American Flits Ahead

For American Motors Corp., November has often been the crudest month. That is when the company issues its generally depressing annual earnings report. Last week the usual autumnal gloom was replaced by a bright, if fragile, sense of victory. The company reported earnings of $10.2 million on sales of $1.2 billion for the fiscal year ending in September, compared with a loss of $56 million on a volume of $1.1 billion last year. American's profit potential was also sweetened when the Price Commission approved a 2.5% price increase for its newest models.

Part of the reason for American's turn-around is the cost-cutting drive of Chairman Roy D. Chapin Jr. Major savings resulted from his decision to forgo styling and engineering changes in 1972 models. Six of the company's lower-priced 1971 models were dropped, a move that pares its present line to a more profitable 15 models. As a result, American's operating budget has remained at its 1969 level, while sales have risen 50% since then.

Helpful Competitors. Sales were spurred by a buyer protection plan that the company introduced three months ago, covering all 1972 passenger cars for up to one year or 12,000 miles. American will have its dealers repair any factory defect at no cost to the owner. American also attracted buyers by refunding the federal excise tax, even though Congress has not yet repealed the levy. To get into the rapidly expanding recreation market, American two years ago bought Jeep Corp.; Jeep sales in the U.S. in fiscal 1971 increased by 6,573 units to 37,124.

Oddly enough, American has been substantially helped in its struggle by its giant competitors, notably General Motors and Chrysler, who fear that the smaller company's demise would bring swift Government antitrust action. American, which has been losing dealers, now sells its models through 311 G.M. outlets, and the General Motors Acceptance Corp. helps American dealers with their inventory financing. Under a special dispensation from the Justice Department. American also shares G.M.'s antipollution technology.

Dealer Dropouts. But American is a long way from shaking off its problems. Unit sales from January through October amounted to 211,432, or 3,272 below the same period last year, and its share of the market went from 3.4% to 3%. During the price freeze, when car sales in the U.S. posted a record, purchases of Ambassadors, Hornets and Javelins fell below 1970 levels. On the other hand, in the first ten months of 1971 Gremlin's sales doubled, and the medium-sized Matador is a strong seller. To improve its sales, American must strengthen its dealerships. So far this year 262 dealers have dropped out, reducing American's network to 2,031 showrooms. American's biggest handicap is styling problems. Consumer Reports noted that, among the new subcompact cars, the Gremlin "has the tightest rear seat, rear wheel traction is poor, and [the car] is relatively clumsy to handle."

Still, Chapin is convinced that he can steer American out of its troubles. For the moment, he seems to be making progress.

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