Autos: Job for a Giant Killer

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After four years of a broadening national economy and bursting auto sales, times have never seemed chromier for Detroit's automakers—except for American Motors Corp., which has been beset by declining sales, growing financial troubles and, most recently, an alarmingly oversized inventory. American now has 93 days' car production unsold, against a current industry average of 45 days. At the corporation's annual meeting next week, stockholders will hear about slightly lower sales ($991 million in 1965 v. $1 billion in 1964), greatly reduced earnings ($5,000,000 v. $26 million), and a shrinking share of the auto market (currently 3% v. a high of 6.42% four years ago). Detroit is seriously worried that unless the company does something drastic to restore its health, American Motors will be on the critical list within the next few years. A.M.C. is a $1 billion corporation, which would seem large enough for stability—except in the auto industry. In a field of behemoths, A.M.C. is not big enough to compete under present conditions. Last year it sold 322,095 vehicles in the U.S.; General Motors' Chevrolet Division alone sold seven times that number. Smaller volume means higher per-car production costs. With only three lines of cars, A.M.C. is less able to shift assembly lines to a stronger sell (the Ambassador) from a weak one (the American). The company has also been hurt by unsuccessful design. Moreover, running close to the line on finances, A.M.C. is less able to withstand the kind of multimilliondollar styling or engineering mistake that every auto company is susceptible to but that the Big Three manufacturers can easily write off.

The "Image Lag." A.M.C.'s difficulties are widely blamed on a lack of vision in the past. Five years ago, when recession-affected Americans turned to compact cars, the company's Rambler was first and foremost in the domestic compact market, almost became king of the road. Just to meet the demand and get the car into customers' hands, A.M.C. President George Romney—now Governor of Michigan—permitted archaic and costly work practices to continue. A.M.C. executives now complain, with hindsight, that Romney paid lavish dividends to stockholders and perhaps too conscientiously used earnings to take the company completely out of debt. Antiquated multilevel plants in Kenosha, Wis., and Milwaukee were not replaced.

When other companies moved in on the compact market with racy V-8 engines and bucket seats, A.M.C. was styled out. With growing national prosperity, the desire for compacts and economy faded. And for the small segment of buyers still primarily concerned with economy, high production costs make A.M.C. Americans $200 to $300 more expensive than throaty little Volkswagens. The Volks, though smaller and lighter than the American, outsells it better than 4 to 1 in the economy market, for which they compete.