Business & Finance: Moon on the Motors

Legally a man may marry only one woman but a corporation may marry as many other corporations as it can woo and win. The procedure in both cases is the same—soft words, moonlight, tentative kisses, polite talk of money. Last week the automobile industry knew that a number of companies were out holding hands in the moonlight but whether it was just a casual flirtation or a real engagement which would end in corporate wedlock no one could yet be sure.

A match has been a-making ever since 1929. In that magic year General Motors, Chrysler and Henry Ford made three out of every four automobiles sold in the U. S. Yet with production topping 5,000,000 units, a sizable market remained for what are called “independents.” By last year the total market had shrunk to 1,700,000 and General Motors, Chrysler and Ford were selling nine out of every ten cars bought.

With a measly one-tenth of the U. S. automobile market divided among 13 companies, some sort of marriage of convenience was indicated. Last week’s full moon played on the following corporate characters:

Auburn was the gold mine which supplied young Errett Lobban Cord & friends with the fortune which, between speculative excitements, they have invested in airlines, shipbuilding, taxicabs. Entering the company when it was flat on its back in 1924, Motorman Cord lofted sales from $8,000,000 in 1925 to a peak of $37,000,000 in 1929. Early in the Depression he realized that there was still a market for a smart, fast model priced under $1,000 among people who had lost their shirts but did not want their neighbors to know it. Auburn became a Depression sensation, making 34,000 cars and $15 ger share of common stock in 1931. Next year it was less smart to be flashy, and Auburn sales began to wane. In 1934’sfirst half, Auburn delivered 4,600 cars. It lost $1,600,000 in the six months ending May 31 and passed its dividend for the first time in nine years. Last week Auburn stock was selling at $25 per share against a 1929 high of $514. It looked as if Mr. Cord’s gold mine was played out.

Nevertheless Auburn is still a Cord property. Mr. Cord has been in Britain all summer but before he sailed he let his subordinates know that whatever was done to help Auburn would be all right with him.*

Reo. Ransom Eli Olds is the only man in the U. S. with two automobiles named after him (Reo, Oldsmobile). The white-crested old founder-chairman has watched his company pile up $9,000,000 of deficits in four years. The Michigan bank crash tied up 70% of the company’s funds. Working capital declined from $20,000,000 to about $7,000,000. Early this year Founder Olds, now 70, emerged from retirement to win a proxy battle for control, has since been active in a thoroughgoing internal reorganization. An important point in any merger talk is Reo’s truck business. For the past year Reo has been selling more Speed Wagons and Heavy Duties than passenger cars.

Pierce-Arrow. One of those rarities, a corporate grass widow, Pierce-Arrow was purchased by Studebaker in 1928, but after the Studebaker receivership last year,Pierce-Arrow was sent back to her old Buffalo friends. Last week Pierce-Arrow was in court again, this time petitioning for permission to reorganize under the new Bankruptcy Act. It has little cash, large bank loans. Its sales have dropped from 8,000 annually to 1,900. But Pierce-Arrow could still be the most aristocratic lady in any harem.

Hudson, though not so conspicuously flirtatious last week, is much the most important character involved. Its plant in Detroit is one of the most efficient in the Industry. But geared to tremendous production the company has been unable to cut down overhead as fast as sales slumped. In 1929 Hudson turned out 300,000 cars, took in $200,000,000. Last year it sold 45,000 cars, took in $23,000,000. Meantime Hudson’s working capital was shriveled to $3,000,000.

For the purposes of a corporate marriage Hudson can offer an established low-price model, Terraplane. Hudson also has Roy Dikeman Chapin (54), one of its founders, and one of the Industry’s few shoe-string pioneers who are still relatively young. Roy Chapin did not look so young after serving a half-year as Herbert Hoover’s Secretary of Commerce but since he returned to Detroit he has slowed Hudson’s headlong flight into the red.

In the best tradition last week’s courting was strictly clandestine. Yet airplanes bearing Cord officials were seen in mysterious flights to Lansing, Mich., where they were met by Reo officials. And Reo’s old Mr. Olds could not bring himself to deny flatly any & all advances, declaring: “We have listened to what they have to say but have promised nothing.” Lastly, a shift in the Cord personnel diverted no attention from the goings-on. Auburn’s President W. Hubert Beal resigned to become right-hand man to Lucius Bass Manning, who is right-hand man to Errett Lobban Cord. To become active head of Auburn, Mr. Manning, now in complete charge of Cord affairs, picked not a Cord subordinate but a Pierce-Arrow vice president in charge of sales, Roy Henry Faulkner. True, the shift was home-coming for Roy Faulkner, a temperamental sales genius, who was Auburn’s president when it was a gold-producer.

Just because last week’s rumors failed to include the other independent motor-makers, it did not mean that the urge to merge was lacking. Hupp’s biggest individual stockholder, Promoter Archie Andrews, has been thumping for a big merger for years, would undoubtedly like to try his hand at matchmaking if nothing comes of August’s moon. Though Graham-Paige broke even last year, it would have as much to gain as to lose by merging. As for companies which have already gone to the wall like Franklin and Willys, merger is their main hope.

Only two independents with cash to spare are Nash and Packard. Old Charles Williams Nash has in the past four years paid out in dividends some $17,000,000 more than he earned, yet even now his Treasury holds better than $25,000,000 in cash & governments. Entrenched behind this hoard, Mr. Nash is not expected to listen to any merger terms other than his own. Alvan Macaulay of Packard has about $14,000,000 in cash & governments. Messrs. Nash & Macaulay can still afford to consider their emotions in any scheme involving the loss of corporate identity.

Studebaker’s position is complicated by a receivership growing out of a legal snarl in its attempt to acquire White Motor (trucks). Reorganization plans are nearly complete. Meanwhile, the company has gained ground under the three able receivers, Harold S. Vance, Paul Gray Hoffman and Ashton G. Bean. When once again her own mistress, Studebaker could listen to honorable proposals.

*Mr. & Mrs. Cord fled to Britain, fearing lest their two strapping boys, two baby girls be kidnapped. They took a big house near London, could not get on with English servants or tradesmen. They were pleased when their yacht arrived from the U. S. because it brought them “pure” tinned milk.