American Cars: A Narrowing Choice

Despite extraordinary gains in the sale of small foreign cars in this country, Detroit still seems to doubt that this relatively new market is worth developing. But while the number of American manufacturers has been diminishing, more and more producers overseas are finding buyers here for an increasing variety of their models. JOHN L. HESSis a New York journalist who specializes in business.

The passing away of the Hudson automobile line in its fiftieth year and of the Nash in its fortieth hardly caused a ripple. In a nation of motorists, nobody cared.

The announcement was made at the end of September at a closed meeting of American Motors dealers in Chicago. Apparently the Hudson and Nash nameplates had become a handicap; henceforth, American Motors’ hopes would ride on the Rambler name. The company reported that the dealers were “wholly in accord” with the decision. Evidently the market was in accord too, for the following day American Motors stock went up 67½ cents a share to $7.

No doubt the step was good business and long overdue. As salesman Willy Loman might put it, the Nash and Hudson cars were liked, but not well liked. In the fiercely competitive automobile sales race, they finished last. In 1957, only 3561 Nashes and 1345 Hudsons were made — less than one tenth of one per cent of the industry’s total. Obviously, something had to give.

But the passing of two more American car lines poses grave questions: Is there room in the automobile market for the variety and competition that have characterized it in past years? And is there still room in the automotive industry for the small company?

The term “small” is of course relative. In 1956, a bad year for them, sales of American Motors and Studebaker-Packard totaled nearly three quarters of a billion dollars, and their assets exceeded half a billion. Counting employees, dealers, and stockholders and their families, perhaps a million persons are more or less dependent on them. It has been suggested that the failure of either of the automotive “independents” would be the largest industrial collapse in history. Certainly they have been close to the brink. In the last four years, the two companies have lost something like two hundred million dollars.

The demise of the Hudson and Nash is, then, of interest to more than the antiquarian. Why did these two, of all the model lines offered in 1957, fare the worst? The experts of the consumer and technical magazines rated them more or less with the rest. And it becomes increasingly difficult to tell one make of car from another. And engineers and mechanics agree that there is not a decisive difference in quality or design between rival models in a given price range. Nor, generally, from one year to the next. As Harlow Curtice of General Motors has pointed out, Detroit never puts out a revolutionary new car.

If, then, the Nash and Hudson were reasonably equivalent in design and quality to their competitors, wherein did they fail? In price? Factory prices in the industry are fairly uniform, and the hard-pressed Nash and Hudson dealers always were ready to offer a better deal than anyone else. In cost of production? Not at all. The independents have far lower break-even points (the number of car sales it takes to cover overhead and start making a profit) than do General Motors, Ford, or Chrysler.

It is a myth that the bigger the company, the lower its costs. At some point of diminishing returns, the reverse becomes true. In recent years, the Big Three have learned, at some expense, that it is not always cheaper for a company to make all its own parts. Somehow the smaller company, lacking the capital, buying power, and huge research budget of the big one, but also lacking the vast overhead and sprawling bureaucracy, often is able to produce something better or cheaper or quicker. Management of the smaller concern is closer to the problems of production and marketing; the carrot of profit and the club of necessity are more intimate companions. Survival is always in question. A retired executive of a great electrical corporation writes in his autobiography that throughout his career, smaller competitors consistently produced more cheaply than his company could. Most of the competitors are gone, though. His company is bigger than ever.

If it was not in quality or price or efficiency that Hudson and Nash failed, where then? The reason most often mentioned in the trade is that an “off make,” once it leaves the dealer’s showroom and becomes a used car, depreciates in market value even faster than do the top-selling cars. Obviously many thousands of motorists who would just as soon buy a Hudson or Nash were deterred by this fact. But this begs the question. The car with fewer sales depreciates faster because it has fewer sales. But why so few sales in the first place?

Clearly, the great edge of the giant companies lies in their vast advertising budgets and marketing organizations — the standard brand, the slogan dinned into the subconscious. The car is not merely a vehicle, but a symbol of social and financial status; to drive a car that is a business failure is to suggest that one is not a success.

There is, further, the matter of margin for error. To a smaller company, a misjudgment of the market can be fatal. The giants can afford to make mistakes and their slips hardly show; General Motors lost a little ground in the 1957 car sales race but cleared more than three quarters of a billion dollars after taxes.

Ford says it has bet a quarter of a billion dollars that what the auto industry needs is another gaudy car in the medium-price range. (It spent a fortune on a survey to find the name with the most sex appeal, then threw out the result and christened the car Edsel.) Ford may be right but, according to the Wall Street Journal, its Mercury dealers are complaining that the Edsel is hurting them rather than its competitors. In any case, it cannot be said that competition is dead: the day after the Edsel appeared, its sister Ford model division splashed big newspaper ads reading “Why pay more?” Sales of Edsel in the early months have been crushingly disappointing. If Ford loses its quarter billion (deducting 52 per cent from income taxes), it will survive, while a lesser company would fall by the wayside.

BY THE same token, when a smaller company pioneers an automotive trend, it is unable fully to exploit it. Studebaker, the one-time carriage maker, has a long history of leadership in design and quality, yet it has suffered disastrous losses in the last four years, and its share of the market has slumped to one per cent.

Curiously, these losses are all that keep Studebaker-Packard going. Under the tax code, a company that is losing money takes its past losses with it if it merges with another corporation, and these losses may be deducted from future profits. Thus a deficit becomes an asset with a definite market value. Studebaker was on the verge of bankruptcy in 1956 when Curtiss-Wright bailed it out by buying the military segment of its business for $35 million. Curtiss also took effective control of the automobile company, and it is generally expected to merge with it in 1958, gaining a tax-loss credit that has been estimated at more than $150 million.

But to pick up a huge corporation in this way virtually for nothing will benefit Curtiss not at all if Studebaker continues to lose money at the pace of recent years. The cases of the Nash and Hudson and the Kaiser and Willys, not to mention the Studebaker and the Packard, would seem to demonstrate conclusively that any company will lose money that tries to fight the Big Three on their own ground. Yet Studebaker-Packard under the Curtiss management has stubbornly brought out a 1958 line that, like the rest of the industry’s, is longer, lower, wider, and costlier. (The mind boggles at the thought of all those garage doors that were widened for the 1957s having to be done over again.)

To be sure, Studebaker has made one tentative step out of line with a stripped-down version of a standard car, which it calls the Scotsman. But its basic outlook apparently is still that of its former boss, the noted salesman James J. Nance. Now a Ford vice president, Mr. Nance said recently: “Our surveys have found . . . no evidence that the American public is interested in lowering its standard of living by buying an economy car on a large scale.”

In defense of recent style trends, Ford executives tell of a poll taken some years ago. As reported by the New York Herald Tribune:

Two questions were asked: What kind of car do you want to buy? And what kind of car does your neighbor want to buy? The answer to the first most often pictured a car that was austerity itself—small, economical, with a minimum of chrome and only the necessary accessories. Answer to the second question, however, was just the opposite. The neighbor wanted a long, low “boat,” with a lot of horses under the hood and every gadget made.

Ford wisely produced the kind of car the “neighbor” wanted. The result, when the car was introduced some years later, was that Ford enjoyed its best year in history.

Whether the above is a parable or actually happened, Detroit certainly has been making the long, low boat that the neighbor wanted, and with more horses under the hood than he ever dreamed of—although it is not stressing that in its advertisements this year, pursuant to a highly publicized safety pledge made by the industry last spring.

And who can quarrel with success? In the 1957 sales race, Chrysler’s high-tailed gee-whiz line was a standout. For the 1958 model-year, Chrysler is staying with its winner, while the others hasten to conform.

Yet one wonders whether, in this era of multimillion-dollar advertising budgets, the public taste creates the style trend, or vice versa.

THE glittering prospect from Detroit’s point of view is darkened by a cloud no larger than a Volkswagen. A frankly homely little car, without style, chrome, and advertising, its sales in the American market have soared from six hundred in 1952 to more than sixty thousand in 1957 and would have been much greater had the cars been available to meet the demand.

With the help of modest advertising budgets, sales of the somewhat more stylish British cars in this country have tripled in the past three years, to roughly seventy-five thousand. With similar promotion, the Renault has been fast overtaking the Volkswagen. Sales of all foreign cars doubled in 1957, to a total of about two hundred thousand. Sales of American cars have held below six million a year since reaching their high mark of seven and a half million in 1955.

The small-car boom has not, of course, gone unnoticed in the head offices of the Big Three. The prevailing reaction is one of skepticism, tinged with concern. Ford’s vice president in charge of styling asserted in a speech recently in Los Angeles (where one dealer last October placed a $30 million order for British cars): “Automotive styling abroad is now at the point we reached twenty years ago.” But the Wall Street Journal reports: “Ford Motor has called on the Institute of Motivational Research to find out why Americans buy foreign economy cars.”

Pending so formidable a study, one may perhaps speculate on the reasons. The question is of sufficient importance to the economy to engage the attention of the Federal Reserve Bank of Philadelphia, which reported in its October Business Review signs of “consumer disenchantment” with the neighbor’s increasingly long, low, and impractical boat and doubts about the actual need for “more horsepower so we can go faster bumper to bumper.”

“The biggest cars — once the symbol of wealth — are slowly being replaced with small sports cars,” the bank said. “This is confusing to many consumers. Why move up to bigger cars when many ‘tastemakers’ are buying smaller ones?”

Aside from the field of hidden persuasion, the bank points out that car prices in the last decade have risen twice as fast as have prices in general. For a time, “easy” credit disguised the price increase, for by extending the period of repayment, sellers kept the monthly payments virtually unchanged. But this trend went just about as far as it could go in the feverish selling campaign of 1955. (A good many 1955s are not yet paid for.) Since then, price increases have registered on the monthly payments. The recent downturn in general business strengthens the view that the 1958 model-year may be a difficult one.

The price squeeze and traffic and parking conditions suggest that the potentialities of the small car have not yet been scratched. It is curious that no American company has yet tried to build a small but first-rate car; the first efforts in this field were mechanical fiascoes that set the trend back for many years.

American Motors, to be sure, scored a modest success with its in-between-size Rambler while it was plunging into the red with the Nash and Hudson. And sales of its British-built Metropolitan have been excellent. But it has been surprisingly reluctant to acknowledge the lesson. The Rambler has stretched and bulged in an effort to look like the big cars. The Volkswagen for a time passed it in popularity. It is only in this modelyear that George Romney of American Motors has proclaimed the small car the car of the future, and has revived the 100-inch wheelbase.

The argument offered by Detroit executives is that it would cost too much to tool up for a small car, and that even then they could not compete with the lower wages paid by European manufacturers. This seems a curious argument, coming from the birthplace of mass production; one is reluctant to believe that the American car industry with its vast resources and market cannot hold its own — with the protection of a 9.5 per cent tariff to boot.

It may be suggested that the great advantage of the Europeans is not low wages but the fact that they have never adopted the shibboleth of Detroit, the annual model changeover. This practice, sometimes called planned obsolescence, has not only added hundreds of millions of dollars a year to costs, but is also the mainspring of the relentless drive toward gaudier styling and wilder gadgetry.

Evidence that an American car company can make a profit on relatively small sales is provided by the humble Jeep. Its corporate sisters, the Kaiser, Frazer, Henry J, and Willys, tried to keep up with the pace of fashion and were dismal failures. The Jeep keeps rolling along. No changeover, no deficits.

To a fuddy-duddy who thinks a 1932 Buick was the best car he ever owned, there is special interest in the announcement that Checker plans to make a limited number of family cars in 1958, high, roomy, sensible ones, with hardly any chrome and no fixed annual changeover. Now that private cars have taken over the garish hues of the taxis, it seems only fair that the old-fashioned cab should take over the family garage.

A GENERAL MOTORS executive has said that sales of foreign cars would have to go up to 500,000 a year before his company would consider turning out an economy car. (Curiously, the British motor industry takes the same wait-and-see attitude with regard to the Continental “baby" or bubble cars, which are beginning to have a vogue.) Mr. Nance suggests that Ford may make its contribution to “a lower standard of living” if foreign car sales rise to 5 per cent of the market, which would be roughly 300,000 cars. It is not a daring prediction that Mr. Nance’s resistance point will be breached in 1958.

Meanwhile, the British Ford is doing well in this country (third in sales of foreign cars, behind Volkswagen and Renault), and General Motors has begun to import its Vauxhalls from Britain and a specially designed Opel Rekord from its German subsidiary. Studebaker dealers are offering the Mercedes Benz at the upper end of the car spectrum and, at the lower end, a German baby car with the engagingly infantile name Goggomobil. Chrysler’s executives have been touring Europe in search of competitive vehicles, and there have been rumors of a deal with Renault or of outright purchase of a line such as the British Standard.

The purpose here is not only to test the market for small cars and to make a few dollars, but to relieve the condition of dealers selling American cars in the medium-price range. A phenomenon of the 1957 market was the squeeze on these cars, exerted by the very companies that make them. With the low-price cars so high-priced, large, and gadget-packed, the incentive to “trade up" was reduced. And if one wanted a classier vehicle, the cheapest Cadillac, Lincoln, or Chrysler was not so very much higher than the costliest Chevrolet, Ford, or Plymouth. It was this situation that raised eyebrows in business circles when Ford brought out the Edsel.

Prior to 1956, a dealer was not as a rule permitted to sell new cars of any make other than the one for which he held the franchise. But in 1955, while car sales were hitting their all-time high, thousands of dealers failed; this brought on the Senate O’Mahoney inquiry into the pressures brought on dealers by car makers. Subsequently, the industry eased the franchise terms.

Dealers have since found that they often can make as much profit on an imported car selling in the $1400 to $1800 range as they can on an American car costing a thousand more. This is because the demand for foreign cars so far has exceeded the supply, and list prices therefore have held firm, while the cutthroat competition among dealers even in the same line of American cars has made heavy discounts and inflated trade-ins standard practice.

Foreign automobile companies privately concede that their happy days in the American market are too good to last. Perhaps within a year, almost certainly within two, one of the Big Three will take the plunge into the small-car field, and the others will follow virtually immediately. This will indeed cause a change — if not, as Mr. Nance puts it, a decline — in the American standard of living. At the same time, especially if the economy continues under pressure, one may expect a further shrinkage in the number of competing makes in what ultimately will become known as the large-car field.

Will the industry then narrow down to three producers (or even fewer), and will the choice of the motorist then continue to contract? No doubt, with their vast resources, the giant companies will dominate the small-car field, when they get around to it. But one must hope that flexibility and imagination will enable some of the smaller companies to stay on the road and maintain a healthy degree of variety rather than conformity on the highways.