American Motors Hangs In There

American Motors Corp., smallest of the four U.S. automakers, has always been an up-and-down company, but lately it has hit a longer-than-usual losing streak. Beset by both bad luck and bad judgment, A.M.C. lost $73.8 million in its past two fiscal years. Its own accountants warned that the company's ability to stay in business depended partly on whether it could repay or extend bank loans that fell due in early 1977. By the time Chairman Roy Chapin Jr. faced stockholders at the annual meeting last week, that crisis had passed. Chapin told the group that A.M.C. could break even in fiscal 1977. But all auto-industry forecasts may have to be revised because of the impact of layoffs forced by cold weather and fuel shortages.

On the eve of the meeting, Chapin announced that a group of U.S. banks had agreed to extend for a year a $72.5 million credit that expired Jan. 31. Also, A.M.C. negotiated the sale of stamping-plant equipment in South Charleston, W. Va., to Volkswagen. Though A.M.C. will now have to buy parts from Volkswagen, the sale will raise much-needed cash. How much, Chapin will not say, but it appears that A.M.C. will be able to redeem some $20.5 million in notes held by the Union Bank of Switzerland that come due Feb. 28.

Fish Bowl. Stockholders, who have received no dividends since 1974, were not mollified. Their questions and complaints dragged the annual meeting out to 2 1/2 hours, twice its normal length. Noting that Chapin's salary has just been raised from $225,000 a year to $245,840, Shareholder Harry Korba asked, "Why did you not have the decency to tell the board you would refuse the increase?" The dapper Chapin replied, "We are not going to discuss my cost of living." Another shareholder, Jerry Fylonenko, said that car buyers he had talked to variously described A.M.C.'s squat, glassy Pacer as "a fish bowl, a candy machine or a pregnant roller skate." Overall, though, the mood of the meeting was less one of anger than of sad resignation. Said Shareholder Bert Sampson: "The stock is so far down now [4 1/8 at last week's close] that there is no point selling it. We might as well stick around and see what happens."

What has happened to A.M.C. so far is that in all the 23 years since it was created by the merger of Nash-Kelvinator* and Hudson Motor Car Co., the company has never been able to find a secure niche in the auto market. It prospered in the late 1950s by bringing out the first U.S. compact, the Rambler, but then lost much of its market share when General Motors, Ford and Chrysler started making compacts too. In the mid-1960s it tried to compete against the Big Three by offering a wider range of car sizes and lost disastrously. In 1970 A.M.C. again anticipated public taste by introducing the first U.S. subcompact, the Gremlin, and by 1973 profits were boosted to $44.5 million.

But in the past two years, mercurial motorists have shifted again and are now buying bigger cars, which is hurting A.M.C. Management mistakes have added to the damage. Introduced in 1975, the Pacer could offer only a disappointing 17 m.p.g., but its unconventional looks probably put off buyers even more; sales have never matched expectations.

For the 1978-model run, Chapin plans some changes. A.M.C. will introduce a new luxury compact to compete with such cars as the Ford Granada and Dodge Aspen, and will give the Pacer a peppier engine. The Gremlin already comes with an option of a fuel-miserly four-cylinder power plant. The company, Chapin told shareholders, remains committed to small cars; he prophesied that the U.S. "will be a small-car nation by the 1980s."

Other parts of A.M.C.'s business have been doing well. The Jeep division is setting sales records, and at year's end AM General had a huge backlog of orders for buses. As for passenger cars, cost cutting has reduced A.M.C.'s breakeven point, some observers estimate, to fewer than 300,000 autos a year. The company may be able to sell at least that many if predictions come true that total car sales in the U.S. this year will hit 11 million--but in the past few weeks that has become a giant "if." American Motors President William Luneburg poses these questions raised by the energy shortage: "Do you really think that the people out of the market because of unemployment can be counted on to return, and in what numbers, and when?" American Motors will undoubtedly hang on in the sales race, but its hopes for stopping the flow of red ink are once more in the hands of outside forces.

*Nash-Kelvinator's predecessor, Thomas B. Jeffery Co., was founded in 1902, so A.M.C. can technically claim to be 75 years old.

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