American Motors - Business Legacy

Business Legacy

American Motors was forced to constantly innovate for 33 years until Chrysler absorbed it in 1987. The lessons learned from this experience were integrated into the company that bought AMC. The organization, strategies, as well as several key executives allowed Chrysler to gain an edge on the competition. Even today, the lessons gained from the AMC experience continue to provide benefits to other firms in the industry. There are a number of legacies from AMC's business strategies.

AMC had an ability to formulate strategies that were often evaluated by industry critics as "strokes of brilliance". According to Roy D. Chapin Jr., AMC realized they were up against the giants of the industry, so to compete successfully they had to be able to move quickly and with ingenuity. An essential strategy practiced by AMC was to rely on outside vendors to supply components in which they had differential advantages. This approach was finally accepted within the U.S. auto industry, but only after each of the Big Three experienced the failure of attempting to be self-sufficient.

The smallest domestic automaker did not have "the massive R&D budgets of General Motors, Ford, and foreign competitors ... AMC placed R&D emphasis on bolstering the product life cycle of its prime products (particularly Jeeps)." In 1985, AMC originated product lifecycle management (PLM) as a strategic business approach according to Sidney Hill, Jr., executive editor for Manufacturing Business Technology, in an effort to better compete against its much larger rivals by ramping up its product development process.

Another example of AMC's agility was the ability of management to squeeze money out of reluctant bankers, even in the face of bankruptcy. These core abilities helped save the company from collapse and after each obstacle, give it the wherewithal to keep it operating. Ironically, AMC was never stronger than just before its demise.

AMC's managers anticipated important trends in the automotive industry. It preached fuel efficiency in the 1950s, long before most auto buyers demanded it. Led by AMC's Rambler and several European cars, the small car innovation reduced the Big Three's market share from 93% in 1957 to 82% in 1959. The company inherited foreign manufacturing and sales partnerships from Nash and continued developing business relations, decades before most of the international consolidations among automobile makers took place. AMC was the first U.S. automaker to establish ownership agreement with a foreign automaker, Renault. Although small in size, AMC was able to introduce numerous industry innovations. Starting in 1957, AMC was the only U.S. manufacturer to totally immerse all automobile bodies in primer paint for protection against rust, until competitors adopted the practice in 1964. Even one of AMC's most expensive new product investments (the Pacer) established many features that were later adopted by the auto industry worldwide. These included aerodynamic body design, space-efficient interiors, aircraft style doors, and a large greenhouse for visibility. AMC was also effective in other areas such as marketing by introducing low rate financing. AMC's four-wheel drive vehicles established the foundation for the modern SUV market segments, and "classic" Jeep models continue to be the benchmark in this field. Roy D. Chapin drew on his experiences as a hunter and fisherman and marketed the Jeep brand successfully to people with like interests. The brand developed a cult appeal that continues.

The purchase of AMC was instrumental in reviving Chrysler. According to Robert Lutz, former President of Chrysler, the AMC acquisition was a big and risky undertaking. The purchase was part of Chrysler's strategic "retreat-cum-diversification" plan that he states did not have the right focus. Initially the goal was to obtain the world-renowned Jeep brand. However, Lutz discovered that the decision to buy AMC turned out to be a gold mine for Chrysler. At that time, Chrysler's management was attempting to find a model to improve structure and operations, "something that would help get our minds unstuck and thinking beyond the old paradigms that we were so familiar with". In this transformation, "Chrysler's acquisition of AMC was one of the all-time great moments in corporate serendipity" according to Lutz "that most definitely played a key role in demonstrating how to accomplish change".

According to Lutz (1993), while AMC had its share of problems, it was far from being a bunch of "brain-dead losers". He describes the "troops" at AMC as more like the Wake Island Marines in battle, "with almost no resources, and fighting a vastly superior enemy, they were able to roll out an impressive succession of new products". After first reacting with anger to the purchase, Chrysler managers soon anticipated the benefits. To further solidify the organizational competencies held by AMC, Lee Iacocca agreed to retain former AMC units, such as engineering, completely intact. In addition, AMC's lead engineer, François Castaing, was made head of all engineering at Chrysler. In an unthinkable strategic move, Castaing completely dismantled the entrenched Chrysler groups. In their place AMC's "platform team" was implemented. These were close-knit cross-functional groups responsible for the whole vehicle, as contrasted with Chrysler's highly functional structure. In this capacity, Castaing's strategy was to eliminate the corporate administrative overhead bureaucracy. This move shifted corporate culture and agitated veteran executives who believed that Chrysler's reputation as "the engineering company" was being destroyed. Yet, according to the popular press, by the 1980s Chrysler's reputation was totally shot, and by Lutz's view only dramatic action was going to change that. In summary, Chrysler's purchase of AMC laid the critical foundation to help re-establish a strategy for its revival in the 1990s.

Top managers at Chrysler after the AMC buyout appeared to have made errors similar to those by AMC. For example, Chrysler invested heavily in new untested models while not keeping up its profitable high-volume lines.

After the DaimlerChrysler merger, the combined company also encountered the problem of having too many platforms. It also failed to achieve synergies by sharing components and from Chrysler's paperless design and supplier capabilities. Mercedes-Benz managers were protective of their designs and components and "advanced R&D was clearly put under German direction." This policy increased production costs. They could have observed the experience of the Nash and Hudson merger designed to achieve manufacturing efficiencies and savings from component sharing. The first product combining Chrysler and Mercedes technology and engineering with a Mercedes name was in 2006, eight years after DaimlerChrysler AG was created.

The AMC influence also continued at General Motors. GM recruited a new executive team to turn itself from near bankruptcy in the early 2000s. Among the new strategists at GM was Lutz who brought an understanding of the importance of passion in the product design. Lutz implemented a new thinking at GM that incorporated the systems and structures that originated from AMC's lean and focused operations.

Renault implemented the lessons it learned from its investment in AMC. The French firm took a parallel approach as it did with its initial ownership of AMC and applied it to resurrect the money-losing Nissan automaker in Japan.