Moving Upscale

By William J. Mitchell/Detroit

American Motors Corp. has long seemed to be a wreck waiting to happen. Despite a $689 million infusion over the eight years from its French partner, Renault, AMC's performance has gone from bad to worse. Last year's sales of 77,005 down 41% from 1985, were the lowest in 30 years. As AMC piled up 1986 losses of about $90 million, it captured only .7% of the U.S. car market, trailing eight brands of imports as well as Detroit's Big Three.

But it may be too soon to consign AMC to the corporate scrap heap. Its rugged if hardly racy Jeep Cherokee line continues to grow in popularity. Moreover, the company has built a modern $340 million plant near Toronto that will turn out spiffy new models designed to change AMC's reputation as a producer of small, unexciting cars. Says AMC President Joseph Cappy: "We are finally poised for that turnaround we've been talking about for so long."

At the moment AMC's only car is the modest, economical Alliance subcompact (base price: $6,399), but Renault will soon supply two more upscale models: the Medallion, a $10,000 compact to be introduced in March, and the Alpine, a flashy $30,000 sports car that is due in September. AMC is pinning its highest hopes, though, on a pair of models designed by Giorgetto Giugiaro, the noted Italian auto stylist, which will be built at the new Canadian plant. They are the Premier, an intermediate-size sedan that will reach showrooms in October, and a sportier coupe, code-named the X-59, which will appear a year later. The Premier and the X-59 have not yet been priced, but will compete against such cars as the Ford Taurus and the Nissan Maxima in the $11,000-to-$16,000 range. Unveiling the Premier at the Chicago Auto Show on Feb. 6, Cappy declared that it would "bury AMC's Joe Lunch Bucket image once and for all."

While rolling out its new models, AMC has found a lucrative way to use its excess production capacity by striking an unusual deal with Chrysler. AMC's underutilized plant in Kenosha, Wis., will soon assemble Chrysler Fifth Avenues, Dodge Diplomats and Plymouth Gran Furies alongside the Alliance. The Chrysler work could earn as much as $40 million in added revenues for AMC this year.

Experts are divided on the company's chances for a recovery. Says a skeptical Maryann Keller, who follows the auto industry for Furman Selz, a Manhattan investment firm: "AMC has a habit of coming out with cars that are popular for a year and then just die away." Ronald Glantz of Montgomery Securities in San Francisco offers more hope: "There's a pretty good chance that AMC can make money, but a lot of things have to come together."

One essential ingredient is continued financial backing from Renault, which owns 46.1% of AMC. A new element of uncertainty was injected into that relationship when Renault Chairman Georges Besse was killed by terrorists last November in Paris. His replacement, Raymond Levy, has said nothing about unloading AMC, but speculation about a possible sale may start to rise as a result of his meeting with Chrysler Chairman Lee Iacocca in New York City earlier this month.

Publicly, Iacocca has shown no interest in acquiring AMC. Asked about AMC's new strategy of moving upscale, he says, "Moving into the $12,000-to-$15,000 class is difficult. It took us seven or eight years to get Dodge into the $10,000-plus range." AMC does not have that long. Cappy has promised Renault a profit by the end of 1988 -- not much time at all when a company is attempting to shift from Joe Lunch Bucket to Giorgetto Giugiaro.