Reaching for the Biggest Market

By Janice Castro

AMC, with a hit car in the U.S., wil make Jeeps in China

The American jeep, a favorite vehicle of World War II G.I.s and weekend off-the-road runners, is on the way to China. Last week in Peking, American Motors Chairman Paul Tippett and Wu Zhongliang, general manager of the Peking Automotive Industry Corp., signed an agreement for the joint production of Jeeps in China.

AMC's Chinese deal is the latest in a series of moves to boost sales ($2.9 billion in 1982) and put the firm back in the black. That will be no easy task. Two weeks ago AMC announced first-quarter losses of $66 million. During the past three years, it lost a total of $491 million.

The company will provide $8 million in cash and another $8 million in technological assistance to China for a 31.4% share in the $51 million venture. AMC says it will reinvest profits from the operation until its stake reaches 49%.

During the first phase of the plan, AMC will retool China's standard jeep, the BJ-212. Called a "Jipu" in Chinese slang, the BJ-212 is a 30-year-old vehicle of partly Soviet design. AMC will install a fuel-efficient, four-cylinder engine and other improvements. The first spruced-up Jipus will roll off Peking's assembly lines in 1984. Starting in 1987, the vehicle will be replaced by a version of AMC's popular CJ7 Jeep.

For AMC, last week's agreement establishes a solid base in the Asia-Pacific market, since the U.S. company will have all export rights for Chinese-built Jeeps. Said Tippett: "This is a major, long-term opportunity for us." Sales in the region of four-wheel-drive vehicles, currently 100,000 a year, have been growing by about 30% annually.

AMC has been undergoing a major overhaul since 1979, when Renault, France's leading automaker, began buying into the company. The French firm now owns 46.4% of American Motors, and AMC's president, Jose Dedeurwaerder, comes from Renault. Joining forces with the French was probably the only hope for survival for AMC, a lilliputian in a brobdingnagian land. With sales of $60 billion, General Motors is almost 21 times as big as AMC, whose share of the U.S. auto market reached a nadir of 1.2% last August.

During the past four years, AMC has been developing a French accent. Except for the four-wheel-drive Eagle, the firm has retired all the passenger cars it used to make. In their place is a new line of cars imported from France, including the subcompact Le Car and the sporty Fuego. The smash hit, though, has been the appropriately named Alliance, manufactured in Kenosha, Wis.

Introduced last September, the Alliance (base price: $5,595) is the fourth leading subcompact, behind the Ford Escort, the Nissan Sentra and the Chevrolet Chevette. That is no small accomplishment, since the three leaders all have much larger dealer networks. Consumers say they like the Alliance's low cost and fuel efficiency (37 m.p.g. in town, 52 m.p.g. on the highway).

Thanks to the Alliance, which accounted for 91% of AMC's car sales during the first quarter, the company's U.S. market share has more than doubled, to 2.6%. While AMC originally had hoped to sell 100,000 Alliances this year, it now expects to sell 150,000, and this fall will launch a hatchback model called the Encore.

Rebuilding its product line presents AMC with daunting cash needs. Between 1984 and 1987, the company plans to invest $1.2 billion. To help foot that bill, AMC last month raised $58.8 million in a public stock offering. The company is also looking for a buyer for its AM General subsidiary, which supplies Jeeps to the U.S. Postal Service and trucks and other vehicles to the Army. The company's only profitable division during the past three years, AM General will probably sell for about $200 million.

All the new business will be good news for AMC's workers. In the past 18 months, AMC cut its work force by 15%, to 22,000, and won wage-and-benefit concessions worth $90 million from those who remained. But last week the company rehired 800 laid-off employees to help produce the Alliance. "We're a long way from where we want to be," says Kenosha Plant Boss Dennis Montone, "but we're on the road."

That mood extends up through the ranks to Chairman Tippett, who says, "The AMC train is finally leaving the station." After the agreement in China, the AMC train might be called the Orient Express. --By Janice Castro. Reported by Paul A. Witteman/Detroit

With reporting by Paul A. Witteman/Detroit This file is automatically generated by a robot program, so viewer discretion is required.