A CASE STUDY ON THE MODEL OF STRATEGIC THINKING AND SWOT ANALYSIS OF AMERICAN MOTORS CORPORATION I AND II

In Partial Fulfillment of the requirements in MANA 3013 Business Policy and Strategies

Submitted to Prof. RV Jane Salazar

CHENG, Elena LABAY, Rodney NOVICIO, Franzel OLICIA, Arianne

A CASE STUDY ON THE MODEL OF STRATEGIC THINKING AND SWOT ANALYSIS OF AMERICAN MOTORS CORPORATION I AND II

AMERICAN MOTORS CORPORATION I AND II American Motors was formed on May I, 1954, through the merger of two faltering automobile companies, Nash-Kelvinator Corporation and the Hudson Motor Car Company with its president George Romney. Combined sales for the fiscal year ended September 30, 1954 showed unit sales off 42% from the preceding year of separate operations, and the combined statement of earnings showed a net loss of slightly more than $11 million after receipt of a tax loss credit of $11.5 million. In the three succeeding years, sales volume declined about 25% and the market share fell to less than 2%. Successive operating losses forced the company to borrow heavily from various banks in order to maintain minimal working capital balances. Then as columnists began writing obituaries for the company, AMC made a spectacular comeback. By the end of 1960, unit sales had risen about 300% from their low, market share had more than tripled, and all bank indebtedness had been repaid. Mr. Chapin and Mr. Luneburg had been appointed in their present positions in January 1967. They have announced that earnings for the year ended September 30, 1971 were $10.2 million on sales of $1.2 billion and that these results reflect substantial improvements in every major sector of the companys and demonstrate that we are making good progress in developing opportunitiesavailable to the company as a result of expansion and acquisition. This case describes the automotive strategy of American Motors in relation to market conditions and the strategies of its major competitors in the American market at three points in time (1954, 1957 and 1961) and the AMC campaign strategy for dealing with each situation. The case then shifts to a more detailed description of the situation as it stood in 1971. In particular, it considers the automotive market in early 1970s, the status of the industry and competition at that time, and the place of American motors on that context.

VISION

ACTION

MISSION

OBJECTIVES

Figure 1. Model of Strategic Thinking, AMC

VISION The American Motors Corporation is dedicated to become the leading competitor in the automotive field. They were not going to attempt to be all things to all people, but to concentrate on those areas of consumer needs they can meet better than anyone else.

MISSION American Motors Corporation expects to conclusively win the 1962 competition by selling the largest number of Ramblers in history despite all-out compact competition; to resume the offensive with campaign leadership; to hit the bottom end of the market strong but to stay with the next biggest segment of it (the intermediates) without any major capital expenditures more important in terms of the interests of stockholders and others associated with this company than to make maximum profits; and to increase penetration in the market.

OBJECTIVES American Motors Corporation has the following objectives to achieve: 1. 2. 3. 4. growth of 600% during the decade of the 1970s; sales target of 500,000 units by 1975; to expand operations into non-governmental areas; to install new signage, utilizing their corporate symbol, at key dealerships throughout the country;

5. to reduce the automotive break-even point and to develop new lines of cars to increase sales to profitable levels; and 6. stem the tide of foreign imports.

ACTIONS To achieve its mission and objectives, the company has set the following actions: 1. conception of the unfilled need in the American market, the need for a car between the big cars of the Big Three and the small cars imported from Europe; 2. concept of the compact car; 3. campaign for survival; 4. change the attitude of the vice president in charge of sales; 5. upgrade quality of dealerships; 6. concentrate on larger models; 7. improvement in advertising and promoting the products; 8. strengthening the reengineering and research organizations; 9. bring a refreshing approach to market and picking spots in which to compete; 10. reduce operating cost in a number of areas not essential to short-term growth; and 11. do some leading, innovating and more aggressive merchandising.

SWOT ANALYSIS STRENGTHS 1. the Ramblers were sold under both brand names, giving the two surviving dealer organizations identical products to sell under different brand names (2 models under Hudson and 2 under Nash name); 2. cars are styled in the basic advanced patterns with elements of distinction; 3. principles of aircraft and engineering; 4. Consumer Reports has selected the Rambler Ambassador V-8 as the consultants choice; 5. lead in extending the warranty on its automobiles; 6. maximum use of its suppliers investment rather than pouring its own money into integrated facilities; 7. artful and thrifty improvisation; 8. derivative capability tooling was designed with considerable flexibility so that very different bodies could be produced without major capital expenditures; 9. model proliferation (market divided up on a variety of dimensions).

WEAKNESSES 1. long lead time between development of new basic concept; 2. poor management; 3. new management proved unable to reverse the tide during the remainder of fiscal 1967; 4. delays; 5. manufacturing and purchasing inefficiency; 6. they didnt know where they were (their position in the industry); 7. high cost of manufacture; and 8. no subsidiary engaged in financing either customer car purchases or dealer inventories.

OPPORTUNITIES 1. introduction of new products (117-inch Ambassador, 100-inch model and four-door 108-inch model); 2. introduction of racing, luxury, small, sporty and intermediates, minicar, general-purpose cars; 3. expansion program that would permit an increase in Rambler capacity to 450,000 units by the end of 1959;

4. 5. 6. 7.

AMCs timing of introducing new models was of particular interest; progress sharing approach; launched major moves overseas; acquired Kaiser Jeep.

THREATS 1. unable to meet the total demand for cars on 1958; 2. declining dealer strength; 3. markets for the future would favor medium-price entries at the expense of low-price cars (Buicks, Olds Edsel); 4. automobile market had settled down to being a replacement market (a market which fluctuated with purchasing power and grew with the population rather than one which expanded in reflection of rising living standards); 5. no immutable business laws which foredoomed the company because of its smaller size 6. presence of competition; 7. virtually out of cash and an immediate supplemental bank loan of $20 million was essential; 8. administrative and commercial expenses were too high; 9. public image had deteriorated; 10. car inventories company-owned and dealer-owned had reached unmanageable levels; and 11. intercorporate duals dealerships selling AMC cars along with those of some other makers.

SWOT ANALYSIS STRENGTHS 1. the Ramblers were sold under both brand names, giving the two surviving dealer organizations identical products to sell under different brand names (2 models under Hudson and 2 under Nash name); 2. cars are styled in the basic advanced patterns with elements of distinction; 3. principles of aircraft and engineering; 4. Consumer Reports has selected the Rambler Ambassador V-8 as the consultants choice; 5. lead in extending the warranty on its automobiles; 6. maximum use of its suppliers investment rather than pouring its own money into integrated facilities; 7. artful and thrifty improvisation; 8. derivative capability tooling was designed with considerable flexibility so that very different bodies could be produced without major capital expenditures; 9. model proliferation (market divided up on a variety of dimensions).

WEAKNESSES 1. long lead time between development of new basic concept; 2. poor management; 3. new management proved unable to reverse the tide during the remainder of fiscal 1967; 4. delays; 5. manufacturing and purchasing inefficiency; 6. they didnt know where they were (their position in the industry); 7. high cost of manufacture; and 8. no subsidiary engaged in financing either customer car purchases or dealer inventories.

OPPORTUNITIES 1. introduction of new products (117-inch Ambassador, 100-inch model and four-door 108-inch model); 2. introduction of racing, luxury, small, sporty and intermediates, minicar, general-purpose cars; 3. expansion program that would permit an increase in Rambler capacity to 450,000 units by the end of 1959; 4. AMCs timing of introducing new models was of particular interest; 5. progress sharing approach; 6. launched major moves overseas; 7. acquired Kaiser Jeep.

THREATS 1. unable to meet the total demand for cars on 1958; 2. declining dealer strength; 3. markets for the future would favor medium-price entries at the expense of low-price cars (Buicks, Olds Edsel); 4. automobile market had settled down to being a replacement market (a market which fluctuated with purchasing power and grew with the population rather than one which expanded in reflection of rising living standards); 5. no immutable business laws which foredoomed the company because of its smaller size 6. presence of competition; 7. virtually out of cash and an immediate supplemental bank loan of $20 million was essential; 8. administrative and commercial expenses were too high; 9. public image had deteriorated; 10. car inventories company-owned and dealer-owned had reached unmanageable levels; and 11. intercorporate duals dealerships selling AMC cars along with those of some other makers.