The Des Moines Register from Des Moines, Iowa on August 31, 1975 · Page 33
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August 31, 1975

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The Des Moines Register from Des Moines, Iowa · Page 33

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Sunday, August 31, 1975
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12CC FINANCIAL & BUSINESS NEWS MOINES SUNDAY REGISTER • August 31, 197S 'disaster 1 if big cars banned (C)TlwLM DETROIT, MICH. «- U.S. auto makers are gambling nearly $7 billion over the next few years that they can beat the problems of expensive gasoline and rising sales of Imported cars — without abandoning their tried-and- true formulas of the past. The "revolution" as Detroit sees it will find the full-size car of 1980 about the same in size and weight as its mid- 1950s counterpart. Lee A. lacocca, president of Ford Motor Co., 'dubs it a "keelhauling" of the industry. According to interviews here with lacocca and other top auto executives, a more sudden shift to small cars would be disastrous. They are convinced that American motorists would balk if the car companies abruptly started turning out nothing but very small cars. Auto makers warn also that if Congress forces them to switch entirely to small cars it will cost hundreds of thousands of jobs. For every job lost in their own plants, they say, at least two would disappear in the plants of the myriad of companies for which the auto industry is a major market for materials, parts and services. Shutdowns Initially, the manufacturers say, they would have to shut down some of the 26 U.S. auto assembly plants (out of 43) in which they now build mid-size and larger cars. Some of those facilities would be converted to small car output, but not all of them because it takes less plant space and fewer people to make small vehicles than it does to make big ones. General Motors says that it alone has well over 100,000 employes and $3 billion of its resources devoted to the production of full-size and luxury cars. There would thus be considerable economic dislocation even if buyers switched in droves to American-built, small cars. If they opted for imports, the situation would be all the more severe. So far this year about one of five buyers nationally has chosen an import, up from fewer than one in six considered "normal" in A recent years. That switch has cost more than 100,000 U.S. jobs in the auto and related industries, it is estimated. Based on figures supplied by one industry financial executive, the change to small cars in a 10-million-car year would cost the steel industry more than $1.25 billion and the rubber companies more than $500 million. Misleading Independent economists say such exercises are mis- leading. At the worst, a complete change to small cars in this country would mean temporary dislocations, they say. But jobs and markets lost to 'a smaller auto industry would soon be replaced with new jobs and markets in other industries. Even though the industry's cars may get smaller, price- tags won't, The best thing the industry could do, contend some critics, is to cut prices — or at least not raise them anymore — thereby increasing both sales and profits, To reduce prices, counters one Big Three financial executive, "makes no sense whatsoever." The industry can barely make money at the small car prices it currently charges, he claims. And even that marginal profitability depends on higher sales volumes than it is now enjoying. All the auto companies have already trimmed costs by laying off thousands of Vhite-collar executives as well as assembly line workers. And many of these people will not be called back even when sales improve. GM Chairman Thomas H. Murphy suggests another way the industry will try to buoy profits. "We've got to convince them > (consumers) they need more comfort and convenience so we can sell them the optional equipment." Chevy v$. Caddy The 1980 "full-size" c"ar, according to Ford executives, will be two feet shorter and at least 600: pounds lighter than its 1975 equivalent. The auto makers probably will be forced to offer fewer body •types and fewer models as the cars grow smaller. The longer, lower, more powerful look of the 1960s will be scrapped in favor of a more upright, boxier design emphasizing increased space in the passenger compartment. For years, the auto giant has prospered by making the car-lines of its five automotive divisions look different on the outside even though they were increasingly the same under the skin. "A Cadillac costs only about $300 more to build than a big Chevrolet, but it nets the corporation $3,000 more," says a former GM executive, underlining the profitability of the strategy. GM will retool the "images" of some of the divisions, the GM executive says. "I'd say Chevrolet is fairly clear — it's going to cover a pretty broad spectrum of the market and certainly cover the lower end of the line. And Cadillac is clear because we have no intention of destroying the mystique that exists there." That "mystique" sells big cars. While total U.S.-built new- car sales through July dropped from the same period last year, sales of Chevrolet Vegas were 40 per cent below the 1974 level, Ford Pintos were down 28 per cent and American Motors Gremlins were 44 per cent below the year-ago figure. Among compacts, Chevrolet Novas were 17 per cent below last year through July, Ford Mavericks were down 44 per cent and Plymouth Valiants were 41 per cent off the 1974 sales pace. Lilct Big Ones Meanwhile, sales of such luxury models as the Oldsmobile 98 (up 15 per cent) and the Lincoln (up 44 per cent) indicate that some people still want that size vehicle no matter what gasoline costs, Detroit executives say. Ford, Chrysler and General Motors all expect the market for "small" cars will grow from just over 50 per cent of -all-cars sold in this country this year to as much as two- thirds by 1980. Some of those U.S. versions even sport lower base prices than their imported counterparts, thanks to international monetary revaluations of recent years. But the situation has the U.S. manufacturers in a stew. "What would you do if you were in Detroit with this $3,200 Pinto that you couldn't sell against this $4,500 Toyota?" asks David Power, president of the independent Los Angeles market research firm of Power-Robertson and *' Co. "I can't figure it out," says one Big Three analyst. "We've got enough market research studies here that come to different conclusions to blow your mind." "I have a hangup about American cars," says a New Yorker who has managed to avoid owning one for 11 years. "Foreign cars have better workmanship and you get better and more courteous service at foreign dealerships in this country," he contends. Foreign Lemons "I believe American cars are made to last two years," says a Long Island housewife. "Something starts going wrong the minute the warranty is up. We own two foreign cars that we've had for seven years and they're still going strong." A Los Angeles man paid $500 more for a German-built Ford Capri than he would have had to fork over for a similarly equipped Pinto or Chevrolet Vega because the domestic models felt "like tin cans." A frustrated Big Three vice-president, meanwhile, insists his firm can find no quality difference even after tearing down all the popular imports and inspecting them piece by piece. And there are import owners who complain that their car is a lemon just as there are domestic car owners. There's no doubt that some imported cars get more miles per gallon of gasoline than the best of the domes- tics. Foreign autos took the first 18 spots and 20 of the fiat 25 in the U.S. Environmental Protection Agency's 1975 model fuel economy ratings for city driving. But aside from the smallest models, .American cars frequently compare quite favorably with their foreign competitors. A Ford Granada equipped with California emissions controls is rated by EPA at 15 miles per gallon in city driving and 20 m.p.g. on the highway, for example. A Toyota Corona Mark, II gets 16 m.p.g. in the city and 19 m.p.g. on the highway in the same tests. Service Buyers pay such a price premium for the most gasoline-stingy imports that fuel savings will never offset their higher initial cost, domestic car proponents add. With gasoline at 55 cents a gallon, it would take more than 100,000 miles of driving — 10 years worth for the average motorist — before he would recoup the $531 price premium of a Volkswagen Rabbit (rated at 38 m.p.g. on the highway) over a Chevrolet Vega (28 m.p.g.). Import backers say those price comparisons are misleading. David Eisenberg, vice-president-research for Wall Street's Sanford C. Bernstein and Co. Inc., says that while the base price of a Ford Pinto is $160 lower than that of a Datsun B-210, for example, it takes $420 worth of options on the Pinto to match the standard features of the Japanese car. There's debate among foreign car owners over the question of service. The owner of both a VW and an Oldsmobile Cutlass, Irwin M. Towers of Larchmont, N.Y., says the German car is both "easier on gas and easier on repairs." But Dr. William Brodsky, who traded his Dodge Dart for an Audi Fox (also made by Volkswagen)" last year", says he'll never get an import again. "It's too difficult to get it serviced," the physician comments. .When his car broke down Between New York and Philadelphia recently, he found "no gas station knew how to fix it." The distinction between "domestic" and "imported" cars is becoming increasingly blurred. Most of the major foreign auto makers already spend millions of dollars here for U.S.-built components for their cars. More importantly, international monetary fluctuations and inflation abroad : means it may now be cheaper .for some foreign manufacturers to build cars here than it is to build them overseas and ship them to ti}e United States. Sweden's Volvo has already begun building an assembly plant in Virginia. And if their U.S. sales volumes increase, more European and Japanese auto makers may follow. A related development is an engine manufacturing deal between American Motors Corp. and Volkswagen. ,AMC will buy equipment' and rights to produce a VW engine here for both itself and the German company. Record S&L loans, savings in Iowa By JAMES LAWLESS Rt«i»ttr mirkttt editor Savings continue to flow into Iowa's 76 federally insured savings and loan associations at a record pace. At the same time the S&Ls are dealing out mortgage loans in greater volume than ever before. In the first seven months of 1975 the Iowa associations made $368.5 million in mortgage loans, according to the Federal Home Loan Bank of Des Moines. That topped the previous all-time high of $310.1 million set in the first seven months of 1973, and compared with $296 million in the same period a year ago. For the month of July the Iowa S&Ls originated $78.1 million in mortgage loans, a July record, but down from $78.8 million in June, which was a peak for any month on record. The July mortgage loan figure was 47.1 per cent above the $53.1 million of July 1974, the report said. Savings inflow, the surplus of deposits over withdrawals, totaled $54.3 million at Iowa associations in July. That was a record for the month, according to Donald W. Wente, vice- president and secretary of the Federal Home Loan Bank of Des Moines. The July inflow compared with only $12.1 million in the same month a year ago. For the first seven months of this year the S&Ls in Iowa posted a savings inflow of $364.7 million, up 12.2 per cent from $224.9 million in the same period a year ago. The report said that the savings inflow of the 275 federally insured S&Ls in the five-state eighth district, which includes Iowa, Missouri, Minnesota, and North and South Dakota, rose $206.9 million in July. That was sharply above the $19.7 million inflow in the same month a year ago and brings the increase in savings for the first seven months of 1975 to $1.7 billion, or 11.2 per cent. In the same period a year ago the district S&Ls had an inflow of $920.2 million, or 6.5 per cent. The S&Ls in the eight states made $311.8 million in mortgage loans last month, '46 per cent above the same month a year ago, but down from the record $324.5 million of mortgage loans made in June, 1975. Younker Upturn in 2nd Quarter Younker Brothers, Inc.'s second fiscal quarter profit rose 11.7 per cent from a year ago, "a better picture" than the first period when profit was 36 per cent below the year-earlier SkikhM by TOM WEINMAN period, Charles Duchen, president, said in an interim report to stockholders. Net earnings for the first six months of the big Des Moines-based retailers' fiscal year were still 7.6 per cent under the year-ago period, but the report showed that an accounting adjustment on inventories was a big factor in the decline. Sales were higher in both 1975 periods. Net income in the three months ended July 31, 1975 was $594,000, or 40 cents a share, up from $532,000, or 35 cents a share, in the year-ago period. Six-month profit was $820,000, or 54 cents a share, down from $887,000, or 58 cents a share, a year earlier. Second quarter earnings were reduced by 11 cents a share and first-half net was cut by 20 cents a share due to a change in inventory accounting, the report said. Restated year-ago figures were reduced by 3 cents a share in the quarter and 6 cents in the half due to the change. Sales in the quarter were up 5.8 per cent from a year ago at $26.2 million vs. $24.8 million, and first-half volume rose 5.5 per cent to $48.7 million from $46.2 million a year earlier. Duchen said the company opened a 40,000-square-foot store in Austin, Minn., in July, replacing a smaller unit there. A pair of 100,000-square-foot stores is scheduled to open in the next two months, one at Sioux Falls, S.D., Sept. 24, and one at South Ridge Mall in Des Moines in mid-October. Duchen said that the new units did not require any additional long-term financing by the company. Younkers' board declared a quarterly dividend on common stock of 30 cents a share, payable Oct. 1, to stockholders of record Sept.15, 1975. Younkers' common stock was bid recently at $19.50 over-the-counter, where the yield on the indicated $1.20 annual dividend rate is 6.1 per cent. Hach Sales Gain; Profit Slips . Hach Chemical Co., Ames, had a 6.5 per cent increase in sales during the first fiscal quarter ended July 31, 1975, but profit was 4.1 per cent below the same period a year ago. In an unaudited interim report to stockholders, the company noted that orders rose 12 per cent in the latest quarter, which normally signals a sharp increase in sales. "This time it did not," said Clifford C. Hach, president of the firm, which makes and sells instruments, test kits and chemicals for water analysis and pollution control. He said orders for chemical products gained, while orders I t for larger instruments declined reflecting a more conservative purchasing pattern for capital investment items. He forecast an upturn in process instrument product sales in a "more buoyant economy." The company's sales in the quarter reached $2,430,995, up from $2,279,655 a year ago. Earnings were $281,443, or 20 cents a share vs. $293,345, or 19 cents a share, a year ago when there were more shares outstanding. Hach said that the company increased prices on some of its products in August, which should have a favorable impact on second quarter and second half results. Hawkeye Nat'l Profit Under Year Ago Hawkeye National Investment Co., parent of Hawkeye National Life Insurance Co., both of West Des Moines, had higher revenues and lower profits in the second quarter and first half of 1975. The company reported revenues in the second quarter ended June 30, of $463,937, up from $393,013 in the same period a year ago. First-half revenue rose to $912,357 from $815,731 a year earlier. Net income in the quarter fell 28 per cent to $45,715 from $63,386 a year ago and six-month profit was $91,262 vs. $99,742. Net in the 1975 periods included tax loss credits of $18,324 in the quarter and $32,074 in the first half. A year ago the credits were $21,262 in the quarter and $35,217 in the half. The company said earned premium income increased 9 per cent to $697,388 in the first half of 1975, but an increase in costs of putting business on the books, only a portion of which are deferrable, "had an effect on this year's net income." Darrell L. Blaess, president of Hawkeye Life, said the company had added four states to its operations — Oklahoma, Nebraska, Colorado and Minnesota. Hawkeye is also licensed in Iowa, Indiana, Missouri and Alabama. Northeastern Ins. Turns a Profit Northeastern Insurance Co. of Hartford, Des Moines-based property and casualty reinsurance company, had a profit of $174,465, or 29 cents a share, in the second quarter of 1975, compared with a loss of $316,876 in the same period a year ago. Robert D. Edison, president, said a 10 per cent increase in first half investment income helped offset heavy second quarter tornado losses and an inflation-caused rise in loss severity, both of which contributed to a six months underwriting loss of $1.216.609 against an underwriting loss of $1,177,731 for the first half of 1974. Net income in the first half of 1975 was $376,392, or 63 cents a share, about the same as in the like 1974 period, the report showed. Net premiums written in the second quarter rose to $8,702,658 from $7,613,052 a year ago, and first-half premium net was $15.55 million, up from $14.9 million a year earlier. Northeastern is a member of the casualty insurance group of International Bank of Washington, B.C. r Court ruling revives bribery charges against Iowa insurance execs By JAMES O'SHEA An Iowa Supreme Court ruling has revived a $5 mil* lion damage suit by some dis* gruntled ^plicyhQlders who say the people in charge of the Le Mars Mutual Insurance Co. gained control of the company by bribing some of its former directors. The high court did not pass upon the merits of the accusations first leveled 2 years ago by the Le Mars policyholders. Nevertheless, the ruling had quite an impact on -the case. For example: • The justices reversed a January, 1974, decision by Plymouth County Court Judge Lawrence McCormick. (Judge McCormick' threw the ca*se out of court when he ruled that 'the policyholders should have taken their complaints to the Iowa Insurance Commissioner first.) /•They disqualified the Des Moines law firm of Whitfield, Musgrave, Selvy, Kelly and Eddy from representing Le Mars and the Iowa Mutual Insurance Co. of De Witt, also a party to the suit, because of a potential conflict of interest. •And they set the stage for a legal flap that could substantially alter the future of both companies, the men who run them — who deny the charges of bribery — and the people who hold property and casualty insurance policies with the companies. 'Precaution' The justices said that the disqualification of lawyers was not a reflection on the good faith of the Whitfield firm. It was merely a "precaution" the court took to prevent the firm from being in the "untenable" position of representing adverse interests in the case. , The firm represented the Le Mars company and its directors. But the suit was brought by policyholders in the name of the company and filed against the directors, putting the Whitfield firm on both sides of the dispute. So, the high court ordered that the court -appoint independent lawyers for the companies involved leaving the firm with the directors as clients. The lawsuit — which seeks to be declared a class action — first was filed in May, 1973, by two Le Mars policyholders for themselves and "all other policyholder members of Le Mars Mutual." Since then, two others have joined the suit, which names some 24 individuals, including Carman G. Smith, who was listed as the president of the Le Mars and DeWitt companies at yearend 1973; John H. Alesch, a Le Mars man now deceased; and several others listed as officers or directors of both companies. The dispute dates back to early 1970 when the De Witt company bought a general insurance agency in Le Mars, Alesch, Inc., the lawsuit says. According to an exhibit attached to the lawsuit, the Iowa Mutual Insurance Co. of De Witt agreed to pay $500,000 for 300 shares of stock in the Alesch agency to John Alesch, Alice Alesch, Mary K. Buffington, Margaret Sevenich and Jane Warnock, some of whom also were members of the board of Le Mars Mutual. $470,000 Premium But the policyholders say that the Alesch agency was worth only $30,000. The $470,000 premium paid by the DeWitt company, they say, constituted a bribe to get the members of the Le Mars board to resign. Once they did, the policyholders said, Iowa Mutual officials named their replacements giving the De Witt firm control of Le Mars Mutual — a company that was "mutually" owned by the policyholders. The policyholders attached a copy of the purchase agreement to the suit. It said that Iowa Mutual of De Witt would pay the $500,000 for Alesch only if all nine board members resigned from Le Mars, which had a December, 1972, surplus or net worth of $2.8 million. The five Alesch stockholders got their money by April of 1970, the suit said. Among the persons that Iowa Mutual designated to replace the former board members were John Alesch, M. Gearke and Burton Dull, all formerly affiliated with Le Mars. Once the new board was in, the policyholders said, it voted to pay John Alesch an annuity of $1,000 a month for the rest of his life and $100 a month for life to several of the former Le Mir* directors - including Joe L. AJeKh, Clyde Eastman, Alice Aletch, «M.H. Tappan, W.K. Tappan, P.G. Vander Meer and John M. Vollman. Also, the suit said] the board of Alesch Inc., which the policyholders say was the alter ego of Le Mars, agreed to pay John Alesch an annuity of $5,000 a year for four years. The sale, of Alesch, Inc., was just a "guise," the policyholders said. Really, the five Alesch Inc., stockholders sold assets that didn't belong to them but belonged to the policyholders of Le Mars Mutual. Yet, said the policyholders lawyers, David Bayne, a Jesuit priest and professor of law at the University of Iowa, and R. Franck of Denison, the policyholders didn't share in the benefits of the sale. $5 Million Damage* The annuities amounted to the looting of^cefporate^as* sets, the policyholders said. They asked the court to stop the payments and asked also for about $5 million in damages from the former Le Mars board, the Alesch stockholders — and the following persons that the suit said were affiliated with a group that controlled. Iowa Mutual of De Witt- Raymond A. Brown; William Couch; George S. Howes; John C. Howes; Carl J.-Smith; C.G. Smith; John R. Wilkinson; J. Ray Judge; D.M. Molvneaux; W.L. Rut- tenbeck and John Breese. So far, most of the defense has centered on the argument that sent the case to the Supreme Court. The defendants said that the policyholders complaints should first have been heard by, the Iowa Insurance Commissioner, who is charged with regulating Iowa insurance companies. Noting that there have been no hearings in which, hard evidence has beeiy iakeh^ the defendants say that the policyholders claims are merely accusations founded upon "rumor, innuendo, and gossip." i In the legal maneuvering in the case, however, some of the, former Le M«rs directors have answered particular charges leveled by the policyholders. In an answer to the original complaint, M. H. and W. K. Tappan admit being members of the Le Mars board and resigning in April of 1970. However, they say that they resigned because they moved to Florida. They say they knew nothing of the sales agreement between Iowa Mutual and the Alesch stockholders. And they deny the charges leveled by the policyholders. Likewise, two other former Le Mars directors — John M. Vollmar and Peter Van- —derMeer—admit resigning from the LeMars board in April of 1970. But in court records they say they resigned because they understood probable changes were to be made in the management of Le Mars. Besides that, they had served for a long time and wished to be relieved of their duties, they said, adding that they knew nothing about the sales agreement. Alice Alesch, executor of the estate of John Alesch, admits that both were board members of Le Mars. Alice Alesch, -Mary K. Buffington, Margaret Sevenich and Jane Warnock also admit that they entered into the purchase contract in April, 1970. But they deny all other accusations Brought by the policyholders. The Supreme Court ruling ordered the Plymouth County Court to appoint independent lawyers, for both the Le Mars firm and the De Witt company. That's because policyholders in both firms could have a claim against directors if the Le Mars accusations prove true, court papers say. ° U ENCH GUITAW ENTIRE UNHOLY PESTLE NINETEEN (JUMBLE appears on page 2C) \

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