Pat Foster of Hemmings blames the One-Twenty model for Packard’s demise – perpetuating a myth that cannot stand up to the facts. In his January, 2021, column for Hemmings Classic Car magazine, Foster writes that “Packard’s problems began when the company moved into the medium-price bracket in 1935. . . The new cars sold like hotcakes, but, because the company didn’t create a separate marque name for its lower priced cars, the Packard brand was devalued.” He further contends James Nance, who became Packard’s president in 1952, might have saved Packard by separating the lower-priced Clipper from the Packard brand before 1956. According to Foster, had Nance “done it in 1955, or better yet, 1954, it might have made all the difference in the world.”
Mr. Foster is an able and highly respected automotive writer.
And wrong.
The One-Twenty model was the reason Packard survived the depression. Further, though Nance inherited a sick corporation when he became Packard’s president in 1952, it wasn’t his brand management that killed the company. He killed it by merging Packard with Studebaker without bothering to get an independent audit of Studebaker’s books.
Packard’s corporate annual reports are readily accessible at PackardInfo.com. Annual revenue information also can be found at packardclub.org. The numbers tell the real story, one far removed from the myths Mr. Foster’s column perpetuates.
The One-Twenty was introduced in January of 1935. Prior to that, all Packards were expensive models in the top tier of automobile industry pricing. These were the models that came to be called, after the One-Twenty’s introduction, the “Senior models.” These were the Packards that created the image Mr. Foster claims was besmirched by the less expensive One-Twenty.
They were also the Packards destroying the Packard Motor Car Company’s capital, racking up ever-greater losses with each year of production.
Here are the numbers:
In 1929, Packard made a $25,183,296.38 profit. In October of 1929, the stock market crashed. Contrary to popular conception, the economy did not immediately collapse. Rather, the market crash triggered an economic contraction during 1930 that became worse in the following years.
Packard’s profit dropped to $9,034,219.53 in 1930 – a 64% decrease from 1929. In 1931, Packard posted a loss of $2,894,528.00. In 1932, the loss rose to $6,824,311.72. Packard eked out a $500,000.00 profit in 1933, but then lost $7,290,549.26 in 1934.
It doesn’t take an MBA to see where this would end were nothing to change.
Mr. Foster asserton that the One-Twenty was the begining of Packard’s decline ignores the reality of the automotive market during the 1930’s. The market for the super-expensive hand-crafted automobiles was evaporating. As we pointed out in our previous post, The Real Reason Packard Died, automobiles priced at $2,500 or more were 10% of the total automobile market in the 1920’s. In 1932, they were 2% of the market. By 1937, this had been cut to 0.5% of the market.
In 1930, the least expensive Packard, the Model 403 sedan, listed at $2,485; the most expensive, the Model 447 Coupe Victoria, cost $6,000. In 1934, Packard prices started at $2,725 for the Model 703 Sedan and peaked at $7,578 for the Model 280 LeBaron or Dietrich Phaetons.
Against this tide of yearly losses and the disappearing market for its products, Packard introduced the One-Twenty for 1935.
The One-Twenty saved the company.
In 1935, Packard made a profit of $3,315,622.38 on the sale of 52,045 automobiles, of which about 7,000 were the Senior series. The difference between the unsustainable losses of previous years and the profit in 1935 was the One-Twenty. In 1936, Packard sales rose to 80,878 vehicles and profits exceeded $7,000,000.00. The Model 115C, priced below the One-Twenty, was introduced in 1937 and sales reached 108,528. Profit exceeded $3,000,000.00, in a down year for the industry.
But that doesn’t tell the whole story.
Packard continued to produce the Senior series models throughout the 1930’s, along with the One-Twenty and other lower-priced models.
Recall how much money Packard lost from 1930 through 1934 when it produced only expenseive Packards. Losses from producing these Senior series Packards certainly continued after the One-Twenty was introduced. Packard did not break out profits and losses from specific series in their annual reports and financial statements. So, the profits of the One-Twenty concealed the losses created by the Senior series.
Nonetheless, it is reasonable to assume that losses from the Senior series after the One-Twenty was introduced in 1935 were at least as great as they had been in the years from 1931 through 1934. If we make that assumption, then continuing the Senior series in production after introduction of the One-Twenty drained at least $40,000,000.00 fom the Packard Motor Car Company before autmobile production ended with the beginning of World War Two.
That is equivalent to $760,256,934.31 in 2020 dollars. It is equivalent to $70,364,963.50 in 1950 dollars – dollars that Packard did not have to invest in keeping pace with General Motors and Ford after World War Two, as those companies introduced models with advanced engineering and features while Packard’s product line stagnated from lack of investment.
Yet, despite that reality, Mr. Foster claims Packard was in solid financial condition entering the 1950’s.
It was not. The losses incurred by continuing the Senior series in production were devastating to Packard’s ability to compete in the 1950’s. The company was not helped by a sclerotic, risk-averse management. But that management, too, was a product of the mistake made in the 1930’s when Packard elected to subsidize its most expensive models with profits from the vehicles and market on which it should have been concentrating.
The manufacture and sale of automobiles is one of the most expensive, capital-intensive enterprises in the corporate world. To succeed, profits from current sales must finance development of future products, just as current model development was paid by profits of the models preceding them. This means an automobile company cannot merely make an operating profit – that is, sell the car for more than the cost of parts, labor, overhead, and costs of sale. Unless current profits replace the capital employed in their development, the company company’s operating profit is really a loss in disguise.
That describes where Packard stood financially as the 1950’s opened. Financially, it was not even treading water.
In 1940, Packard had introduced the Clipper, priced above the One-Twenty but well below the Senior models, with a fresh new look that leap-frogged the competition. Underneath, it carried over most of the One-Twenty’s chassis and powertrain, but these were still relatively fresh designs. Packard struggled to keep up with demand. Then, World War Two ended Clipper production and eliminated the profits and market share Packard would have realized had the War not amputated the Clipper’s future sales.
After the War, Packard’s management elected to use the Clipper as the basis for the bloated “bathtub” Packards introduced in 1948, automobiles that still employed the same chassis and drivetrain introduced with the One-Twenty in 1935. Though Packard arranged a $30,000,000.00 line of credit in 1948 expressly to finance development of new models, its president, George Christopher, elected not to borrow the funds – even as the larger automobile companies were introducing entirely new and modern models with features Packards did not offer.
It is easy to eviscerate Packard’s management for these decisions.
But focusing on the long-term – which Packard management most certainly failed to do – is far easier when you do not have to worry about surviving the short-term. Cash conservation was the ultimate priority of Packard management after the War. Packard’s management was reluctant to develop a new car because it was concerned that the company did not have adequate capital to do more than essentially carry on existing models. It gambled that that Packard would be able to keep selling the existing models long enough that profits from them would pay for developing a new Packard in the future, betting that the market would not leave Packard behind in the meantime.
That decision, though regrettable and perhaps wrong, is defensible.
It is true that Packard had money in the bank and was posting profits in the early 1950’s. But these profits were ephemeral. They were operating profits, but not profits that could restore the capital the company needed to produce competitive products. The profits existed solely because Packard was not investing in new products. It was living today at the expense of tomorrow. The truth is that Packard was not financially sound at the beginning of the 1950’s. Packard was a sick David pitted against a very healthy industry Goliath.
In 1950, General Motors made a profit of $834,044,039.00. Packard’s profit in 1950 was $5,162,348.00. Even so, Packard outold Cadillac through 1949 – which belies Mr. Foster’s claim that the One-Twenty had “devalued” the brand. But 1949 was also the year Cadillac introduced its high-compression V-8 engine. In 1950, Cadillac sold 103,857 automobiles. Packard sales were 42,627 – a 63.5% decrease frm the preceding year. To develop modern automobiles that were competitive, Packard needed the money continuing production of the Senior series in the 1930’s had sucked out of it. If Mr. Foster wishes to speculate about ‘what might have been,’ it would be better to focus on what Packard might have done to prepare for the 1950’s had its management dumped the Senior series as quickly as possible after introducing the One-Twenty.
Mr. Foster, though, still on the same theme, suggests that Packard might have been saved, had it divorced its less-expensive post-War Clipper from the Packard brand during the 1950’s and reserved the Packard name for the more expensive models. To support the notion that Packard made a fatal marketing mistake, Mr. Foster cites Cadillac, stating that General Motors marketed the less-expensive LaSalle under a separate name to preserve Cadillac’s image as a luxury brand.
Not so.
The existence of the LaSalle had nothing to do with protecting Cadillac’s brand image. The LaSalle was one of four companion brands General Motors introduced in the 1920’s to fill price gaps in the GM product line, each intended to sell for slightly less than the primary brand, but more than the next least expensive primary brand. Oakland introduced the Pontiac, Oldsmobile the Viking, Buick the Marquette, and Cadillac the LaSalle.
General Motors culled the companion brands at the onset of the depression, dropping the Viking and Marquette in 1930 and 1931, while simultaneously dropping Oakland in favor of Pontiac. Only LaSalle survived – until 1940.
General Motors then copied the marketing strategy Packard had pioneered with the One-Twenty and took Cadillac down-market. What had been the LaSalle became the Cadillac Sixty-One series. General Motors was pushing the Cadillac brand and its prestige down market, projecting that image onto a less expensive vehicle that it could sell in greater volume by using the Cadillac name.
In this, Cadillac was also following Lincoln. Like Packard, Lincoln had introduced a far less expensive model, keeping it as a Lincoln. The 1936 Lincon Zephyr cost $1,275 – far less than the Lincoln Model K priced, depending on model, from $5,000.00 to $7,000.00. It was Zephyr sales that kept the Lincoln brand alive.
The reality is that the domestic luxury brands surviving the Second World War all introduced lower priced models under their existing brand name before the War. The cars they would build in the 1950’s were direct descendants of those pre-war lower priced models.
There were, of course, other elements that worked to further erode Packard’s financial condition. After the War, Packard management subcontracted all body production to Briggs Body Company. Briggs ongoing union troubles knee-capped Packard production – and Briggs raised prices, too, cutting Packard’s profit margin. Later, Korean war restrictions on availability of steel stunted Packard production.
Then, too, the dictatorial chairman of its board of directors, Alvin MacCauley, picked the wrong man for company president in April of 1942 when he selected George Christopher. Once the War was over, Christopher’s goal was volume, and he considered volume to be achieved by low price. In the immediate post-war market, when any new car would sell, Christopher instead concentrated on the lowest priced cars – even though Packard could have sold as many expensive cars as it could produce and, had it done so, would have realized higher profits per car.
It was Christopher who “cheapened the brand.” It was Christopher who produced a Packard taxicab. It was Christopher who let the $30,000,000.00 line of credit to finance new models expire untouched. It was Christopher who, against the advice of Packard’s own designers, chose the bloated “bathtub” design for Packard’s first updated post-war models.
But it was James Nance who drove the nails into Packard’s coffin.
Whether Packard was truly doomed when Nance took over in 1952 is a topic for another day and, perhaps, another post. One thing is clear: Nance was the man running the company when Packard merged with Studebaker. Nance failed to have Studebaker’s books independently audited before agreeing to the merger. Afterward, it became apparent that Studebaker’s financial condition was far worse than Packard had understood. As Mr. Foster himself explained in Studebaker: the Complete History, his book about Studebaker, “It was a great deal for Studebaker because once Packard owned the company it would have to cover Studebaker’s losses with Packard money.”
In 1953, the year before the merger, Packard’s showed a profit of $5,440.966.00. In 1954, the year of the merger, the combined company lost $26,178,315.00. The loss in 1955: $30,883,501.00.
We all know how it ended.
For more about Packard and the reasons it failed, see our post: The Real Reason Packard Died.
For more about how Studebaker’s operating profits from the Lark disguised its parlous finances, see our post: Can Tesla Succeed?
