American Motors Corporation: Unraveling Its Decline and Legacy

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American Motors Corporation was a solid car company lasting over 33 years, but tough competition and poor decisions made it easy pickings for Chrysler.

American Motors Corporation was formed with the merger of Nash-Kelvin and Hudson Motor Companies in 1954. The company was responsible for several popular models, including the Rambler, Javelin, and Pacer. The brand struggled against competitors until Chrysler bought and absorbed it in 1987.

When American Motors sold out to Chrylser in 1987, the merger sent shockwaves throughout the automotive industry. Although AMC’s financial woes and a deteriorating relationship with Renault were widely known, Chrysler’s purchase was nothing short of a coup for Mopar, giving it a Jeep division that could instantly compete with Ford and Chevy. The new company changed its name to Jeep Eagle and continued to market vehicles for around ten years. It soon became apparent that Chrysler had no interest in continuing to pump money into a losing brand (Eagle), and in 1998, the last Talon rolled off the assembly line. So what happened? How does a solid American car company go from strong to weak to non-existent? What factors contributed to American Motors losing its ability to connect with consumers and forfeiting a thirty-year legacy? Let’s look at the history of American Motors Corporation to see if we can’t unravel the decline of this once-great car company.

Table of Contents


The Birth Of A New Car Company

The birth of American Motors occurred in 1954 when Hudson Motor Car Company and Nash-Kelvin, which for its day was the largest corporate merger ever. The new company was set up to compete against the Big Three automakers (Ford, Chevy, and  Chrysler) by offering vehicles across all market segments. In addition, the two car companies could share production costs, consolidate product lines, and make a more uniform product to offer to the American public. However, the full-sized Nash and Hudson models struggled to generate sales, and believing that the company's future lay with more economical compact models, George Romney (the president and chief executive officer of AMC) stopped production of larger vehicles. From then on, AMC would market and sell the new Rambler to a young generation of buyers beginning to flex their buying muscles.

The decision proved to be a good one. When AMC redesigned the Rambler American in the late fifties, the company was the only automaker to post sales gains in a recession year (1958). Reviews of the new model were positive, with Popular Mechanics reporting that most Rambler owners loved the car’s handling ease even more than the economical price (less than $1800 for the base trim). The early sales brochures touted the Rambler American’s ability to achieve excellent fuel economy, last longer than other cars, and declared itself the only small car with an automatic transmission for convenience. When AMC added a station wagon version the following year, sales tripled, and the company struggled to keep up with demand. Bright days were ahead for the American automobile industry and especially for American Motors.

AMC Becomes An Innovator

During the sixties, American Motors continued to produce cars that were technologically quite innovative. For example, AMC introduced the dual master cylinders to guard against brake failure six years before the government required them. They were among the first companies to offer standard disc brakes on the 1965 Marlin (optional on other models).  Other innovations included standard reclining front seats and front seat belts nearly twenty years before they would be required (offered in the Nash in 1949).

The strategy of making good quality compact cars paid off when sales soared during the early sixties. The Rambler placed third in sales for 1960 and ‘61, selling 314k and 380k units, respectively. The sales buoyed AMC to the third largest car company in the US, and for a time, America looked poised to challenge the dominance of Ford and GM directly. In addition, profits enabled the company to become debt-free, and the position allowed American Motors to enter into a profit-sharing arrangement with the United Auto Workers union, including annual pay raises. Life was good for dealers, executives, workers, and American Motor’s growing market of buyers.

The Ever Changing American Consumer

Even though sales were strong in the early sixties, American Motor’s car designs were growing outdated. In addition, the emergence of larger muscle cars like the Mustang, Camaro, Charger, and Barracuda made the competition for consumer dollars even more challenging. AMC had no vehicle to compete with younger consumers who showed a penchant for speed, sleek designs,  and high-powered motors. Even compact car sales suffered as the company struggled with increasingly popular imports, which offered better fuel economy. When AMC developed the Rambler Marlin in 1965, the company made it a personal luxury vehicle instead of marketing it as a competition for the Mustang. Desperate to win back customers, AMC spent over $60 million to retool its plants for a ‘67 redesign, which forced it to increase its prices, only further infuriating buyers and shareholders. The gamble did not pay off, and the company began hemorrhaging money.

American Spends More Money For Jeep

American Motors purchased Jeep in 1970, paying nearly $70 to Kaiser for the losing Jeep division. AMC executives believed that the Jeep brand would complement their lineup of full-sized vehicles and perhaps further into Ford, GM, and Dodge’s market shares for SUV sales. The expenditure was risky (in that AMC did not have the cash to spare) and meant that resources that could have been used to update its lineup to compete more directly with the Big Three would never materialize.

The Muscle Car Savior?

AMC introduced the Javelin in 1968 to combat its muscle car market, desperate to steal some of the Mustang’s bravado. The Javelin was promoted as a “roomier” pony car with more safety features, and in the short term, the car held its own against the competition. The Javelin sold about 55k units in 1968 (more than the new Barracuda), but it lagged woefully behind the Mustang and Camaro, even though it did bring younger customers back to the showroom for a while.

By 1974, an oil embargo, skyrocketing gas prices, and rampant inflation would make the muscle car obsolete. The Javelin would be discontinued after 1974, as consumers searched for smaller vehicles to help them manage their daily budgets. Every automaker began to detune and retire their larger displacement engines as emission controls and new horsepower ratings robbed many of the iconic beasts of their power and performance. AMC was no exception, abandoning its luxury line to try and capture the lower-tier markets that preferred sub-compact and compact cars.

The AMC Pacer Was A Wide, Small Car

In 1975, AMC transitioned to smaller cars with its innovative Pacer. The car’s unusual shape would quickly become the laughingstock of the automotive world, and the fact that the car shared no common components with other models made it expensive to build. Pacer sold well for its first year, but afterward, sales dropped as concerns for its safety rating grew (the car had rear wrap-around glass windows). The car was powered by an inefficient six-cylinder engine and did not appeal to American consumers. In 2007, the Pacer was voted the worst car design ever by Hagerty, and Time magazine listed it on its “50 Worst Cars Of All Time.”

American Motors lost $74 million in 1978 - 79, although Jeep sales were at an all-time high. By 1980, after a year of another oil embargo, crippling double-digit inflation, and rising prices on everything, the Pacer was gone.

Financial Struggles And A French Bailout

In 1979, with AMC on the verge of bankruptcy, the carmaker struck a deal with Renault, a French automaker. The deal was a life preserver for the company, with a $150 million cash infusion, $50 million in credits, and exclusive rights to begin building the Renault 5. Renault saw an opportunity to increase its international sales, acquiring 22% of AMC stock, putting itself in a powerful position. Since US foreign policy forbade international ownership of companies doing business providing equipment for the US  military, AMC was forced to give up its General division, which had been making military and commercial vehicles for years. The division was one of the few bright spots that AMC had.

During the next few years, the French company Renault instituted cost-cutting measures to streamline AMC’s production process. AMC introduced the Eagle brand, attempting to woo new buyers. Developed as full-time four-wheel drive vehicles, the brand showed signs of promise in the first couple of years, but reviews were mixed. The car was sold but suffered quality control issues and negative reviews from Consumer Reports (which gave it a very poor rating for reliability and repair). Despite the negative reviews, the AMC Eagle sold well for the short term before its durability issues caught up.

A Bullet Seals AMC’s Fate

Renault was struggling in a domestic market where it have been a top dog for several years. The acquisition of American Motors had caused layoffs, and the closing of French plants inside of France, and many shareholders were not happy to see the company investing dollars overseas rather than at home. While Renault contemplated what to do with its American albatross, its chairman, Georges Besse, was assassinated by a far-left activist group. The loss resulted in a power vacuum in the company, and the conflict over American Motors only intensified in the leader’s absence.

At the same time, Chrysler’s chairman, Lee Iacocca, saw an opportunity to snatch up the Jeep division of AMC to strengthen Chrysler’s position in a growing American SUV market. Chrysler's chairman wrote a $1.5 billion check, which Renault was happy to receive. Chrysler made no bones about what they wanted from the sale, the Jeep division (especially the leading Jeep Cherokee), American Motor’s network of 1,300 dealerships, and a new plant in Canada that Renault had recently completed for production. AMC was rebranded as Jeep Eagle, and initially, Chrysler didn’t mess with Eagle or Jeep, remaining content to not confuse the American public more than needed. After a few years, sales were so pitiful that AMC merged completely into Chrysler in 1990, ending nearly 35 years of automotive production.

While the company’s influence was significant, the automaker did not have the significant R & D divisions that the other Big Three automakers possessed, hindering it from the start. In addition, American was unwilling to be proactive to consumer changing tastes, preferring to be reactionary to trends that they might have perceived were happening. This management style was indicative of the company culture and, more than anything, created the dynamic for the company’s eventual demise.