American Motors Corporation
American Motors Corporation
27777 Franklin Road
Southfield, Michigan 48034
In 1953 two leading manufacturers of automobiles, Hudson Motor Car Company and Nash-Kelvinator Corporation, suffered sudden, serious setbacks in their positions in the United States car market. Both firms were confronted with sharp reversals in their financial performances, and in the following year their separate corporate existences were brought to an end. On May 1, 1954 Hudson Motor Car Company merged with Nash-Kelvinator Corporation to form the American Motors Corporation.
The merger, which was widely viewed as an essential move in a struggle for survival by the relatively small independent manufacturers of automobiles, did not provide immediate solutions to the problems of the companies; indeed, it seemed that the new firm might not be able to survive.
From 1954 through 1957 the company did not report a profit. For each of its first four annual reports, American Motors recorded losses before tax adjustments varying from a low of approximately $12 million to a high of almost $29 million per year, the firm’s largest loss having occurred in 1956. The situation became so serious that officials of the company publicly acknowledged that American Motors could not survive very long if such heavy losses continued.
Although they came close to failure in their automotive operations, American Motors survived the ordeal. In fact, the company staged one of the most impressive comebacks in the history of American business, earning more than $25 million before taxes in 1958, $105 million in 1959, and equally large profits in the following years.
American Motors Corporation began business May 1, 1954 under the leadership of George Mason. However, less than six months later Mr. Mason died suddenly at the age of 63. On October 12, 1954 George Romney, who was second in command at the firm, was elected chairman of the board of directors, president, and general manager of American Motors Corporation. Romney took control at a crucial and difficult time. Competition within the industry was at an all-time high and American Motors had had little time to forge an effective management team from the personnel of the two previously separate and ailing companies.
For several months after the merger American Motors continued to produce the 1954 Hudson and Nash models that had been previously introduced. Late in 1954, however, the firm brought out new Nash and Hudson models based on the former Nash body shell. The previous Hudson bodies were dropped entirely, and the 1955 Hudson models were really Nashes with slight exterior differences. With the introduction of its 1956 models in December of 1955, American Motors began to place greater emphasis on its Rambler series. The 1956 Rambler models were described as “completely new” in that they were small-sized, and were considered the new “basic volume” car of the firm. Separate facilities were provided at Kenosha, Wisconsin for the assembly of the Rambler model. During the same time, the Milwaukee plant was used for the assembly of Nash and Hudson models using the full-sized body shell. However, even though Rambler had begun to show greater sales promise, the executives at American Motors were undecided as to whether the company should return to the role of a specialist producer.
Such an image of the company was acknowledged by George Romney himself. While promoting his firm’s small-sized Rambler models, Romney predicted, “There will be a smaller percentage of mechanized dinosaurs in the American driveways of the future. However, if you still want them, we’ve got them, too, built a better way our dinosaurs are smoother, safer, and roomier.”
In September of 1957 American Motors reported a further consolidation of its operations. The full-sized Nash and Hudson models, whose sales had been disappointing since the merger, were discontinued. They were replaced by the Rambler Ambassador, which used many of the basic body parts of the regular 108-inch wheelbase Rambler line on a 117-inch wheelbase car. The 108-inch wheelbase was first introduced on Ramblers in 1954. In addition, the earlier 100-inch wheelbase model was again put into production in late 1957 and reintroduced in January 1958 as the Rambler American. This was probably the only time that a discontinued car was ever reintroduced. It used the basic body of the earlier 100-inch wheel-base Rambler which had been discontinued after 1955, but it had altered hood, rear deck, and fenderlines. Thus, by the end of 1957, American Motors was still producing cars using different basic bodies, but they were all known as Ramblers, including the Rambler, Rambler Ambassador, and Rambler American. In late 1957, three years after the merger, American Motors reported that its manufacturing consolidation program was complete. The firm’s automotive lines had been simplified, and company officials believed that significant savings had been made possible through the elimination of duplicate facilities.
From 1954 through 1957, then, extensive changes were imposed upon the combined Nash and Hudson organizations. As a result, American Motors finally became a profitable operation. In 1958 the company was able to show its first annual profit. Moreover, it was the only domestic automobile manufacturer to improve its position in 1958. Factory sales of its cars rose almost 60% and dollar sales of the firm rose more than $108 million above the amount of 1957. An operating profit of $25 million was obtained. American Motors became the pacesetter for the industry, leading the way with its compact car and enjoying exceptional profitability ratios. The company’s Kenosha plant became the most used assembly plant in the industry. And, although the other domestic firms followed its product leadership into the compact car class, American Motors’ sales remained at high levels.
In abandoning the broader line, which it initially had sought through the merger, American Motors based its strategy for survival and prosperity “on cars that are distinctive and unique - cars that do not compete head on with automobiles of the Big Three” (Ford, Chrysler and General Motors). The improvement in company sales was a direct result of the rising popularity of its Rambler model.
Credit for the turnaround in the firm’s fortunes must also be given to the executives at American Motors. Although many managers had favorable offers of higher pay from other companies, they remained loyal. The five highest paid executives even accepted a voluntary reduction in salary averaging 25.9% in 1957. Much of this perseverance must be attributed to the corporation’s charismatic leader, George Romney.
In 1956, Romney was appointed chairman of a citizen’s committee on education. The exposure he received made him popular with the many Americans who sought a strong leader able to address pressing national issues and command bipartisan support. When he resigned as President of American Motors in 1962, Romney successfully ran for the governorship of Michigan. Later, he was to become a widely respected candidate for president, losing to Richard Nixon in the 1968 Republican primaries.
The Rambler models, perhaps more than any other single factor, made American Motors a profitable company. They won acclaim from many sources including, among others, selection as a “best buy” by Consumer Reports, and as “car of the year” by Motor Trend magazine. Even more important was the acclaim the car received from consumers.
The decade of the 1970’s found American Motors once again in the position of fighting for its existence. Not only were its car sales running 30% behind those of the previous decade, but it was burdened with an aging product line, a shortage of cash to finance model changes, and growing competition in the small car market. Whereas its Gremlin and Pacer had once dominated the small car market, strong competition from other car makers, especially Chrysler, now jeopardized the company’s market share. Successive chairmen, such as Roy Abernathy, Roy Chapin, William Lundberg, and Gerald Meyers, seemed unable to stem the tide against them, and between 1974 and 1978 the company watched its share of total U.S. sales shrink from 3.8% to 1.2%. It was only through profits from the company’s Jeep and AM General (bus and government vehicles) divisions that AMC offset losses in auto operations.
By the late 1970’s it was clear to most industry analysts that American Motors needed a partner who could fund a badly needed line-by-line overhaul. In 1978 it was announced that the company would link up with Renault in a reciprocal agreement to sell and eventually build cars designed by the French company. The new strategy initially had a positive impact. By 1982, when the merger actually took place (Renault acquired a 46% stake), American Motors’ automotive operations reported net profits of $38.8 million, compared with losses totaling $89 million in the three previous years. But this did not last long. By 1985, sales of its sub-compact cars, especially the Alliance and Encore, had started to decrease and Renault had lost approximately $1 billion of its own money. Most of American Motors’ profit continued to come from its popular four-wheel drive Jeep specialty vehicles, not from its hard won 2% share of the U.S. passenger car market.
The burden of such figures would fall on Jose Dedeurwaerder, a Belgian who controlled American Motors’ operations as president from 1982 to 1986. An engineer and 23-year veteran of Renault, Dedeurwaerder is credited with streamlining many of the company’s arcane management techniques. He also instituted important improvements in plant layout and cost and quality control.
Yet by 1986 the struggle to avert bankruptcy remained formidable. Leadership of the company passed to Joseph E. Cappy whose conservative management promised a return to profitability. By striking a favorable agreement with the United Auto Workers, by reducing costs by 25%, and by improving the product development, company executives predicted 1987 would bring a turnaround in American Motors’ performance. But the prediction was not fulfilled. The company’s share of the U.S. car market has continued to decline, operations continue to post losses, and production has stabilized at about 49% of capacity.
Early in 1987, the Chrysler Corporation offered to buy the 46% stake in American Motors held by Renault. The final bid, enhanced from $4 per share to $4.50 per share, gained the approval of American Motors Corporation’s board of directors. The total purchasing price will ultimately depend on the amount of royalties paid to Renault for the sale of its AMC Jeep and Premier models. The royalties, which will be paid through 1991, could increase the bidding price to $350 million. Although the merger offer is a friendly one, the position of Joseph Cappy, company president and chief executive officer, remains uncertain.
American Motors Sales Corp.; American Motors Realty Corp.; American Motors Leasing Corp.; Evart Production Co.; Coleman Products Co.; American Motors Pan American Corp.; Jeep Corp.; McDonald Molding, Inc.; Mercury Plastics Co.; Rantoul Products, Inc.; American Motors (Canada) Inc. Additional subsidiaries and affiliaties include American Motors Corporation de Venezuela, CA; American Motors Financial Corp.; Arab American Vehicles Co.; Beijing Jeep Corp.; Jeep Australia Pty., Ltd.; Jeep de Venezuela, SA; Mahindra & Mahindra, Ltd.; Vehiculos Automotores Mexicanos, SA.
The Automobile Industry since 1945 by Lawrence J. White, Cambridge, Harvard University Press, 1971; The Decline and Fall of the American Automobile Industry by Brock Yates, New York, Empire Book, 1983.