Uphill & Getting Steeper

Hoping to steer ailing American Motors Corp. back to health, Board Chairman Roy D. Chapin Jr. recently prescribed price cuts for his slow-moving Rambler American economy line. The first sales figures showed an encouraging upturn--and Chapin, dining in a Chicago restaurant, cheerily ordered strolling musicians to play Just in Time. The American's $1,839 base price -- well under that of any other U.S. compact and only $200 more than the Volkswagen--has indeed helped tune up sales, which in April rose 8% over the same month last year, to 7,371 cars. Nevertheless, as of last week, most of the sounds coming out of A.M.C.'s brick headquarters on Detroit's Plymouth Road suggested a prelude to Good Night, Ladies.

Strong Surgery. Altogether, sales of A.M.C.'s sporty Marlins, full-sized Ambassadors and Rebels and small Americans have slipped 20% during the past four months from the same period last year, to 73,790 cars. The first quarter of 1966 was an $8,300,000 loser; this year, the same quarter produced a record $21 million loss, knocking the company $30 million into the red for the first half of its fiscal 1967. Faced with a sooner-than-expected financial crisis, Chapin last week began cutting away again--this time at A.M.C.'s assets.

To raise a quick $30 million in cash, A.M.C. sold its healthy Redisco, Inc. subsidiary to Chrysler Corp. A credit operation, which does a $250 million annual business financing sales of furniture, TV sets and other items, Redisco had earned a robust $2,500,000 a year. A.M.C.'s appliance-making Kelvinator division is also profitable--and for sale. Drastic as such surgery is, Chapin and Co. see little alternative to sacrificing A.M.C.'s two strong, non-automaking arms.

Of the Redisco proceeds, $25 million will go directly to a group of 24 banks. Headed by Chase Manhattan, the group last year loaned A.M.C. $75 million, then turned up another $20 million after Chapin became chairman in January. Last week, faced with a May 31 due date on the loan, Chapin persuaded the bankers to extend the credit line until year's end. As security, the banks hold a first mortgage on all of A.M.C.'s property.

Second Collision. The loan extension will give A.M.C.'s new Javelin specialty car room to go into production this fall. Still, some auto-industry financial men fear that Chapin and his colleagues are only painting themselves into a corner. Should Kelvinator go the way of Redisco, A.M.C. may well lose a chance at a Studebaker-style recovery. After losing $25 million on its auto operations, Studebaker shut down its South Bend, Ind., plants in 1963, has since come back as a profitable maker of appliances, electric generators and other products. Wall Street has been full of speculation about possible A.M.C. merger partners--among them Litton, Kaiser, International Harvester and Sears, Roebuck.

If only because of a sense of competitive camaraderie, Detroit's Big Three are loath to see A.M.C. go under. G.M. has passed along its collapsible steering column to help A.M.C. minimize its costs in meeting the new safety regulations. A.M.C. cars are welcome at Ford's expensive accident-test facilities. Some Big Three showrooms also sell A.M.C. cars under "dual dealership" arrangements, and dealers have unwritten orders to help the little fellow along. Yet, barring a sales miracle, industry experts estimate that, even though A.M.C. can survive the second collision with its loan due dates in December, the road ahead is uphill and getting steeper.

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