PACKARD’S SUMMER OF DISCONTENT
Demand for Packard’s 1955 cars was initially very strong, which made the early production delays that much more frustrating. Packard actually made a profit in March, but it didn’t last. By summer, dealers were reducing their orders, anticipating factory rebates for the end of the model year. To make matters worse, the Federal Reserve Board had raised the discount rate, alarmed at the recent explosion in long-term auto loans. Packard sold more than 55,000 cars for the 1955 model year — quite good considering the production problems — but Nance had to delay the launch of the 1956 models by over a month to clear unsold stocks of 1955 Packards.
Despite brutal headcount reductions in both Detroit and South Bend, Studebaker-Packard was still bleeding money. Breaking Raymond Loewy’s consulting agreement for Studebaker styling cost $3 million and S-P had to repay the Defense Department $8 million on its military contracts. A facelift of the Studebaker line for the 1956 model year consumed $15 million. In September, George Romney informed Packard that AMC would stop buying Packard engines and transmissions in September 1956, costing Studebaker-Packard an additional $3.3 million in lost revenue.
The economies of scale that Studebaker and Packard had hoped to achieve through the merger were nowhere in sight. The two divisions still had parallel staffs, often without a clear chain of command, and plans for sharing tooling between Studebaker, Clipper, and Packard were still out of reach. Even Nance’s plan to combine Studebaker and Packard franchises was off to a rocky start. The process was so cumbersome that only a handful of dealers completed it.
By the end of the year, Nance had to tap $9.9 million of the company’s $25 million revolving credit line just to pay for continued operations. Studebaker-Packard still had $50 million in operating capital, but they couldn’t touch most of it without violating the terms of the credit agreement. S-P posted a harrowing $29.7 million loss for the year.
Despite those setbacks, Nance still held out hopes for all-new 1957 models. In January 1956, he met with the Prudential and Metropolitan insurance companies, Studebaker-Packard’s primary creditors, to request a $50 million loan for new models and ongoing operations. That was about half what S-P actually needed, but Nance thought it was the best they could do. He was wrong: The company’s creditors flatly refused to loan Studebaker-Packard another dollar. If Nance couldn’t find another source of funding, the company was doomed.
THE FALL OF EAST GRAND BOULEVARD
Packard’s 1956 models were not greatly changed from 1955 — having just spent $15 million on Studebaker, S-P could not afford a full facelift. Engines were bigger, up to 374 cu. in. (6,132 cc) and 290 hp (216 kW) in senior cars, 310 hp (231 kW) in Caribbeans. The Twin Ultramatic transmission got a significantly lighter aluminum case, improved torque capacity, and optional pushbutton controls. Midway through the year, Torsion-Level became standard across the line. Packard also attempted to register Clipper as a separate marque, although getting the multitude of state motor vehicle department bureaucracies to recognize the change was considerably less straightforward than removing Packard badges from the Clipper line.
There was one more noteworthy technical innovation for 1956: Twin Traction, a limited-slip differential made by Dana’s Spicer division. Twin Traction was at the forefront of an industry trend, but Spicer’s early differentials were not up to spec, leading to a rash of axle failures. Packard had to impound most of its 1956 cars while waiting for Dana to deliver new axles, and even those were fragile. Dealers replaced many with standard units.
By early 1956, it was becoming increasingly difficult for Packard dealers to obtain floor plan financing for new cars, a reflection of the finance industry’s lack of confidence in S-P’s future. Many franchises gave up or went under and those that survived cut back their orders. Packard’s distribution network was clogged with unsold stock and no dealers willing or able to take them.
Both Jim Nance and Paul Hoffman were personal acquaintances of Dwight Eisenhower and in late February, they approached Washington for help, pointing out that the collapse of Studebaker-Packard during an election year would be a political nightmare. Eisenhower discussed this with the cabinet in April and asked Secretary of Defense Charlie Wilson to look for new military contracts to help shore up Studebaker-Packard’s cash flow. At the president’s urging, Wilson also tried to get the Big Three to back a $50 million loan for S-P, arguing that the collapse of a major independent automaker would ultimately be bad for business. Henry Ford II was receptive, but General Motors management was not (somewhat surprising in view of GM’s mortal fear of federal anti-trust action), so the loan never materialized.
In the meantime, Nance tried to sell Studebaker-Packard to both Chrysler and Ford without success. A plan to buy the tooling from the 1956 Lincolns to create an all-new 1957 Packard also failed. The board, increasingly desperate for merger partners with money to spend, had some preliminary flirtations with Royal Little of Textron and then approached Roy Hurley, the president of the aviation company Curtiss-Wright and a former Ford manufacturing executive. Hurley was not particularly sanguine about Studebaker-Packard’s prospects, but he was aware of the maneuvering in Washington and saw Studebaker-Packard as a way to leverage additional defense contracts for Curtiss-Wright.
Hurley steadfastly refused an outright merger, but in May, the S-P board accepted his counter-offer of a management agreement that would give Hurley operational control of Studebaker-Packard in exchange for an infusion of cash. Curtiss-Wright also received warrants to purchase a 45% share of Studebaker-Packard at a fraction of the company’s actual stock price, although Hurley had little interest in exercising those warrants.
Hurley’s first step was to obtain concessions from Studebaker-Packard’s major creditors and help the company secure a $15.3 million loan, the last of its revolving credit line, to cover short-term operating expenses. None of that money came from Curtiss-Wright, but the price Hurley demanded was nonetheless high: all of Studebaker-Packard’s defense business, the Aerophysics Development Corporation (a smaller defense contractor S-P had bought about six months earlier), and whatever new contracts the Defense Department could be persuaded to provide. The combined value of all this eventually amounted to more than $136 million, but Curtiss-Wright offered Studebaker-Packard a mere $12 million, plus an agreement to lease Studebaker’s plant on Chippewa Avenue in South Bend and the Packard’s Utica engine/transmission plant — whose refitting the DoD agreed to underwrite — for an additional $25 million, paid in advance.
Most Studebaker-Packard board members were understandably unhappy about the deal, which was decidedly one-sided, but under the circumstances, they had little choice but to agree to Hurley’s terms. By July, Studebaker-Packard had spun off its defense business into a new wholly owned subsidiary called the Utica Bend Corporation, ownership of which was transferred to Curtiss-Wright on July 25.
The loss of the Utica plant meant the end of Packard’s V-8 and Twin Ultramatic transmission; the Conner Avenue and East Grand Boulevard facilities were next. The assembly line, which had been shut down briefly earlier in the year to clear inventories, was operating well below its break-even point, which Studebaker-Packard could no longer afford. Production of 1956 Packards had ended on June 25 and most of the plant’s 5,000 remaining workers were laid off. The prototype Dick Teague’s staff had built of the abortive 1957 model, known to the designers as “Black Bess,” was cut up for scrap.
Disposing of the factories was not a simple matter. Studebaker-Packard ended up having to buy out their lease on the Conner Avenue plant, which Chrysler didn’t want; the plant was razed about a decade later. There were no buyers for East Grand either, so Hurley tried unsuccessfully to persuade the city of Detroit to tear it down. Its assets were sold for pennies on the dollar and the building itself passed through diverse hands, eventually falling into disrepair and decay.