SOUTH BEND, Ind. - Over 320 acres of woods, streams and jagged gullies, engineers and test drivers at AM General Corp. push the Hummer truck through a grueling proving-ground test that would swallow up just about any other off-road vehicle.
Fording streams, roaring through soupy mud holes and climbing walls nearly two-feet high, the Hummer is in a class by itself.
But the real action, for AM General at least, takes place at a test track on the same South Bend site where the Hummer is put through its 20-mile off-road torture test. Workers in open cabs roar around a paved oval, putting rebuilt military transports through the paces.
The military business always has been the heart of AM General's operation. The company is rebuilding 21/2-ton transports, bidding on a new program to supply a 7-ton off-road vehicle to the U.S. Marine Corps and completing another extension of a contract to supply the Humvee - the original military version of the Hummer - to the U.S. armed forces through at least 2000. The Marines also have awarded AM General a contract to replace aging Humvees, a program that the company says should run through 2014.
'We have some confidence that we're looking at years of predictable sales,' AM General spokesman Craig Mac Nab said.
BROADER SALES BASE
Since the Humvee went into production in 1984, more than 150,000 have been built for the Department of Defense and foreign governments, including Taiwan, Kuwait, Mexico, Saudi Arabia and the United Arab Emirates. Sales of the Hummer, introduced in 1992 after its telegenic role in the Persian Gulf war, are fewer than 1,000 a year.
That small sales base also is declining. After peaking at 997 new-vehicle registrations in the United States in 1996, the number fell to 873 last year. Through the first 10 months of 1998, 654 Hummer registrations were reported by Polk.
To broaden its base, AM General has marketed the Hummer to a more diverse set of customers, including mining concerns, ambulance crews, fire rescue teams and companies that use the vehicle to inspect oil fields. Limousine builders also are marketing stretched Hummers.
While military sales of the Humvee are expected to remain stable, AM General employees hold 'tremendous hopes' that the company can boost commercial sales of the Hummer, said Carl Kaser, bargaining unit chairman for UAW Local 5. The union represents about 1,000 hourly workers at AM General plants in South Bend and nearby Mishawaka.
LOWER OUTPUT RATE
The UAW, which signed a new three-year agreement in September covering employees in the Mishawaka assembly plant, also hopes that AM General wins the contract to supply the new 7-ton truck to the Marines, Kaser said. The contract is expected to be awarded before year end.
Faced with reduced demand from foreign military buyers, AM General has spent the better part of two years trying to slash costs. In February 1997, the company cut the production rate of the Humvee and Hummer from 25 units to 16.5 units a day. Also last year, it closed its stamping plant in Indianapolis and took a charge of $7.5 million. These moves helped bring its breakeven point more in line with the reduced production rate.
Still, AM General loses money. Through the nine-month fiscal period ending July 31, the company reported a net loss of $10.5 million on sales of $275.3 million, according to documents filed with the Securities and Exchange Commission. The company is owned by Renco Group, a privately held holding company controlled by New York financier Ira Rennert.
After years of striving, AM General appears to have a grip on its costs, said Richard Bittenbender, an analyst with Moody's Investors Service in New York. But it still has a hard time turning a profit.
'The company has, for a very long time, shown very poor earnings,' he said.
Corporate earnings aside, AM General has continued to refine the Hummer. The 1999 Hummer is quieter and easier to operate. While no one would mistake it for a Lincoln Navigator, that isn't the goal in South Bend. The Hummer caters to a special breed of buyer. It has found a high-profile market among movie stars, professional athletes and die-hard off-roaders.
The 1999 model got Meritor-WABCO antilock brakes and TorqTrac 4, a traction-control system. That eliminates the need for drivers to learn the two-foot brake-throttle modulation technique formerly required to distribute torque to the proper wheel.
The Hummer, officially a Class 3 truck, in its various configurations lists for $66,522 to $83,211. That doesn't include add-ons such as a $2,500 winch or a $3,000 inflation system that allows the driver to adjust tire pressure on the fly.
Although it is difficult to generalize about Hummer owners, dealer Jim Lynch describes them simply as 'independent thinkers.' He has built his Lynch Hummer dealership in Wentzville, Mo., into the nation's largest retailer of new and used Hummers with a policy of team sales, Internet advertising, no-haggle pricing and good service. Last year, he sold 148 new and used Hummers and likely will reach the same mark, give or take 10 sales, in 1998.
Lynch's biggest marketing advantage is the uniqueness of the Hummer experience.
Hummer owners 'absolutely love the truck' even though every one of them acknowledges a driving experience more evocative of a Mack truck than a Toyota Camry, Lynch said. Still, that is part of the Hummer's charm.
Said Lynch: 'I'm glad we live in a country where we can drive these things.'