Detroit and the Ghost of Studebaker

Miscellaneous and Personal Stuff I Must Share
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I’m not an expert in automotive history by any means, but it just seems to me that there are a huge number of similarities between the current implosion in Detroit, and the death of Studebaker in the 1960s. Like the Big Three, Studebaker suffered from inept management, absurdly high labor costs, economic hardships, and, at the very least, an inability to get the government to care about their fate, if not outright malfeasance. They also were a victim of unfair competition, which, depending upon your perspective, the Big Three might also suffer from, as well. Towards the end of their days, even though many in the company knew that the end was at hand, there was a burst of creativity and innovation which was strangled in its crib, before it had a chance to have an impact upon the company. The resulting closure of the main plant once operated by Studebaker caused severe economic hardships in the community in which it was located for many years after, even if the country as a whole, was little impacted by this. Had the company been larger (and if the proposed merger between the four largest independent car makers gone through as planned, they would have formed a company larger than the smallest of the Big Three automakers at that time), it is possible that they wouldn’t have been allowed to fail, or if they had, the effects would have been much wider spread.

I know that it can be a bitch to read long posts on-line, so I’ve tried beak this up, and weed it down to the bare essentials as much as I can, but I’m sure many people are going to have TLDR reactions over this.

I had hoped to be able to reread Studebaker: The Life and Death of an American Corporation by Donald T. Critchlow before writing this, but I seem to have mislaid my copy of the book, so I’m going to have to write this from what I can remember and source from on-line materials. I’m not sure how folks can benefit from what I know, but I’ll leave that up to wiser minds than mine.

Studebaker’s first crisis came, as is somewhat expected, from the Great Depression. It was not the lack of demand, however, that caused their problems. On the contrary, when the Depression hit, Studebaker was flush with cash, having been highly profitable in the years leading up to the Stock Market Crash. No, what harmed the company was the reaction of their president to the Crash.

Instead of hoarding the profits of the company to tide it through the Depression, he paid out one of the largest dividends in the history of Studebaker. His reasoning was that not only would the payouts stimulate the economy, but they’d also inspire the heads of other corporations to do the same. This, he was certain, would turn the economy around. Naturally, the money Studebaker paid out wasn’t enough to change things, and nobody else chose to follow his lead. When it became obvious that he’d made a mistake, his response was to commit suicide.

The company was able to recover, and returned to profitability before 1941, the war was not much of a help for Studebaker. There was a mild recession prior to the US entering the war, and the government came up with a somewhat flawed system to manage costs during the war. In order to ensure that the government could afford to pay for the war, they came up with a formula to determine what companies could charge the government for the equipment they provided. This formula used the profits a company made the year before the US was attacked as the basis for determining the amount of mark up a company could charge. If you had a highly profitable year, you got a larger mark up than someone who’d lost money or hadn’t made much of a profit.

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If the government had based the payment structure on a five year average, Studebaker would have been fine, or if they’d lost money the year before, they’d have made more than they did during the war. Studebaker also had the problem of having the highest labor costs of any car company in the US at this point. This was caused, not simply by greed on the part of the UAW, but by a well-intentioned, though poorly executed philosophy on the part of the management of Studebaker.

Ever since the company was formed in 1852, the owners of Studebaker had seen themselves as “great stewards of the community.” They built schools, hospitals, aided their employees through various programs, and generally tried to be seen as a net asset to the community. (They were the first car company to allow an African-American to own a dealership.) When UAW negotiators sat down with the company execs, they followed the standard negotiating procedure of making a demand much higher than they thought that the company would go for. Management invariably accepted it, much to the stunned amazement of the UAW folks.

The management saw doing so as a way of following the corporate philosophy, and simply assumed that the UAW demands were a reasonable request (management not having any idea of what living conditions were actually like for rank and file workers). They also believed that by agreeing to such demands, they could avoid a strike with the UAW, and thus pick up sales when the other car makers were shutdown due to strikes. (The UAW did use their contract with Studebaker as leverage against the other car makers with varying degrees of success.) With Studebaker being profitable, it didn’t really seem to matter. During WWII, Studebaker even bragged about how much they were paying their employees in advertisements.

Studebaker did have one large advantage during the war, that no other car company had. One of the restrictions put on car makers at the start of the war was that they had to cease all development work on new models until near the very end of the conflict. Designers might have come up with ideas in their spare time, but they were prohibited from doing anything at work which might have gotten those ideas into production. (This was strictly adhered to, BTW.) Because Studebaker was a relatively small company they did not have an in-house design department, choosing instead, to outsource it to the company of famed designer Raymond Loewy.

Loewy is considered the father of industrial design in the US, and was absolutely brilliant at what he did. Its said that in the 1930s that the average person used a Loewy designed product in every aspect of their lives. He touched everything from razor blades to cigarette packs to locomotives. Since Loewy’s company was not directly working for the war effort in their arrangement with Studebaker, they were free to design Studebaker’s post-war models while the battles were still raging in Europe. When the government began lifting restrictions on the automakers as the war started to wind down, other car makers were thinking about what they could do to spruce up their pre-war models, while Studebaker was putting the finishing touches on the completely restyled designs they planned to launch for '47 model year. (It wouldn’t be until almost 1950 that other car makers were able to start selling a full line of completely restyled cars.)

“First, by far, with a post-war car!” was Studebaker’s slogan when they unveiled their new designs to much acclaim. Sales rocketed to the highest levels in the company’s history, and they seemed to be on the verge of bigger and better things. This turned out to be a bit of a curse for the company, however. Sales were a bit artificially inflated due to the pent up demand of a public being unable to buy a new car for so long, and with an economic downturn in a few years, Studebaker would find their sales to be slipping. It was while sales were so artificially high that contract negotiations with the UAW occurred. Once again, instead of haggling over terms with the UAW, they simply accepted the demands the UAW gave them. (The UAW used the higher sales figures for justification of large pay increases for Studebaker employees, it should be noted.)

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Had market conditions continued normally, Studebaker might have been able to go on their way for some time, but once GM had come out with their line of newly restyled cars and settled matters with their unions (All car makers were plagued by strikes in the early days after the war. This was somewhat understandable as workers had had their wages frozen during the war, and the amount of pay for overtime work was strictly capped. Once the war was over, they eagerly anticipated pay raises, when they didn’t come as quickly or in the amounts that they expected, they struck.) they waged an aggressive campaign to put the independent automakers out of business.

GM did this in a combination of ways. One of which was cutting the price of their base model cars to the point where they were selling some of them at a loss. Another way was by offering extremely favorable financial terms to borrowers through their in-house financial arm. Ford and Chrysler could afford to match GM’s efforts, but none of the independents could. GM also began to buy up many of their third party suppliers as well. Since nobody wanted their competitors to own the company that was producing important elements like body panels, everyone began buying up other third party suppliers or bringing the operations in house, both of which were expensive and diverted resources away from other areas. Again, the larger car makers could afford to do this, but it put a massive strain on the independent makers.

When it became clear what was going on, the presidents of Studebaker, Packard, Nash, and Hudson hatched a daring plan to try and save themselves. The four of them would merge to create one company called American Motors Corporation. Because of anti-trust concerns, it was decided that Nash and Hudson would merge together first, and adopt the name American Motors (while selling continuing to sell cars branded Nash and Hudson). Studebaker and Packard would then merge (claiming that they needed to do so in order to compete against Nash and Hudson’s newly formed company). Once both newly formed companies had completed their mergers and worked the kinks out, they would combine together. That was not to happen.

Studebaker was in dire shape at the time of the merger, and had actively concealed this fact from those at Packard. Nor was this the only problem that James Nance, the head of the newly formed Studebaker-Packard corporation faced. Studebaker’s labor costs were so high that they were a drain on the company, and the UAW, instead of agreeing to concessions, wanted to extend the contracts with Studebaker to Packard employees. Nance held his ground, and after a long and painful strike was able to get labor costs to a reasonable level.

Another problem which beset Studebaker was that the head of American Motors died and was replaced by George Romney (Mitt’s father). When Nance approached Romney about the two companies merging as was previously agreed to, Romney refused. The oft-cited reason for this is that there was a strong personal dislike between Nance and Romney, but there may have been another factor, as well.

When Eisenhower took office, his Secretary of Defense was a former GM exec who quickly canceled all of the defense contracts awarded to Studebaker-Packard and other independent car makers (Checker, Kaiser-Frazer, and one or two others were still around) except for American Motors, who, along with GM, were given those contracts. Was this a payoff for Romney killing the deal with Studebaker-Packard? I don’t know, but it helped spell the end of first Packard, and then Studebaker. (A Congressional investigation into the matter found that S-P was correct in its assertion that the the contracts had been unfairly stripped from the company, but failed to do anything to correct this.)

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Still, all did not seem lost for Studebaker. Their most popular model was the Loewy designed Starliner, which had won wide acclaim for its striking looks. Nance was eventually able to wrangle some government contracts thanks to his friendship with Eisenhower, but they came at a price. Nance had to sell off parts of the company (Packard Electric was one) and while there was some short term gains from this, it hurt the company in the long run.

And while there were hopes that the company would be able to grow in the mid-1950s, by the end of the decade, it was clear that if Studebaker-Packard was going to continue, it needed help. Unable to broker a deal with Ford (Nance had suggested that they could share certain components of their models, but Edsel was talked out of this by others in the company), the company managed to get Curtiss-Wright to invest in them. As a condition of the buyout, Nance was forced to resign his position. (He didn’t have much luck in his next job. He went on to run the Edsel division at Ford.)

Curtiss-Wright wasn’t really interested in building cars, they merely wanted a tax write-off and tended to neglect the company, turning it over to an executive who saw it as little more than a plaything. He first turned Packard, which until this point had their own unique line of cars (though they shared mechanical components with Studebaker) into nothing more than Studebakers with added chrome, before shutting the division down completely. (To meet their commitments to Packard dealers, Studebaker began importing Mercedes Benz to the US, but this was fraught with problems as well.)

When Packard was shut down, Studebaker had a plant in Detroit, South Bend, IN, and Hamilton, Ontario, Canada. Since primarily Packard’s were built in the Detroit plant, it was decided to close that one down and keep production going in the South Bend and Hamilton plants. The Packard plant has remained unused to this day (presently, ownership is still tied up in a controversial court case). One has to wonder how good the “boom times” in Detroit during the 1960s were, if an automotive plant could be allowed to sit empty for so long. (As an aside, the tooling and dies for Packards was abandoned in the plant, much of this is said to still remain there.)

Many of the employees at Studebaker did not give up hope on the company. Since they couldn’t afford to design a new engine to compete with the ever larger V-8s coming out of the Big Three, they slapped a supercharger on their largest V-8, which was met with much approval in the automotive press in terms of performance. Despite lacking the money to completely restyle their cars, they did manage to do some minor tweaking to the Starliner design to give a fresh appearance. They also benefited, paradoxically enough, from the use of existing hardware. Since they’d been using much of it for a decade or more, they’d managed to work all the kinks out of the designs and ownership of a Studebaker was a relatively trouble-free experience.

In the early 1960s, however, Curtiss-Wright began to grow tired of being in the car business and pulled out of the company. Rumors began to circulate in the press that Studebaker was going to stop building cars and focus on their other operations. Several people within the company hatched a desperate plan to try and reverse the downward trend. If they were going to stay competitive (and Studebaker was not only losing sales, but dealers as well, which further hampered their efforts) a dramatic restyling of their cars was going to be needed.

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Finances were such that Studebaker couldn’t afford to have Loewy do a full redesign of the cars, so Brooks Stevens was hired to come up with the replacement for the Lark line, while Loewy was given the task of creating an attention grabbing vehicle. Stevens presented Studebaker with a car he called the Sceptre. This was a rather innovative design for its time. On the four door version of the car, the doors were diagonally interchangeable, and while the first model year of the car was to have conventional headlights, the second year was going to have a light bar running almost the whole width of the car. (This was because it had been found that this gave better illumination for the driver at night, without causing problems for drivers in on-coming cars. It was not street legal, so the company would have had to lobby to get the laws changed before it could have gone into production.) A section of the rear roof pillar was made out of polarized glass, and looked like metal, but occupants inside the car could see out clearly. The dash instruments were individually adjustable to make them easier for the driver to read.

Despite having a prototype built, management killed the idea, and had Stevens do a relatively minor restyling of the Lark. Loewy, on the other hand, had much more success with his idea: the Avanti. This was a Fiberglas bodied sports car with a supercharged V-8 under the hood. When launched, the Avanti was an eye catching success. Unfortunately, problems with Fiberglas manufacture caused a number of problems and hurt sales. Still, the car quickly gained a reputation for being one of the fastest cars you could buy. (The Avanti has also managed to outlive Studebaker. When they ceased building cars, the rights to the name and all the tooling was bought by the largest Studebaker dealer who continued to make and sell the car for a number of years. Despite having been through several different owners, some of whom had no business building cars, they’re still being turned out today.)

Stevens still had some ideas that he thought he could sell the company on. He pinned his hopes on the Familia This was a compact, Fiberglas bodied, 4 door car which featured interchangeable trunk and hood. The doors needed only minor changes to be used in either the front or rear, and most components could be used in the production of a van version of the car. It was not to be.

The board of directors was made up of bankers who had decided that they were against investing any more money in the car side of Studebaker. The profits just weren’t large enough. Stevens was told to perform a final freshening up of the existing line (save for the Avanti, which was Loewy’s baby). Perversely, they also asked him to come up with a stylish concept car to show at the 1965 auto shows. Stevens gave them the Excalibur which was a big hit, and Studebaker claimed that it was proof that they were still intending to stay in the car business. Almost immediately after the shows closed, Studebaker announced that they would be ceasing automotive production. (Like the Avanti, the Excalibur still lives on, though it is not nearly as popular as the Avanti, it having spent the entirety of its existence being sold as a kit car.)

This caused sales of new Studebaker’s to plummet. Even worse, some dealers were contractually obligated to buy cars until Studebaker quit producing them. As sales began to slide, most of the operations at the South Bend plant were shutdown, causing considerable economic hardship as Studebaker was the largest employer in the area. (IIRC, it took several decades for them to fully recover from this.) The rump plant in Canada closed a year or so after the South Bend operation did.

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During the shutdown phase of Studebaker’s operations, there were issues of setting up a parts distribution network, employee pensions, and dealership restructuring. Studebaker dealerships, even though profitable most of the time, were never the money making operations that Big Three dealerships were. Some dealers simply closed, others converted to used car lots, and others switched to carrying cars of other makers, either on their own, or with help from Studebaker and/or government bodies. (There was also a devil of a time handling what to do about Mercedes, but I forget the details of that, and none of the on-line sources I can find provide any real information.)

The questions, of course, are: Could Studebaker have been saved, if something had gone different at some point in its past? And what would it have meant for the auto industry as a whole if they had been saved? And what can we draw from these events if one or more of the Big Three should be allowed to fail in the near future?

Working backwards, it is unlikely that had the designs Stevens created for the company gone into production, they would have been enough to keep them alive as an independent company, but they might have boosted sales to the point where they made the company a viable target for acquisition by one of the other car makers out there. The burden of coming emission and safety regulations would have been too much for Studebaker. If they had been able bring their designs into compliance with those regulations (not at all certain), they wouldn’t have been able to devote any resources to keeping their designs contemporary, and in an era when people held on to their cars for only a short period of time, this would have most likely proven fatal, unless they could have instilled the devoted kind of brand loyalty VW was able to achieve with their Beetle.

The 1950s are another matter. Removing one or more of the elements which plagued Studebaker (alone, or as combined with Packard), quite possibly have allowed the company to remain viable for a considerable period of time. Certainly the various concept cars created during that time (and planned to put into production) were striking departures from the models they were currently offering. If they had been able to produce those, instead of the barely warmed over versions they forced to sale, they would have had a considerable advantage over AMC (which for part of the decade was buying their V-8 engines from S-P). It might have been enough to shift their fortunes and inspire Romney to change his mind about a merger. (Packard, even years after they ceased to exist, had more patents than any other US car maker and while they were in operation were home to some of the best engineers in the industry.)

Today, with the Big Three on the brink, it is claimed that if they’re allowed to go under, “someone” will be interested in buying them. Yet, when Studebaker was in trouble, save for the merger with Packard, they were unable to interest anyone in the auto industry to buy them. This was during an era when car sales were booming, not contracting, as they are now. When car makers expanded their operations they didn’t look at taking over the old plants abandoned by Studebaker, but chose to build new ones. Even gaining access to Packard’s patents wasn’t enough of an incentive to get people to take an interest in the company. Will GM’s stalled PHEV programs serve as a larger enticement than Packard’s patents did?

If the Big Three are allowed to fail, there going to be issues of dealers, parts, parts suppliers, pensions, and warranty claims to name but a few, that will have to be solved. No doubt this will require considerable Federal government involvement to resolve.

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There are a few parallels to the sitation today, but not any. Basically, if the “Big 3” collapse, we in the USA are going to see most of our steel, electronics, and plastics operations close down, because the Asian auto mfgs import theirs. This will add to our considerable balance of payments deficit, and hasten the end of the dollar, as the world currency.
Who is to blame? There are many factors, but tyhe biggest one is the bad management of Detroit.

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Well, with this story, you could have fooled me. I well recall Studebakers on the streets when I was young, and I’ve always wondered about what happened to them all. Many thanks for posting such an informative post!

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Many of the current Asian manufacturers buy a majority of their steel, electronics, and plastics in the US already. Manufacturers are required to list country of origin by percentage that went into the car. It varies month by month as part prices change. The Toyota Sienna is approximately 80% US content and the Honda Civics are at 70%. The popular Camry would be at 80% without the inclusion of the 2-door Solara with its figures. Some popular US models such as the Ford Mustang (65%) lag. Chrysler’s to be discontinued PT Cruiser and Chevy’s HHR are not made in the US.

Unless a structured bailout occurs, I do see a huge displacement of workers and companies in related industries. The car companies cannot continue in their present state in regards to wages and benefits. The cars/trucks/ideas are competitive in the market from a quality and performance standpoint but there is no profit margin with the backbreaking load of costs.

GM can survive with a pared lineup of Cadillac, Chevrolet, Corvette, trucks, and some Saturn/Opel/Pontiac models. Ford would have to eliminate Mercury and have Lincoln under the Ford nameplate. Chrysler looks to be the weakest and a goner I’m afraid.

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There are some differences. First off, although Studebaker had brilliant ideas, their execution was less than perfect. In fact, there were a lot of manufacturing problems, even by the somewhat lax standards of the 1950s automobile industry.

Studebaker also never had a full product lineup, particularly in large cars. The merger with Packard should have helped, but as noted, Packard had it’s own problems. It’s safe to say that Packard after WW2 wasn’t even the same company as pre-war. In the postwar baby boom, growing families tended to trade up to larger, more comfortable cars, and away from the smaller models that Studey was better known for.

Of course there are some similarities. An incomplete product line, lesser dealer network, ownership that didn’t put the product first, innovative ideas that either weren’t practical or poorly executed, a merger that fell through. . . can anyone say Chrysler?

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I just want to chime in and thank Tuckerfan for that brilliant piece of work. I have more than a passing interest in autmotive history, but I can’t say i’ve ever been very familar with Studebaker’s story.

Thanks!

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Which Detroit went through in the 1970s.

Some of the Studes built in the late 50s were fairly big cars, at least by today’s standards (I haven’t seen any of them parked beside a '57 Chevy to get a good size comparison). Packard was forced to move down-market in order to survive the Depression, and for some years were able to hold onto their former luster. The Studebaker merger probably hurt them as much in terms of image as it did in an economic sense.

Or GM (and possibly Ford) for that matter. GM’s product line while large, isn’t exactly focused, and they had to pay to get rid of FIAT or they would have been forced to completely merge with them. GMs now looking to dump Hummer (and possibly other brands), Ford’s sold Jaguar and Land Rover.

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The late John Z. DeLorean was chief of engineering at Packard, at the time of the merger…too bad he didn’t get a chance to work his magic on things.
Studebaker and Packard had several huge problems:
-the lack of their own atomatic transmissions-they had to make do with those crappy Borg-Warner units, which were not as good as the GM Hydromatics

  • lack of modern V-8 engines-they had staright 6 and straight 8 engines, which were heavier and not as powerful as compact V-8s
    -stodgy dealer network-Chevrolet sold franchises to people in the new burgeoning suburbs-whilce S-P dealers were in the inner cities
    And, I don’t know about you, but Studebaker’s offerings were weird-take the Starliner (it looked the same from the front to the back).
    True, the AVANTI was a great car…but it was produced in small numbers and never really caught on.
    Later on, by 1958 the market was plagued by over capacity, and S-P just could not survive.
    I’ve often wonderd if South bend (IN) could have been a rival to detroit-perhapsit was too far away from the Great lakes ports?
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From what I’ve read DeLorean’s chief ability was mainly to steal other people’s work and claim it was his own.

Packard developed their own automatic transmission and V-8s. It took them longer to do this than the Big Three, but they did have them.

Studebaker dealerships were often located in small towns and in some cases were the only local new car dealer.

That was the bullet-nose model made in the late 1940s, and is quite popular with collectors today.

It caught on well enough to be still produced today.

Actually, over capacity didn’t become an issue until the early 1970s, when Detroit was caught producing big cars and gas prices suddenly spiked.

Distance from the ports has nothing to do with it. There was just a lot more infrastructure built up around Detroit because of the success of Ford and GM. Packard moved its operations in Warren, OH to Detroit around the beginning of the 20th Century, since that’s where so many of the skilled workers were.

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Those down-market models that allowd Packard to survive the Depression were also what first caused their image problem. They were produced in greater quantity and had features, such as independent front suspension, that wouldn’t be on the higher end models until '37.

Packard’s military contracts to build engines for airplanes and patrol boats gave them a financial boost but also left them lacking for materials to produce automobiles after the war ended. Their first post-war models looked too similar; there wasn’t really any way to differentiate between low-end and high-end models at a glance. Nance tried to solve the problem by calling the lower-end models “Clipper” in '53, then spinning off the Clipper models as a separate brand–aimed at Olds & Mercury–in '56. Another model–the Packard Executive–was also introduced in '56 and aimed at Chrysler & Buick.

But it was too little, too late. Without the Packard name backing it up, the Clipper make didn’t sell. Packard’s deal to supply AMC with engines & trasmissions was cancelled by Romney after just one year. The last in-house desinged Packard rolled off the line in June of '56 and, just two months later, creditors ordered all Packard plants to close.

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They also were ugly, being described as an “upsidedown bathtub.” It fit, and they’ve never been all that popular with collectors.

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Packard built the famous V-12 aircraft engine, the “Merlin”, under license from RR , from 1942-45. The Packard built engines were of excellent quality-so much so that the English Supermarine Aircraft company preferred them to the R-R built engines.
And, regarding John Z. DeLoreanhe was smart enough to become president of Pontaic, and later Chevrolet-so he must have had some ability!

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Yes, to move up in the ranks. Just because you make it to the top doesn’t mean you deserve to be there. I should think that the current US political and business situations demonstrate this fact amply enough.

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Here’s a look at the S-P merger and the subsequent death of Packard.

For a still-optimistic look at the last days of Studebaker, check this out.

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That’s a great book, BTW. One of my favorite automotive reads.