Labor Concessions and Soaring Jeep Sales Cited : AMC May Break Even in 2nd Half
American Motors, which lost nearly $100 million in the first half of this year, expects to break even in the second half, thanks to reduced labor costs and a surge in Jeep sales, the auto maker’s president said Wednesday.
After eliminating 600 white-collar positions and winning big contract concessions from union workers at two Wisconsin plants, AMC should be able to stay out of the red for the rest of 1985 and all of 1986 despite a continuing decline in passenger-car sales, Jose J. Dedeurwaerder, president and chief executive, said at a press preview introducing AMC’s 1986 models.
The cost-cutting measures accompanied soaring sales of AMC’s highly profitable Jeeps, he said, offsetting weakening passenger car sales. While AMC predicts that its car sales will fall to 129,400 units in the 1986 model year, down 5.8%, the auto maker forecasts that Jeep sales will rise 24% to 198,500.
Dedeurwaerder’s relatively optimistic forecast surprised some industry analysts, who had been expecting additional losses for the fourth-largest U.S.-based auto maker in the second half.
“I thought break even was unlikely for them,” said David Healy, automotive analyst with Drexel Burnham Lambert. “I was expecting them to lose on the order of $25 million to $30 million for the third quarter. So this is a little bit of a surprise.”
One reason why the second half will look better than the first, Dedeurwaerder said, is that the company has already written off the heavy termination costs related to its white-collar layoffs. The company will also begin to benefit more fully from the less-costly labor contracts that it negotiated earlier this summer with the United Auto Workers at AMC’s assembly plant in Kenosha, Wis., and a related parts plant in Milwaukee, he added. (AMC builds both the Renault Alliance and Renault Encore subcompacts in Kenosha.)
Despite winning those contract concessions, Dedeurwaerder said, AMC may close those aging facilities within three years unless Wisconsin grants the company new industrial incentives to stay there.
In AMC’s revised contract with the UAW, the company pledged to keep the Kenosha plant open until 1988, when it plans to end Alliance production. But AMC has yet to decide where to build the Alliance’s replacement in 1989, and Dedeurwaerder gave state officials until next spring--”at the very latest”--to come up with an offer designed to keep production in Wisconsin.
“Wisconsin is not that attractive” as a place to build cars, Dedeurwaerder said. AMC will move, he warned, unless Wisconsin can become more cost competitive with such states as Tennessee.
Separately, American Motors said it will drop the sporty, imported Renault Fuego from its 1986 lineup, bringing in only the Renault Sportwagon from Renault, the French auto maker that controls AMC. On the other hand, AMC on Wednesday introduced a mid-size pickup truck line called the Jeep Comanche, derived from the Jeep Cherokee introduced two years ago.
