The French are determined to rebuild American Motors Corp., even if they have to scrap thousands of American jobs to do it.
That is the reality behind current cost-cutting moves at AMC, the nation's fourth largest auto maker, which is 46.4 percent owned -- and controlled -- by France's Regie Nationale des Usines Renault.
AMC officials confirmed yesterday that they intend to close their only car assembly plant in the United States, a turn-of-the-century facility in Kenosha, Wis., sometime within the next year. The company also said it would stop work at a related stamping plant in Milwaukee to rein in what it sees as runaway labor costs.
Small-car imports from Renault, France's biggest auto maker, could be used to make up lost U.S. car production, AMC officials said. Some 7,000 people, including 6,700 represented by the United Auto Workers union, could lose their jobs if AMC sticks with its tentative decision to close the plants.
But the issue goes beyond an obviously painful labor-management dispute involving local contracts due to expire Sept. 16.
At stake is an ambitious plan to build a profitable, international car company through the merger of two different corporate and national cultures.
In that regard, the AMC/Renault saga "is as much a story about French pride as it is about an American car company," said Arvid Jouppi of Arvid Jouppi and Associates, a Detroit-based market analysis firm.
French-government controlled Renault has pumped $545 million into AMC since buying a controlling interest in the American company in 1979.
"They're not about to let that investment go down the drain," Jouppi said.
"They're sacrificing blue-collar and white-collar jobs. They're making all of the hard choices. They're determined to make American Motors profitable. At the rate they're going, there is a fair chance that they will succeed," Jouppi said.
Renault's purchase of AMC was, and remains, a key part of the French auto maker's overall strategy to become a worldwide auto manufacturer and distributor.
The plan is based on a simple fact. The United States, with 10.4 million car sales in 1984 and the prospect of 11 million car sales this year, is the world's single largest automotive market.
Establishing a solid presence in this country is essential to any auto maker's quest for global influence.
"If Renault wants to be a worldwide manufacturer, they have to be in the U.S. This country sells one-third of the world's cars," said Jose J. Dedeuwaerder, a Belgian and a 23-year Renault veteran who now serves as president and chief executive officer of AMC.
"We are working here with Renault really trying to make this relationship go well," he said.
In the past four years, the relationship has deepened through combined efforts by the French and American partners to work out product and marketing strategies for AMC. Before that, he said, "Renault was always thinking if its products were good for France, then they were good for the world.
"But suddenly, we came to the conclusion that the United States was not like that," he said. "So we, here, had to tell France: 'Hey, you have to do something else for us.' "
For example, French engineers, accustomed to shorter motoring trips and higher gasoline prices in their country, initially outfitted the Alliance subcompact with a small, 1.4 liter engine. But that engine did not hold up under American driving conditions and a larger engine was supplied. On the other hand, French designers persuaded their American counterparts that the Alliance needed some European styling.
"I believe our relationship is working. It has not been easy . . . . because you are working in two different continents, two different philosophies and two different spirits of management."
Renault once tried to go it alone in the United States during a 20-year stretch that began in the late 1950s. Then, the French company relied on export sales to carry its banner in America. The tack failed.
"All we did for those 20 years was make mistakes. We had the wrong products . . . . We sold an average of 10,000 cars a year. It was lousy," Dedeurwaerder said.
Renault has had various minor commercial agreements with AMC since 1961. But the French auto maker thought it needed something stronger, and entered into its marketing and manufacturing agreement with AMC in 1979.
Now, however, the often-imperiled AMC is in trouble again. Formed in 1954 through a merger of Nash-Kelvinator Corp. and Hudson Motor Car Co., AMC lost $29 million in the first three months of 1985. That loss ended five quarters of modest profitability, capped by net earnings of $15.5 million in 1984.
AMC dropped a total of $622.5 million from 1980 through 1984. Renault, too, has experienced difficulties at home. The company lost $172 million in 1982, $189 million in 1983, and $1.3 billion in 1984. The losses have renewed French unions' demands that Renault abandon AMC and jettison its global ambitions.
Renault has responded with a resolute "No!"
"You can't blame a $1.3-billion loss on a nearly $600 million investment in AMC," Dedeurwaerder said. "Our work here gives Renault over $300 million a year" in component and other sales.
"That means AMC is responsible for about 8,000 French jobs. Pulling out of AMC would create an 8,000-people problem in France," Dedeurwaerder said.
But a number of auto industry analysts and AMC competitors wonder aloud, though mostly anonymously, about Renault's ability to keep faith with its American partner in the face of mounting problems.
AMC long has been plagued with the misfortune of having one basic car line "doing battle against the world," said Arthur Davis, an analyst with Cleveland-based Prescott Ball & Turben.
The AMC car in the 1950s and for most of the 1960s was the Rambler. There followed in the 1970s the Hornet, Javelin, Gremlin and the ill-fated bubble-shaped Pacer. AMC spent a skimpy 1.8 percent of its revenues on product development between 1960 and 1980 and this limited product investment meant limited customer excitement and limited sales.
AMC sought to expand its line in 1970 by buying Kaiser-Jeep Corp., maker of the legendary four-wheel drive Jeeps and their derivatives , such as the Wagoneer passenger wagons.
That was a good move. Today, the Toledo, Ohio-made Jeeps are selling well, while AMC's lone conventional car line -- the Renault-designed Alliance/Encore models -- are stuck in heavy competitive traffic.
"We're vulnerable as a company because we don't have much to sell beyond the Alliance/Encore and the Jeeps," Dedeuwaerder said.
That vulnerability was highlighted when subcompact sales slid from 22.5 percent of the U.S. auto market in September 1982, when the Kenosha-asembled Alliances were introduced, to 14.9 percent of the market in April 1985.
The Alliance/Encore series, also hurt by some now-corrected reliability problems, took a beating. Sales of the Renault subcompacts fell 31.5 percent in the first four months of this year.
But things really are not as bad as they seem, said Joseph E. Cappy, AMC's group vice president for sales and marketing.
"People are talking about the sales situation relative to the Alliance/Encore. But those cars are doing quite well in their market segment," Cappy said.
Alliance/Encore this year variously has held the fourth and third places among the 22 different models crowded into the subcompact market.
Sales of those models, coupled with a brisk business in Jeeps, are giving AMC Corp. dealers their best profits in 24 years, Cappy said.
An estimated 1,624 dealers, down from 2,978 in 1960, carry AMC-related products. Average annual profit for AMC dealerships in 1984 was $150,000.
"Our people are making money," Cappy said. But he conceded that the money could disappear if AMC fails to execute its 5-year plan to reduce its breakeven point and reach long-term profitability by the end of 1987.
AMC must now sell 450,000 cars and Jeeps to recover expenses, according to Renault and AMC officials interviewed by The Washington Post. The company wants to lower that breakeven point to 350,000 cars and Jeeps by Oct. 1987.
AMC's worldwide sales last year amounted to 442,000 units, 356,299 of which were sold in the United States. The 1984 U.S. performance marked at 13 percent increase over the 315,720 vehicles AMC sold in this country in the previous year.
The company last month instituted a program to reduce costs by 25 percent across-the-board. That means white-collar layoffs of about 800 people. It also means an attempt to rewrite, as early as possible, expensive contracts with United Auto Workers Locals 72 and 75 in Wisconsin.
Those are the the locals that dealt with AMC when it was known as Nash-Kelvinator. The company then could not afford to anger the union and disrupt production at its lone auto plant in Kenosha.
"For nearly 30 years, as a result, the union got pretty much what it wanted," said Richard A. Calmes, AMC's vice president for personnel and industrial relations. Kenosha assembly workers, for example, receive an average hourly wage of $13.44 -- including a cost-of-living allowance. That wage is 37 cents an hour above what is paid to comparable workers at GM, the world's largest auto maker.
"It's inconceivable to me that the country's fourth largest car company should have to pay a higher wage than the largest," Calmes said. Accordingly, AMC is demanding that the UAW immediately agree to 15 different concessions -- including a wage rollback -- to become competitive with GM. The traditionally militant Kenosha local and its counterpart in Milwaukee responded with a request for negotiations. AMC says that there is nothing to negotiate, particularly in a market that will play host to an anticipated 2.35 million, low-cost Japanese imports in the coming year.
Adding to the competitive pressures are small cars built by foreign companies on American soil. Honda, Nissan, Mazda and a Toyota joint-venture with GM in Fremont, Calif., are examples -- all of which have, or are planned to have labor costs lower than those in traditional GM-UAW contracts.
AMC has another problem -- $142.1 million in wages and time off that it asked its UAW-represented workers to give up in 1982.
AMC promised to pay back the money in 10 percent annual production bonus credits starting this year and to that end, AMC set aside $5.4 million of its 1984 earnings.
AMC now says that it can not afford to pay back much more, and has asked its UAW-represented workers in Wisconsin and Ohio to accept a less expensive profit-sharing plan.
Kenosha workers were willing to accept, at least in part, the revised payback plan. But workers at the bustling Toledo plant objected, and some of them responded with a spate of vandalism.
The UAW's international leadership in Detroit says it understands AMC's situation.
"I don't believe the company is trying to abrogate a contract. I believe they are trying to become competitive," said UAW Secretary-Treasure Raymond E. Majerus.
But Majerus, who also serves as director of the union's American Motors Department, said the international union can not force its locals to change properly negotiated and ratified local contracts, such as those existing in Kenosha and Milwaukee.
Thus, over the weekend, AMC began serving 60-day notices that it would initiate steps to shut down its Wisconsin operations.
The notices are required by Wisconsin law. Closure of the Milwau-See AMC, H5 kee facility could come as soon as Sept. 16. Kenosha operations could end in July 1986.
Prescott Ball's Davis said elimination of AMC's U.S. car-assembly capacity could hurt the company's already risky product-expansion plans.
"Their idea was to hold onto Alliance/Encore until their new plant came on line in Canada," where AMC plans to start producing mid-size passenger cars for the 1988-model year, Davis said.
AMC plans to spend $675 million on its new car plant in Brampton, Ontario, where the company now produces a limited run of four-wheel-drive Eagle cars. But dumping small-car manufacturing in the United States and going to imports as an interim measure could put AMC in a funding pinch. "They may have to spin off their Jeep operations to get the money," Davis suggested.
"We absolutely will not sell Jeep," Dedeurwaerder said. AMC has enough commitments from Canadian banks and suppliers to assure that Brampton will start production as scheduled in July 1987, Dedeurwaerder said.
He said that neither the Franco-American automotive alliance, nor the company it is dedicated to support will die from current difficulties.
"We knew we would have problems. But the systems we have put in place are all working. The relationship is working. It is sometimes more difficult to rebuild a company than it is to make a new one," Dedeuwaerder said