Re: Value of cancelled government contracts in the fifties

Posted by Steve203 On 2016/7/17 13:56:46

The answer to that question is very complex.

Easy question first. Did the loss of the contracts speed Packard's demise? Yes. Without looking in my archives for the exact numbers, defense contracts accounted for half, or less, of Packard's sales revenue, but 90% of it's profit. Kaiser's DOD contracts were so profitable, while the auto operation was making losses, that major Kaiser stockholders were pushing for the auto operation to be discontinued and the company concentrate on defense contracts exclusively.

DOD policy in the early 50s was to always have a "second source" for everything. GE could build plenty of J-47s, but Studebaker and Packard both received J-47 contracts in case something happened to the GE plant. Because neither Studebaker or Packard built jet engines in their normal course of business, the Air Force provided all the equipment, at great taxpayer expense, to duplicate the facilities that GE already had in place.

Because the DOD contracts were all cost plus a guaranteed profit, there were scandalous levels of waste and abuse billed to the government. In "Master Motor Builders", an incident is described where one of the Packard engineers on the Navy mine sweeper engine program wrote a letter to his higher ups at C-W after the takeover of the Utica operation, laying out the horrendously wasteful way that Packard was producing those engines, and the exorbitant amount of corporate overhead being billed to the engine program, all of which DOD paid for, plus paying Packard a guaranteed profit. The waste and abuse Kaiser perpetrated on it's C-119 contract was so far out of line it resulted in a Congressional investigation.

The cease fire in Korea in June 53 sharply reduced the amount of material the DOD needed. The Packard and Studebaker J-47 contracts were cut after the cease fire. Kaiser's C-119 and C-123 contracts were cancelled in June.

Eisenhower's SecDef from 53 to 57, Charlie Wilson, was a General Motors executive. There have been plenty of charges that Wilson went out of his way to hand business to GM, and take it away from GM's competitors. How much of that accusation is fact, and how much is sour grapes from the other automakers, I would not try to confirm.

So, yes DOD contracts were very lucrative and, had they continued at the levels of 52-early 53 may have extended Packard's life, but the contracts were effectively thinly veiled corporate welfare at taxpayer expense.