Across the U.S., 1,900 dealers sat in their showrooms and forlornly surveyed an uncertain future. In a move long expected but nonetheless shocking when it came, Studebaker Corp. announced that it was dropping auto production in the U.S.--111 years after its founding as a carriage maker and 61 since it turned out its first auto. The company insisted that it will continue to produce autos in its Canadian plant for the U.S. market, but hardly anyone took Studebaker's small future in autos too seriously.

Since the first auto was produced in 1893, some 1,850 U.S. auto firms have gone out of business, two of them (Packard and Kaiser) since World War II. Studebaker's departure from fifth place leaves the U.S. with only four major auto producers. "We were being bled to death," said Studebaker Chairman Randolph Guthrie, a partner in the Wall Street law firm that Richard Nixon recently joined. Guthrie has his own explanation for why Studebaker flopped in one of history's best auto years. "The reason," he says, "is that everyone thought that Studebaker was going out of business."

Unhappy Event. Though anticipated, Studebaker's decision was an unhappy event for many. More than 7,000 men and women will lose their jobs in Studebaker's 6,000,000-sq.-ft. South Bend plant. Part of the engineering and design staffs will move to Hamilton, and only 900 production workers will be kept on in South Bend to produce some of the parts for the Canadian assembly plant. Realizing that Studebaker's future was precarious, the city of South Bend has been diversifying its industrial base for several years to cushion the shock; Studebaker has recently accounted for only 3% of the city's total payroll. Still, that payroll amounted to some $600,000 a week, and its loss will be intensified by thousands of job-searching workers joining the unemployment rolls.

Studebaker's dealers had no such cushion. With the high-priced Avanti sports car, the medium-priced Hawk and all commercial trucks discontinued, they can still sell the low-priced Studebaker sedans that will be made in Hamilton. But business has been so bad recently that it could hardly get worse after last week's announcement.

Caring for "Orphans." One problem for the dealers is the 22,500 Studebakers in stock. An auto-buying public is understandably reluctant to buy what the trade calls "orphans" (like the discontinued Edsel). Studebaker has attempted to get around this by promising that parts will be available for all its present models. Even so, prices of the remaining autos will almost certainly have to be slashed to attract buyers. Studebaker has tried to escape the anger of its dealers by continuing the Ontario operation and thus technically fulfilling its contract to supply its dealers with autos.

Such considerations aside, Detroit is skeptical about Studebaker's ability to maintain a toehold in the U.S. through its Ontario subsidiary, which is headed by Gordon E. Grundy, president of Studebaker of Canada. Studebaker talks about making 30,000 to 40,000 units annually in Hamilton, but its Canadian market is only about 8,000 cars (the Hamilton plant is now turning out only 48 cars a day), and cars that did not sell well in the U.S. are not likely to improve their sales appeal by crossing the border. Studebaker will continue to be the American sales agent for Mercedes-Benz, which President Byers Burlingame and other top executives drive instead of Studebakers--to the astonishment of Detroit's brand-loyal executives.

Profit Motive. What happened to Studebaker? South Bend was too remote from Detroit to enable the company to move quickly with all the industry's new trends, and Studebaker's ancient plant there was hopelessly inefficient. The company's dealer organization was too small, haphazard and ineffectual. Efforts to revitalize the company were snarled by lack of cash and a series of incredible production snafus. In the past five years, Studebaker has lost at least $40 million in automaking; this year, despite the introduction of pleasantly restyled 1964 models, sales for the first eleven months fell to 59,742 cars. Last month Studebaker's directors fired President Sherwood Egbert, who insisted on staying in auto production, to clear the way for getting out of the auto business; in his place they put Burlingame, 63, a financial man, with orders to stem the losses.

Studebaker may be largely out of autos, but it is by no means out of business. Under Egbert's direction, Studebaker picked up so many new companies (appliances, chemicals, superchargers) that half of its $400 million sales this year came from nonautomotive divisions. These divisions earned $12 million--though the company will end the year heavily in the red because of auto losses and the cost of closing the South Bend plant. Freed from its auto losses and armed with a healthy tax write-off, Studebaker says that it expects to make an overall profit next year.

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