2. Avanti Drip Molding

The ones we received last week are not satisfactory; we can make them look all right, but it takes too long. We expect to get some good ones in tomorrow.

SALES

1. Dealer Count

In Process 3

2. Inventory

*Mostly SY4’s, 6-cylinder regal 4-doors

Production-wise, we have practically covered our orders for SY4’s, so any additional orders will have to be filled from this inventory.

3. Retail Deliveries

Our 10-day retail sales for the period of April 30 was 2,028. For the period ending May 10, we estimate our retail to be 2,100 or a little higher. (We expect the lease cars to bring it up above 2,100.) We estimate industry for the same period to be 220,000.

4. Las Vegas Driveaway

We have 46 Avanti orders on hand.

5. Lineset – Runout Framing Production

**We have 2 days of orders that are being held for special equipment on the trucks.

We have 166 open orders for May and 1,714 for June. In our analysis of the runout on Larks and Hawks, we determined that any units that are not built for wholesale will cost us $200-$250 each in material obsolescence. However, according to every statistic we work with, it seems that there should be no question that we can accomplish this runout without the need for high bonuses to move the cars. We projected our retail using April business as a base and using only the retail that comes from dealers, and we are 10% over the projection we made. Since all other projections were related to that one, we probably have a leeway of about 1,200 units before we will exceed the 8,500 maximum dealer inventory at introduction time.

Our orders for the month of May are not sustaining the May production, but if we take the number of vehicles that we need to cover the production runout and project it by the order intake on a diminishing basis, we feel we can make this runout without any special incentive. The attitude in the field is that we will make this runout. In some areas, they feel we may be short of cars before the summer is over.

In a conference in Mr. Egbert’s office last Friday, it was decided to build June orders or build for inventory if we run short on a day-to-day basis.

Right now, we have 60-some truck orders that cannot be built because materials are not available – special equipment, etc. In connection with this, Mr. Bender reported that Mr. Corcoran wonders if we should cut back so far on our inventories of this special equipment. Based upon our present order intake and wholesale projections through June, it appears that we will have an inventory of 350 trucks at the end of June. We can stand that number because we will be down for 2 weeks in July, and based upon our wholesale projections, we will end up July with 200 units in stock.

Dr. Lamberti asked if we can’t put some more Super Larks and Hawks in the system. Those body styles have been set, and we have bought material for them – can we lineset some of them for the zones. While the optional equipment materials will carry over to the ’64, there is more than that involved. We have to consider the body styles. Mr. Bender replied that we have set a few of them for that purpose. Every zone has at least one of each and, in some cases, more than one of each, and we’re trying to get dealers to use them as traffic builders. Dr. Lamberti wondered about public exposure to the models with only 20 or 30 of them in the whole country.

PARTS AND ACCESSORIES

1. Campaigns

The carburetor campaign is now 71% complete; that is, we have paid that many claims – the campaign is about 90% complete.

We have released the campaign on the battery hold down on the Avanti. There are about 130 of them. (This was involved with the fire problem.) We sent out the change by serial number – with a 10-day follow-up.

We’re taking a calculated risk on the problem of the hoods flying open, and we have sent out service letters to that effect.

2. Avanti

The muffler, the rear view mirror, and the drip moldings were all original parts of the design of the car, but were taken out. We’re handling the drip moldings, but we have to do something on the other two – or keep answering letters. Mr. Dredge commented that in almost every press report we have had, they have mentioned the small rear view mirror. You just can’t see out of the mirror. PR tries to make sure that their cars have side mirrors; otherwise you can’t see out of the car. He pointed out that most European cars that use this size mirror use diminishing mirrors – which the American public doesn’t want. American purchasers of VW and other foreign makes have replaced the mirrors on their cars in favor of larger mirrors. Mr. Challinor commented that he has been giving outside rear view mirrors to owners at no charge to compensate for the small mirror. Mr. Hardig reported that Messrs. Egbert and Loewy feel the new mirror is adequate; the group does not agree.

Mr. Dredge remarked that the people in the hot rod magazines who originated the loud mufflers complain about them on long runs, and Mr. Bender mentioned that unless the customer specifies otherwise, they lineset the quiet muffler – and make the extra charge.

QUALITY CONTROL

1. Product Quality

Now that production on our regular line is fairly stable, we have an improvement in product quality. We have been checking all okayed Avantis and have been feeding information back to Production – which has resulted in a reduction of the major items, and now most of our defects are minor (things that would be taken care of by the dealer on anything except an Avanti). Because of lack of equipment, we are checking Avanti engines on a limited basis only. We’re cut back to where we can check the Hawks only on a limited basis, but we do what we can with the people who are available.

We feel we have made a number of improvements with our program, especially in the body plant where we have made several production changes that have improved the quality of the body considerably.

2. Auto Checks

Every day, 25 cars are taken from various locations throughout the plant – in stamping, engine plant, etc. These cars are checked and plotted by defect. Then the information is fed back to the foreman and the worker so that they know what is going on. This report is quite effective in making the production people conscious of quality, and Mr. Capsey feels that as we become more accustomed to doing these things, we will improve in our ability to separate the major defects from the minor ones and quit spending more time on any defect than it merits.

3. Trucks

There has been a big improvement in the quality of the trucks as they come off the line.

PURCHASING

1. Batteries

Purchasing has worked out a program with parts and accessories whereby our batteries will carry the word “Studebaker” – beginning with the ’64 model. In other words, there will be no vendor name on either the battery or the carton. The Studebaker logo will be used on everything. This should improve our battery sales.

2. ’64 Tooling

This is on target. We should be right on schedule – if no changes are put in.

3. Steel

We’re beginning to get the steel increase – they’re not high, but it hurts – and there’s nothing we can do about it. This, of course, affects the ’64. We have final prices from Budd – they’re up about $1.98 – for the whole Budd package. They are absorbing all labor costs. The only thing they are putting in is the steel increase. Dr. Lamberti observed that we have been able to take out about $25 piece price, and Mr. Hardig mentioned that there are a few items that have been approved and a few more in question that will eat into this.

INDUSTRIAL RELATIONS

1. Theft Case

Mr. McNerney reported that the Union asked for a time extension to decide if they would take the Davidson theft case to arbitration, but Mr. Gallagher refused. Now they have decided to arbitrate, but we won’t know how it will come out for a month or two. We had hoped that the minority groups in the plant would keep them from taking this to arbitration because in past cases that involved colored people, they didn’t do anything – but now they do something for the whites.

2. Union

We are starting negotiations in the New York Retail Store today.

3. Reduction

Things are very quiet in connection with the reduction. We have a few problems, but nothing serious. They are grieving some of the combination jobs in the truck plant.

LEGAL

1. Pricing

Mr. Feuer reminded Sales that, according to the Robinson-Patman Act, it is unlawful for the seller to have price discrimination between customers; in other words, no special rebates to certain dealers without granting them to all dealers. He mentioned this because of the cars in factory inventory and pointed out that any special deals on these cars must be available to all dealers. Any private deals could involve us legally. We would also be in trouble with our franchise because if we reduce the price of these cars – our current prices – we have to reduce the price of all the cars in dealer inventories. He warned Sales that we can’t just put a few miles on the cars and try to sell them as used cars because they would not be used cars.

Mr. Feuer cautioned them not to rely too heavily on the Valley-Plymouth case. That case dealt with the sale of ’60 model cars long after the introduction of the ’61 model cars, so this doesn’t apply to our present situation. Also, the judge, in handing down his decision, made it very clear that he was only judging this particular case on these particular factors. It is conceivable that another judge might decide for the plaintiff and against us.

If the Sales Department has any new pricing proposals, they should be discussed with the Law Department. Mr. Bender commented that the Sales Department policy with the zones is identical to that of the Law Department. Any deviation by a zone is a deviation of the Sales Department policy also, and we take some action. We are taking steps to make sure that our people understand this policy. On used cars, they have a procedure to follow, and if they want to deviate, they have to check with home office for approval. Mr. Feuer observed that on any of these, Sales should consult with the Law Department. It’s very dangerous to have prices established by the zone office. Dealers are becoming more and more sophisticated in these matters, and there’s more litigation.

2. Detroit Cases

Since the first of the year, we have averaged 10 new cases being filed each month. In the past, we have settled 85 cases, and we now have another batch of 45 submitted for settlement. It will cost approximately $140,000 to settle these additional cases. We have had in excess of 400 cases filed against us. Periodically, we are advised that this will be the end of the cases, but often when a person has lost his job in a plant closing somewhere else and learns of these cases, he applies. We were encouraged by the appointment of 2 new members on the Court of Appeals by Romney. They haven’t held the hearings yet, so we don’t know how long it will be before they go on the bench. Two cases were submitted for the minimum amount of $1,500 which we turned down. Now they will go to trial, and we’ll see what happens. (Mr. Gallagher is going to check to see if our plants located in Michigan are covered on this.)

FINANCIAL

1. Inventories

Production material is down about another $2 million – the inflow has really come down. However, the Lark and Hawk finished units, division-wide, are up about 600 units since last Friday; the float was down to about normal at the end of April. Trucks are up to about 40-45, and Avantis are up about 50 over the inventories at the beginning of the month.

2. Tooling

The tooling last week was $84,000, which brings the total to date to over $4 million. The Budd Company material is not in this yet.

APPLIED RESEARCH

1. M602

The first-step proposal will be turned in on Friday of this week.

2. 5 Ton

We have been notified that our technical proposal is satisfactory. The price proposal is due two weeks from today.

3. M151

We have not yet received the RFP.

4. ¼ Ton, 2½ Ton, 1/8 Ton

These have not yet been awarded.

5. Turtle

We have most of the material for building the Turtle for the Italian Army and should have the rest of it later this week. The engineering mockup has been built as we propose to build it for the Italian Army, and it is working very well. In fact, it is the best one to date. Dr. Lamberti suggested that we have some publicity on this, whereupon Mr. Dredge asked if we can get a photograph. Mr. Isley answered that the mockup is not good enough, but he will notify Mr. Dredge as soon as something is available so they can get some shots. Mr. Dredge feels it is material for a good story and wants to do something on it.

6. Suspension and Main Battle Tank

Engineering work is continuing on these.

PUBLIC RELATIONS

1. Citizens for Studebaker

Mr. Dredge referred to a series of letters to the editors sparked by one lady who was refused a demonstration in a car during the Citizens for Studebaker program. She is now in a car and willing to write to the Tribune and to her friends.

2. SAE Horsepower Rating

At the AMA meeting of the PR committee in Detroit last week, it was decided that industry should support the rating from a PR point of view and be in a position to defend the lower horsepower for ’65.

3. R2 Engine Horsepower Rating

Mr. Dredge reported that our mail has increased from people who have read the stories on the Super Lark and Hawk cars and who are extremely anxious to have a horsepower figure on the R2 engine. We have refused, but they continue to ask that we give them the lowest possible figure so that they are not outclassed with their engine. In the discussion that followed, these points were covered:

a. Originally, our idea was to show that here’s a car that performs without regard to the horsepower; that is, we based it on Granatelli’s runs. At that time of course, we were not talking about Larks and Hawks. Now when we want to run our cars in competition and we don’t set a figure, they assign a horsepower to us in a class where we can’t compete. They put us up against 420 cu. in. engines. We can’t go on a drag strip, and people are asking why we don’t beat someone with it if it is such a hot automobile.

b. Sales gets requests for a hp figure also, but they haven’t had the idea it should be low. If we’re going to give them a rating, we shouldn’t say it is low hp. On the Larks and Hawks, we aren’t concerned, but in the case of the Avanti, we need a higher hp rating to compete against the T-Bird and cars in that class. We don’t think the low hp statement would have any adverse effect on the Larks and Hawks, but we have a reservation on the Avanti. However, as soon as you release it on the super jobs, you have advertised the Avanti.

c. We have two objectives: racing and sales. If we downgrade our engine, we will be able to win races, but the average customer doesn’t know about the racing angle.

d. If we drag these cars, we’re going to have to assign a horsepower rating to them. The performance image has been developed far enough along to where people are willing to concede that we have a high-performance car, and if we continue this program, people will start reading acceleration figures, etc., and not pay as much attention to the hp rating. We should announce the hp as low as possible and continue to set records at Bonneville. This is the talking point in the showroom rather than a figure that is in the sales brochure. Over the years, the word “horsepower” is becoming a nastier word. People think performance. They have been educated, in part, by the foreign cars – the foreign cars don’t have a high hp rating. And, of course, there have been a lot of high hp engines that don’t have good performance. The people in Detroit feel that hp means less and less. Ford and GM were the first to speak up against the hp rating. The public is getting more sophisticated.

e. The public is not that sophisticated. The average person is not particularly familiar with acceleration rates, etc., but they all know hp. (Recognizing the importance of hp to the customer, Buick paints each of their engines a different color, depending on the hp.) The first question anybody asks you about the Avanti is, “What’s its hp?”. The basic thing here is how it affects the sales picture. Will the customer be willing to pay for an engine with a blower that doesn’t have a high hp rating?

4. Trailer Haulers

Since 1962, we have had a hitch for trucks for hauling trailers. Mr. Dredge mentioned that only one other manufacturer besides us does not publish a list of recommended items for hauling trailers. We have the things needed, but we don’t publish it. People keep asking when there will be a package they can get from the dealer. Mr. Challinor said there’s a package being prepared now.

5. Service Complaints

Mr. Dredge complimented Mr. Challinor on his customer service. He told of receiving a number of letters from people who wrote in voluntarily to say how well their service problems were handled.

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