'Poor relation' AMC pins hopes on Renault marriage
For years American Motors Corporation (AMC) has been the poor relation of the auto industry. Perennially strapped for cash, the company could not afford to bring out a new car every year or two to boost traffic in dealers' showrooms.
''We would bring out a new car, and then you wouldn't see any new products for four or five years,'' admits W. Paul Tippett Jr., AMC board chairman. As a result, the company's share of domestic car sales plunged and now hovers around 2.6 percent.
But AMC married money when it formed an alliance in 1979 with France's state-owned Regie Nationale des Usines Renault. By the end of 1982, Renault is expected to have pumped $350 million into the struggling US automaker. The money will help it tool up to build Renault-designed vehicles in the United States. In return, Renault now owns 46.4 percent of AMC's stock.
AMC's strategy of relying on international cooperation is about to get its acid test. The company is already making preproduction versions of a Renault-designed compact, which will begin rolling off an AMC assembly line in Wisconsin for sale this summer. AMC hopes to eventually double its share of the US auto market by building cars on which Renault has done most of the expensive development work. AMC dealers also will sell imported Renault vehicles like the Fuego.
Meanwhile, AMC will concentrate on coming up with new Jeep models for the four-wheel drive market. AMC will continue selling Jeeps in the US, while Renault dealers will offer them in France.
The significance of AMC's attempt at international collaboration extends beyond the fortunes of one car company. The AMC arrangement is likely to be a forerunner of closer ties between other international auto makers. That the deals will not be limited to small companies became clear March 8, when Toyota Motor Company and General Motors Corporation announced they were exploring the joint US production of small cars.
''There is no question (international alliances) will have to happen. Everyone agrees there will have to be a shakeout in the number of car makers worldwide,'' notes John Hammond, Data Resources Inc. auto analyst.
There is little doubt the link with Renault has helped AMC. ''We are bullish on the affiliation. It is good because Renault brings product'' which AMC could not afford to develop, says Chase Econometrics Inc. auto analyst William Pochiluk.
Michael Rinaldi, sales manager at E.P. Fournier Co., an AMC dealer in Pawtucket, R.I., cheers the link with Renault. ''It has brought in the import buyer, someone we have not had access to with the AMC line.''
Still, industry experts are not sure Americans will give Renault-based AMC products as warm a welcome as the company hopes. During its first year on the market, AMC hopes to sell 100,000 cars based on Renault's R9 model. The company could eventually sell 200,000 units a year, Mr. Tippett says.
''They are coming with an attractive small car. But the market will be pretty crowded,'' says David Healy, auto analyst for Drexel Burnham Lambert Inc. He notes the AMC car, likely to be called ''Alliance,'' will be up against entrenched competitors like Chrysler Corporation's Omni, Ford Motor Company's Escort, and GM's ''J'' cars and Chevette.
However, ''Alliance does have a strong European flavor which the consumer will find more attractive than some of the domestic products,'' says Chase analyst Pochiluk.
In addition to having to compete on product appeal, AMC's new cars also must do battle on price. And since the company buys more car parts than any other US maker, ''they have to be the high-cost producer,'' in the domestic industry, analyst Healy says. AMC says the cost penalty is not significant.
In today's market product quality is as important as price in selling cars. AMC will soon discover whether a significant number of consumers harbor memories of the last time Renault products had a significant share of the US market. In the late 1950's the Renault Duaphine model was sold in the US, but did not stand up to US driving conditions. To avoid repeating those problems, AMC is launching the Alliance carefully to catch any problems before they reach the consumer.
An alleged quality problem currently haunts AMC's Jeep line. The CBS program ''60 Minutes'' asserted in a recent segment that the CJ-5 Jeep model was subject to tip over under extreme driving conditions. A company official notes that the ''allegations are based on supposed research using highly suspect methods and using mechanical devices to drive the car which in no way approximates normal driver behavior.''
The company is understandably sensitive about the Jeep's reputation since it is spending hundreds of millions of dollars to bring out a redesigned, more fuel-efficient Jeep in 1983.
AMC expects the four-wheel-drive market to snap back from its current depressed levels when the economy picks up. ''Demand is there, the life style (that requires a Jeep) is there,'' Tippett says.
''It will come back, but not as strong,'' as the 1-million-units-a-year sales pace posted in 1978, says Mr. Healy. And when consumers do want Jeep-type vehciles, AMC will face both domestic and international competition. ''There will be a major initiative from GM and Ford . . . and the Japanese will have entries (too),'' says Chase analyst Pochiluk.
In facing the tough competition that lies ahead, AMC's alliance with Renault will be a major help. But Renault's pockets are not deep enough to guarantee AMC's survival. In fact, last year Renault lost an estimated $150 million. To avoid cutting product programs or asking Renault for more cash, AMC is seeking concessions from its workers.
While it still faces significant challenges, AMC executives argue that new car products, coupled with continuing strong sales of trucks by their AM General subsidiary, promise a brighter future for the firm. ''If we ever get the (auto) market turned around, a lot of good things will happen because we are doing the right things from an underlying point of view,'' Mr. Tippett argues.