Re: 8.75 vs 2.1

Posted by Steve203 On 2014/11/17 21:13:37

The idea for Packard to sell Utica and the J-47 contract to C-W before the defense contracts were reduced is a good one....in hindsight. Though, I'd hard to imagine the board going for it at the time.

True. I read somewhere that defense contracts generated half of Packard's revenue and 80% of their profit. The problem was that the money that Packard needed for new model development was tied up in the Utica plant. These days, it's routine for a company to build a plant, then sell it to a real estate investment company, and lease it back, to recover it's initial capital in a hurry. At that time, that type of sale and leaseback transaction was not common. The alternative would be for Packard to price the value of the plant, plus the discounted present value of the future profits under the contract. That way, Packard would recover the $15M they spent to build the plant, plus a portion of the profits from the contract, and get it all in a lump sum.

I started looking at C-W as a possible JV partner to pursue development of the jet engines Packard was developing in Toledo, when Packard lost it's government development contract in early 49.

There was crazy stuff going on at C-W.

C-W had come out of the war with a huge pile of cash, and stockholders started agitating for huge dividend payouts, instead of the money being invested in R&D on jet engines and airframes to use them. That pressure resulted in Paul Shields, an investment banker (Shields and Company is still around today), being made Chairman of the Board. Shields then packed the board with more bankers and financial people. In 48, Guy Vaughn, who had been President of C-W since the 30s was forced out.

Shields proceeded to cut the R&D budget to ribbons and fire half of C-W's engineering staff, to stoke up short term profits and dividends.

C-W had had a small jet development program, which was producing encouraging results. The new President of the company and the head of the jet engine program went to the board for a serious jet R&D budget in 49. Not only did the board refuse to give them a nickle, the board ripped into the President of the company for the $7M he had already spent on jets. The President resigned that day. In that environment, there is no way C-W would have formed a jet JV with Packard.

All that turmoil resulted in the Board hiring Roy Hurley away from Ford to be President. Hurley did get a little of the R&D budget restored, but he was more of a quick buck operator, which I'm sure that board liked. Rather than develop jets in house, Hurley went to England and bought licenses from Armstrong-Siddeley and Bristol. They had some success with the Sapphire, none with the Olympus.

With that environment, if C-W had had a shot at buying Utica, with it's experienced workforce and guaranteed profit J-47 contract in place, I think Hurley would have gone for it.

As you said, it's a matter of convincing the Packard Board that their choice is either be a "second source" defense contractor, or an automaker. They didn't have enough capital to do both.