PDA

View Full Version : 06/22/1954



plwindish
06-22-2012, 08:30 AM
According to Hemmings, on 06/22/1954 officials from Studebaker and Packard signed the merger agreement. Was that the right move for both companies?

BobPalma
06-22-2012, 10:13 AM
For Studebaker, yes. Packard, no.

Which is not to say Studebaker sunk Packard, although it helped.

In reality, the skids were greased heavily for all the independents by that time: Their composite market share had dwindled to 6.77% by the end of 1953, versus 13% for 1952. BP

Studedude1961
06-22-2012, 10:33 AM
Some wag (I forget who) described the merger as "two drunks helping each other cross the street." The paring gave Studebaker perhaps a little more time but may have hastened Packard's demise.

StudeMichael
06-22-2012, 12:59 PM
And to confuse the matter even more Packard bought Studebaker. It was actually not a merger.

StudeRich
06-22-2012, 01:12 PM
I never could understand how a Co. that only built Luxury Cars, had such a small market share, had no sport models, no Station Wagons and no Trucks could have had more money than Studebaker only Nine years after the war.

I understand that Studebaker did way more Government (War) business than Packard, but they did build the Merlin/Packard Aircraft Engines. They must have had better manangement and been very frugal to have kept what they had, all very interesting.

Was that the right move? Well the owners of '58 Packard Hawks probably think so! :D

StudeMichael
06-22-2012, 01:46 PM
Packard did well with it's smaller cars after the war. They also had the largest factory in the world at over a mile long in size. I often wondered why they needed such a huge factory.

Milaca
06-22-2012, 04:41 PM
I don't understand why Packard bought Studebaker. Did they buy Studebaker just because they could buy them?? There had been and are European car companies that specialize in one type of car as their soul product so why didnt Packard just stick with luxury cars? Packard was just about to unveil the new V8, Ultramatic transmission and updated design of the 1955 cars so why did they feel it necessary to buy an entire car company at that time? After only two years of "merger" why did they shut down the Packard plant? Was it not a more modern factory than Studebaker?

Warren Webb
06-22-2012, 07:16 PM
Milaca, it was even worse than that! The Packard plant where cars had been produced was shut down & all production went to their "new" Connor Avenue plant. Then it was found to be way too small for all their tooling, production tumbled & quality suffered. It was so bad that I read a report that it wasnt unusual for trucks to sit for up to 2 days before they could unload. Imagine the costs of just those drivers on "standby". Either Packard failed to do a proper "due dilligence" or it was put together so fast it didnt matter. Perhaps if they had kept production on East Grand & built Studebakers alongside the Packards things might have been different. Yes the Packard plant was newer than South Bend (remember some of the buildings in S.B. were from the 1800's) but was still getting long in the tooth by automotive standards of the time.

ddub
06-22-2012, 10:00 PM
I don't know much about this (but that never stops me) but didn't Packard lose their body supplier about this time as well?

BobPalma
06-22-2012, 10:11 PM
I don't know much about this (but that never stops me) but didn't Packard lose their body supplier about this time as well?


Yes, Don; that is correct. Briggs had been supplying Packard with bodies as an independent body fabrication company.

However, Chrysler bought Briggs in 1954 to have more control over Chrysler bodies and would no longer produce for Packard. That forced Packard into making their own bodies, adding to the mounting production woes that terribly hampered and delayed the 1955 model year launch at a time when the market was red hot with new product and poised for a record year, which it became.

'Too bad Packard could not have had a bigger share of it. My father has long said he could have sold twice as many new 1955 Packard products as he did (4 Packards and 12 Clippers, by the way) if he just could have gotten them. :!:

So sad in that the 1955 model year held such promise for Packard. BP

Skip Lackie
06-23-2012, 08:54 AM
By 1952 it had become obvious that the only way to stay in the car business in North America was to be big enough to develop and build your own drive train components, and straddle the market, model-wise. Only Stude and Packard were able to develop their own OHV V8s -- Kaiser, Hudson, and Nash simply couldn’t afford it. And while Packard developed Ultramatic, Stude ended up buying automatic transmissions from Borg-Warner. Most of the rest ended up buying Hydramatics from competitor GM. The S-P purchase/merger wasn’t in and of itself a bad idea, but neither management team really knew enough about the other’s finances and prospects, nor did they have a plan for really MERGING production facilities and operations and rationalizing their product lines. The AMC merger was much better planned and executed, as evidenced by the fact that the merged company lasted another 30 years. Had Stude, Packard, Nash, and Hudson (and Kaiser Jeep?) all merged in 1954/55 as Nash president George Mason envisioned, we might still be driving their cars today.

SN-60
06-23-2012, 09:18 AM
Oh Well, after the two companies 'got together' at least one exec had the nerve to approve the 56J for production. (He was later fired)........................................................................
..........................................................................JUST KIDDING!!

candbstudebakers
06-23-2012, 10:11 AM
When I am asked that question at shows by people still wondering about it all I say is that
"All good things come to an end" Studebaker was building things with wheels lone before Henry Ford was even thought of.

tj1852
06-23-2012, 10:34 AM
Just a small question: didn't Chrysler buy Briggs? I think Budd supplied bodies to Studebaker right up until the end, and is still in the business of producing automotive parts and passenger rail cars.

(Sorry about the correction, Bob....I'm sure it was just a typo!)

~Tim

BobPalma
06-23-2012, 08:43 PM
Just a small question: didn't Chrysler buy Briggs? I think Budd supplied bodies to Studebaker right up until the end, and is still in the business of producing automotive parts and passenger rail cars.

(Sorry about the correction, Bob....I'm sure it was just a typo!) Tim

No problem, Tim; it was a genuine mistake. Duly noted and corrected in the OP. Thanks. BP

56H-Y6
06-24-2012, 07:26 AM
Benefit of the S-P Merger?

That unfortunate event was just one of the series of mistakes made willingly by both Studebaker and Packard management to deal with the deteriorating market position, as Bob Palma has detailed, that beset all the remaining independent automaker. Many of the myriad problems under which Studebaker operated then: antiquated plants, out-of-control labor costs, complacent management, dwindling cash reserves were also in force at Packard. Oh, yeah, did I mention complacent management already?

The concept of a ‘Big Four’ was proposed by George Mason of Nash-Kelvinator as far back as 1947 to each of the other major independent makers (Kaiser-Frazer was excluded, everyone in the industry knew the crazy management methods in place at Willow Run, expected them to last only a few years before fading away). In those heady immediate postwar years, with plants running at full tilt and profits rolling in, none of the others would take Mason‘s warning serious the heightened competitive challenges and the immense disadvantages of each going it alone in the near future. The Packard board did discuss it but rejected merger, as did those at Studebaker and Hudson. By 1952, the seller’s market was over, fierce Big Three competition was back in full force with their all-new cars and features supported by honed economies of scale and better dealer coverage: the ‘little four’ were being pushed to the wall hard.

At Packard, James Nance, late of major management success at GE’s Hotpoint appliance division, had been courted to become Packard President as of May 1,1952. To the “fine old car company gone to seed” he was a dynamic powerhouse, shook up the sleepy management, many of whom had been in place for generations and were frankly tired and out of drive. Packard had never instituted a retirement program for executives so most just keep hanging on as long as they could. Nance swept out a good deal of the deadwood, replaced them with younger auto industry men who had a stake in redeveloping Packard to a vibrant competitor. The major downside of Nance’s background was he had no prior auto industry experience, having cut his teeth in sales and promotion in the appliance business. As events would reveal, he had little or no experience in finance or manufacturing, which lead directly to relying on the analysis by the New York financial houses of the benefits of merger to both companies. Neither company did their due diligence before the agreement was inked. Only after all the stock was swapped for new shares of S-P was the true condition of each company revealed to the partner. Each went on good faith that the other partners basic business health was good enough to do the merger and the long-term benefits would outweigh short-term drawbacks. Packard management blanched when finally a belated due diligent analysis later revealed South Bend’s massive manufacturing overhead…..i.e…. high break-even point as one of the roots of their financial problems.

Concurrently, at East Grand Boulevard, (hereafter EGB) all was not well either. Their 3 million square feet of manufacturing space had become more and more empty, unused overhead. Contracting their body manufacturing to Briggs Body Company beginning with the 1941 Clipper, they had given up a major, value-added function to an outside supplier. As background, Briggs was also Chrysler’s main bodymaker for all except Plymouth, which were done in-house. Briggs Body operations were committed to 80% Chrysler, 20% Packard by 1946. EGB was still occupied with power train and chassis manufacture as well as final assembly. Plant utilization by the early 1950’s was barely half capacity, their automotive break-even point over 70K units annually, a number exceeded only in 1948 and 1951. Their newest plant, at Utica, Michigan, which had been used for Defense work, became the new V-8 engine and Ultramatic automatic transmission production facility by the 1955 model year……more empty EGB overhead.

As mentioned, beginning with the 1955 model year, all assembly operations were moved to the 759, 000 Sq. Ft Connor Avenue plant. This was an event precipitated by Walter Briggs’ death in early 1952, upon which the family decided to bow out of the auto body making business. Since Chrysler was their largest customer, it purchased all the Briggs body operations including the Connor Avenue plant. Initial, Chrysler assured Packard it would continue to supply it’s bodies but later reversed that decision and informed them that 1954 would be the last model year they would do so. This really put Packard between a rock and a hard place, since no body production had taken place at EGB since 1940. A five year lease was quickly negotiated with Chrysler, allowing body production to remain at Connor Avenue. But, here’s where Nance’s lack of auto industry experience shows regarding manufacturing. Ray Powers, his Manufacturing V-P, was pushing for Packard to set up all its assembly operation in a single story facility which had proved to be much more efficient for auto manufacture. Nance, not understanding the inadequacy of the Connor Avenue body plant to accommodate such an operation, was either talked into approving the move of complete assembly there and/or was pushing for it himself. Either way, the plant which was really only adequate for body building was now crammed with complete assembly operations, at least the engine and transmission production remained at Utica. When the1955 models, with all their new features and more complex and unfamiliar build, went into production in a cramped, unfamiliar facility, the problems just burgeoned. Results were the extremely late delivers of cars into spring 1955, horrendous delays all around, even more horrendous quality problems, loss of customers and customer confidence and angered, disappointed dealers at what was anticipated to be a revival year for both Studebaker and Packard.

A further benefit of merger was to be the greater efficiencies wrought by better plant utilization, which might have included a degree of consolidation of Studebaker production at the EGB facility. While far from being as antiquated as much of the South Bend complex, EGB major expansion had taken place in the 1930’s to accommodate Junior series production, it was still in multi-story form. Also never integrated to take advantage of the benefits merger promised were all other major functions: administrative, engineering, design, etc. Concurrently, the AMC merger resulted in swift consolidation of Hudson manufacture in the Kenosha, WI plant, as well as streamlining of all other support functions. Perhaps a more aggressive consolidation of manufacturing operations to bring plant utilization to a far more efficient level would have stemmed the financial hemorrhaging of 1954-56. More thorough texts than this overview detail the amounts being lost for those interested in an indepth analysis. Suffice it to say, Packard brought considerable operating cash reserves to the merger, but supporting two car companies drained those resources at a fearsome rate.

Packard profits, such as they were, were filled out by increasing amounts of Defense work postwar. That work had begun in earnest in the pre-war years and continued as the Cold War heated up. Cost-plus was a double-edge sword, it came with endless revisions and specification changes that taxed the engineering group to the maximum. As it came out, it wasn’t all that profitable for Packard but consumed considerable efforts and resources for a relatively small return. This was probably Studebaker’s lot as well, since they were heavily involved with Defense work at the time. Combining their operations in this arena was one of the points made as a benefit of merger.

When Nance arrived at Packard, it’s become clear from reading many accounts of his initial actions that he held only a foggy vision for Packard, that it could be a great automaker again but had no specific program formulated to direct that to happen. The first few years were dithered away with surreys of the executive opinions what they thought Packard’s current state was and what vision they held for it for it’s future. Their response weren’t always forthcoming but generally reveal a view rearward to the glories that had been and a wistful desire to recapture those days, but little vision for the future. Few expressed any real conviction on where they should go and what they hoped it would become, other than pleasant generalities. He also hired the consultant Booz, Allen, Hamilton to analyze the situation. They made observations which gave a perhaps more unbiased view. This consumed most of the later part of 1952 and a good share of 1953, unfortunately Packard needed immediate first-aid and frankly a kick in the pants. Perception of Packard’s cars were that they were old-fashioned, dull, poorly-styled, mechanically behind the times, an old-man’s car for people who drove slowly with the windows up. Relative to what was issuing for it’s competitors, it was rather apt. The small numbers of hardtops and convertibles were invisible in sea of dull sedans. This was also directly following the ‘bathtub’ Packard episode, a car that sold well which quickly turned into a used car liability as the glut settled in, it’s resale value among the lowest in the business.

It’s also useful perspective to realize that Packard was no longer an exclusive luxury car producer by the postwar years. The last year their luxury segment sales had exceeded rival Cadillac was 1935. In the latter years of the 1930’s, the luxury car price segment had realigned from $2,500 and up to $1,600-$2,200 as a result of Cadillac marketing new Series 60, 61, 62 and 60 Specials models, their sales growing exponentially. Packard failed to respond until almost 1940, then with a rationalized Senior series based on Junior series 110/120 tooling, with poor differentiation. They didn’t seem to understand that when a customer pays twice, three times the amount for a luxury car over it entry-level line-mates, they want it distinguishable at an instant.

By 1951-52, the best-selling Packards were their middle-priced segment models. the 200/200 Deluxe, comprising 73% of their annual sales, competing with Olds 88/98, Buick Special/Super, DeSoto Powermaster/Powerdome, Chrysler Windsor/Windsor Deluxe. Stepping up to the upper-middle-priced segment, Packard 250 (the Mayfair hardtop & Convertible) and 300 sedan sold 19% of their annual sales, opposed Buick Roadmaster, Chrysler Saratoga/New Yorker. Their sole luxury class entry, the Patrician 400 sedan , garned just 8% of their annual sales, an ‘also-ran’ against Chrysler Imperal, Lincoln Cosmopolitan/Capri, Cadillac 62/60 Special. Definitely, not a market leader by any means when Cadillac sold 97,221 62 sedans alone during those two years. Packard’s luxury car reputation, once the bulwark of their success, was a wobbly fašade by then.

Anyway, interesting subject, one for continuing study. If there are other questions I can answer after you’ve read this synopsis, I’ll do my best to do so.

Steve

56H-Y6
07-10-2012, 11:39 AM
Bump

Hi

Any comments or questions that need clarification?

An irony that just occurred to me is that two years and three days later, 6-25-1956, the last Detroit-built Packard ever came off the Connor Avenue assembly line. It was a solid dark blue '56 Patrician 5682-4775 shipped to Atlanta, GA and into oblivion.

Steve

scott.rodgers
07-10-2012, 12:13 PM
I did a paper on the merger for an advanced finance class in my MBA program. Here's my list of references for further reading on the subject:

Banal-Estanol, A., Ottaviani, M. (15.3, 2006): "Mergers with Product Market Risk," Journal of Economics & Management Strategy, 577-608.
Banal-Esta˝ol, A., Seldeslachts, J. (April 2005). Merger Failures. WZB, Markets and Political Economy Working Paper No. SP II 2005-09. Available at SSRN: http://ssrn.com/abstract=721481
Beatty, M., Furlong, P. (1984). Studebaker: Less Than They Promised. Indianapolis: And Books.
Bonsall, T.E. (2000). More Than They Promised: The Studebaker Story. Stanford, California:Stanford University Press.
Foster, P. (2008). Studebaker: The Complete History. Minneapolis:Motorbooks.
Hall, A. (1986, October). 1947-58 Studebaker: The Turning Points. Collectible Automobile. 50-69.
Langworth, R.M. (1984, September). Triumph and Tragedy: The Last Real Packards. Collectible Automobile. 6-19.
Langworth, R.M. (1984, September). Plans for 1957: The Packards that Never Were. Collectible Automobile. 20-25.
Langworth, R.M. (1989, April). 1957-58 “Packardbaker”: America’s First Replicar. Collectible Automobile. 8-20.
Langworth, R.M. (1993). Studebaker 1946-1966: The Classic Postwar Years. Osceola, Wisconsin: Motorbooks International.
Roll, R. (1986). The Hubris Hypothesis of Corporate Takeovers. Journal of Business. 197-216.

56H-Y6
07-10-2012, 06:03 PM
Hi Scott

I would be interested in reading your paper, sent your a personal note.

Steve

556063
07-10-2012, 07:05 PM
Cliff McMillan (sp?) was the retired Studebaker Official who may have been quoting someone else in the 1984 "Studebaker - Less Than They Promised" Documentary when he mentioned that the S-P Merger was "like two drunks helping each other across the street".

I didn't have the patience to sit through any more classes to get my M.B.A. Instead, I went to work after I got married and worked like a dog to help my wife get her Masters in Education. I'm not sure a M.B.A. would have helped me given my geographic preference anyway. So, I'm stuck with my Business and Econ B.S. (how appropriate), and prove it often by skipping to the Executive Summary with bullet point statements like this: (Please don't take offense, I respect anyone that did pursue and complete a M.B.A.)

1) The S-P Merger was a "shotgun wedding" arranged by investment bankers to try and save slightly profitable Packard, which did not have the resources to start it's own body plant, without floating them the cash to start said body plant. They saw Studebaker with excess capacity and Packard needing bodies. How could a finance guy look at that and be wrong?

2) Wall Street did everything they could to make it look like profitable Packard was in the driver's seat. What was presented to the public about the merger at the time of the merger was more for show and to "calm nerves" than anything else. Just like Jurgen Schrempp 40 years later would say Robert Eaton was his Equal in the DaimlerChrysler debacle!

3) Packard's low volume and high quality ways were not compatable with the volume required and the production methods at Studebaker. I've heard the deal was done before anyone even realized Packard's 1955-56 model bodies wouldn't even fit through tight spots in the Studebaker production buildings.

4) Without financing for a body plant, Packard would have disappeared in 1956 if the merger had not happened. Packard's heritage as the last of the true, independent luxury makes and the fact ALL top end luxury manufacturers of that era relied on outside body firms to do that part of the cars for them sealed Packard's fate.

5) Did the merger harm Studebaker? I don't think Studebaker ever saw any windfall from Packard. I'll say it was a draw for both sides, but I'll leave that for others to debate.

6) The volume needed at Studebaker to stay afloat and the larger mass of Studebaker was what made Studebaker the dominant party in the merger.

Overall, I'd say little was learned by the industry from what happened in 1954-55. Mergers continue to take place with the false hope that BOTH parties will benefit. What George Romney did at the freshly merged AMC by focusing on the neutral Rambler and doing away with Nash, Hudson, etc. is really the best way to move forward after a merger. Trying to keep everything around is just fooling the company and it's customers. One company ALWAYS ends up dominating. Just the way it is.

Stu Chapman
07-11-2012, 09:38 AM
It never ceases to amaze me that so many of our members have retained so much knowledge of our marque. Thanks so much, and keep it coming.
Stu Chapman

scott.rodgers
07-11-2012, 10:33 AM
Steve,

Message sent.

scott.rodgers
07-11-2012, 11:53 AM
Found it! I have the transcript from the 6/22/54 press conference on the merger. I thought I had an electronic copy but I only have a paper copy. I received it from the the Harry S Truman library for my MBA paper - the library has possession of Paul Hoffman's papers. If people are interested, I can scan a copy and post it at some point. I don't think there would be any copyright issues with a 58-year old transcript of a news conference but if any one thinks there is, let me know.

2moredoors
07-11-2012, 03:20 PM
It never ceases to amaze me that so many of our members have retained so much knowledge of our marque. Thanks so much, and keep it coming.
Stu Chapman
If this was a nomination I would second it. Well said Stu and well put Steve and Scott.
Thanks.