Job for a Giant Killer

After four years of a broadening national economy and bursting auto sales, times have never seemed chromier for Detroit's automakers--except for American Motors Corp., which has been beset by declining sales, growing financial troubles and, most recently, an alarmingly oversized inventory. American now has 93 days' car production unsold, against a current industry average of 45 days. At the corporation's annual meeting next week, stockholders will hear about slightly lower sales ($991 million in 1965 v. $1 billion in 1964), greatly reduced earnings ($5,000,000 v. $26 million), and a shrinking share of the auto market (currently 3% v. a high of 6.42% four years ago). Detroit is seriously worried that unless the company does something drastic to restore its health, American Motors will be on the critical list within the next few years. A.M.C. is a $1 billion corporation, which would seem large enough for stability--except in the auto industry. In a field of behemoths, A.M.C. is not big enough to compete under present conditions. Last year it sold 322,095 vehicles in the U.S.; General Motors' Chevrolet Division alone sold seven times that number. Smaller volume means higher per-car production costs. With only three lines of cars, A.M.C. is less able to shift assembly lines to a stronger sell (the Ambassador) from a weak one (the American). The company has also been hurt by unsuccessful design. Moreover, running close to the line on finances, A.M.C. is less able to withstand the kind of multimilliondollar styling or engineering mistake that every auto company is susceptible to but that the Big Three manufacturers can easily write off.

The "Image Lag." A.M.C.'s difficulties are widely blamed on a lack of vision in the past. Five years ago, when recession-affected Americans turned to compact cars, the company's Rambler was first and foremost in the domestic compact market, almost became king of the road. Just to meet the demand and get the car into customers' hands, A.M.C. President George Romney--now Governor of Michigan--permitted archaic and costly work practices to continue. A.M.C. executives now complain, with hindsight, that Romney paid lavish dividends to stockholders and perhaps too conscientiously used earnings to take the company completely out of debt. Antiquated multilevel plants in Kenosha, Wis., and Milwaukee were not replaced.

When other companies moved in on the compact market with racy V-8 engines and bucket seats, A.M.C. was styled out. With growing national prosperity, the desire for compacts and economy faded. And for the small segment of buyers still primarily concerned with economy, high production costs make A.M.C. Americans $200 to $300 more expensive than throaty little Volkswagens. The Volks, though smaller and lighter than the American, outsells it better than 4 to 1 in the economy market, for which they compete.

A.M.C. also suffered what its executives refer today as an "image lag." In an industry where styling and engineering must be planned two or three years ahead, A.M.C. stuck too long with its boxy shape and 40-year-old L-6 engine. Roy Abernethy, 59, a salesman who succeeded Romney as president, spent $68 million revamping last year's models, added hardtops to the Ambassador line, laid out another $42 million for a new 6-cylinder engine now available and a new V-8 to be ready later this year. But A.M.C.'s biggest crash effort to change the image--the fastback Marlin--proved a disappointment. It was only a fastback roof welded onto a Classic body, and of 9,000 Marlins made last year, 2,000 are unsold. Meanwhile Chrysler, in creating the Barracuda out of a fastback roof tacked onto a three-year-old Valiant body, has sold vastly better.

Sweating Out This Year. So far A.M.C. has not found much comfort in a Benton & Bowles advertising campaign on which the company laid out $8,500,000, or 40% of this year's advertising budget. The campaign dubbed A.M.C. "the friendly giant killer," which seemed an unfortunate word play at a time when Detroit was concerned about auto safety; besides, the tag confused auto buyers familiar with the vegetable-selling Jolly Green Giant. The campaign is being junked in favor of ads stressing glamour.

Image aside, A.M.C. has prided itself on being debt-free; last year, however, it had to go to the banks for a $50 million loan as inventories rose, cash and marketable securities dropped from $51 million to $36 million, and strikes slowed production after President Abernethy tightened up work practices and demanded quality control. Half the loan remains to be paid, and 24 lending banks, to protect themselves, have put a down-hold on American's dividends. Last year, to the displeasure of stockholders, the dividend was halved; last quarter it was skipped entirely.

Abernethy is also trimming production. A.M.C.'s plants reopened last week, after a three-week shutdown to reduce inventories, with 2,400 fewer workers out of 21,500, and a daily production schedule of 1,460 cars instead of 1,800.

With cost and quality controls established, newer engines and styles on the way, and cars destined to be 5 in. longer and thus more in vogue by '68, A.M.C. executives are optimistic. They admit that this year will simply have to be sweated out. Next year, they hope, will be somewhat better; if they manage to sell 500,000 vehicles in markets in the U.S. and abroad, the restyled corporation could even begin to prosper. "I sold five cars in my spare time myself," says Abernethy. But the kind of setbacks A.M.C. has suffered in the past five years will take a virtual giant killer to undo.

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