XIV
I remember when Detroit really meant something to America. I’m not just talking about the economy. I’m talking about the future of democracy. Now, most of the people reading this book were not alive to hear Franklin D. Roosevelt herald Detroit as “the arsenal of democracy” during World War II, but those words made a lifelong impression on me. Even as a kid I felt such tremendous pride. Those were our factories, our workers, our determination to save the world. That was our arsenal building the combat vehicles and equipment that won World War II. When called to serve, Detroit responded. It was the American way—and it was a big reason I went into the car business.
Wouldn’t it be something if Detroit could once again be the great arsenal of democracy? I don’t mean building tanks. I mean saving our way of life and our communities. Remember, in World War II we took on Germany and Japan and we beat them—and then we rebuilt them. Now we must rebuild our own country. We must resurrect the hopes and dreams of the middle class.
In the 1980s, General Motors advertised Chevrolet as “the heartbeat of America.” The slogan caught on, in part because it reflected the way we felt about our car industry. The pulse of America’s Big Three was strong and steady. Detroit was the engine that drove our economy and the world. Today, the pulse is growing fainter. So what happened?
Well, for one thing, there is no American Big Three at the moment. After Chrysler became DaimlerChrysler, with decision-making coming out of Stuttgart, there were only the Big Two. Then Ford slipped behind Toyota in American car sales, and there was just the Big One—GM. With Toyota poised to overtake GM, I’m worried that we’ll wake up one morning to read the headline, “And then there were none.”
How did this happen? How did General Motors go from 60 percent of the market to 25 percent? How did Ford get out-paced by Toyota on its home turf? How did Chrysler come to press a panic button during its best sales year in history? And more important, what are these companies going to do now?
Times of crisis require bold moves, and this is where America has failed the great industry that created its prosperity. Last year the heads of GM, Ford, and Chrysler tried to meet with the President for months, and the White House kept canceling. Bush had time to meet with the winner of American Idol, but he couldn’t squeeze in the leaders of the auto industry. Meanwhile, he was blowing them off in the press, saying things like, “Detroit needs to learn how to compete,” and “They have to start building a product that’s relevant.” Thanks a lot, Mr. President.
By the time Bush finally gave the CEOs forty-five minutes in late 2006, their agenda was pretty serious. The Big Three asked for help in three crucial areas that require government cooperation: the trade imbalance—especially Japan’s manipulation of the yen and its closed markets; the health care crisis, for which the car companies bear an unfair burden; and the need to develop alternate fuels such as ethanol. The President’s response was polite, but it was obvious he wasn’t about to roll up his sleeves to help solve these problems. It was more like a photo op than a work session.
It’s a good thing the industry doesn’t have to depend solely on the executive branch for support. Now that my good friend Michigan congressman John Dingell is chairing the Committee on Energy and Commerce, auto manufacturers can count on a listening ear on Capitol Hill.
I can’t believe I’m still talking about this almost twenty years after I accompanied the first President Bush to Japan to urge the Japanese to open their markets to U.S. products. In all this time what’s happened is nada, nothing, zip. Twenty years later it’s the same old song. No help with trade, no health care plan, no commitment to alternative energy.
When America needed the Big Three to be its arsenal of democracy, Detroit came through. Now, when Detroit asks the government to be its partner in revival, the White House gives it forty-five minutes.
Now, you might say to me, “A lot has changed since 1940,” and you’d be right. But I don’t believe that America is less capable of greatness than it was then. You’ll never convince me that the spirit and genius we invested in inventing the greatest industry in the world can’t be used to reinvent it. All it takes is the will to do it, and the leadership to set the course.
THE LEADERSHIP TO REBUILD
I get asked all the time, “Lee, if you were running a car company today, what would you do?” It’s something I wonder about a lot. When you’ve spent your life in a business, it’s hard not to play out the scenarios in your head, especially when the Big Three are constantly in the news.
So I’ll take a stab at it. There is no question that the problems in Detroit are complex. But there are some basic steps any leader has to take if the American car industry is to survive. If you’re faced with the challenge of heading up an American car company today, here are the things you must do:
Create a sense of urgency
You’re up against the wall, and you’re getting hammered. Instead of hiding in the corporate offices, get out there and communicate. Tell it like it is: “We have a tough task ahead of us. The challenges are formidable. But together we can do it. It’ll take everyone—the employees, the dealers, the suppliers, the union, the government—and we’re asking for your help.”
Communication is the lubricant that makes an organization run—and never is that more true than during times of crisis. It always amazes me how big corporations will spend millions of dollars telling the public what’s happening, but forget to tell their own employees. A good leader will make every person feel personally involved in the recovery. Many years ago, when Chrysler was fighting for its life, I went to every single plant so I could speak directly to the workers. I thanked them for hanging in there during those hard times, and I asked them to join me in restoring the company to greatness. There were a lot of cheers and some boos, but I got them involved.
If you haven’t visited every plant this year, get out there and do it. Tell the workers what’s happening, and enlist them in the fight. Meet with the plant supervisors and ask for their suggestions. Go to the dealers and the suppliers and hold strategy sessions: What should the priorities be? What should be cut? What should be changed?
Assemble a top team
The quality of your team will make or break your program. Remember, it’s never just one person. Every so often, we get enamored of an individual, and start thinking that person is some kind of magician. Right now in the auto industry, that so-called boy wonder is a guy named Carlos Ghosn, who is credited with turning around Nissan, and he did a great job. But to say that Ghosn alone turned around Nissan is like saying that I alone turned around Chrysler. I brought eighty-eight guys with me from Ford—including a top management team. They helped save my ass. I guess what I’m saying is, there’s not going to be a savior, just a team of seasoned leaders.
And make sure that team includes top talent in design, engineering, and manufacturing, because that’s your only priority—to build cars people want to buy. Hot styling still sells them, but quality keeps them sold.
When I was head of Chrysler, I couldn’t walk into a plant and instantly see whether it was running efficiently or not. But I had people who could—notably Dick Dauch and Steve Sharf, who were my secret weapons in manufacturing and brought real quality to our products in a short period of time.
Share the sacrifice
In the coming months and years, you’re going to have to make more painful choices. Not everyone will survive, and those who do will have to take a haircut and maybe a shave, too. You must demonstrate equality of sacrifice. When you ask everyone to join the cause, you’ll get no cooperation if the workers are grumbling, “Why am I taking a beating? The fat cats are up there earning millions, and you want to cut my what?”
We saved Chrysler for one reason. Everyone shared in the sacrifice—starting with me. You see, it wouldn’t have gone down too well if I’d asked the rank and file to tighten their belts while I was putting extra notches in mine. So I cut my salary to one dollar a year. That is an example of leadership, born in a crisis. Then I went to the executives and asked them to take a pay cut. Finally, I went to Doug Fraser of the UAW and asked what the union could give. The workers really came through. Over a nineteen-month period, the workers made $2.5 billion in concessions. It was the workers more than the government loan that saved the company.
Simplify!
It’s time to get back to basics. There are too many models, and you have to get rid of some of them. The complexity of your product lines is killing you. Remember, Toyota only has three brands—its name-plate Toyota, Lexus, and a funky little car called the Scion.
I know this is a controversial idea, but you need to retire the Sloan model. Alfred Sloan was a genius in his day. Back in the 1920s, he had a vision that took hold of the nation. A car for everyone. Not just the elite, but ordinary people, too. Sloan’s vision was so effective that even during the height of the Depression, President Herbert Hoover defined the American birthright as “a chicken in every pot and a car in every garage.”
Sloan’s model of a car for every income level motivated people to trade upward as they progressed in life. In other words, you started with a Chevy and were buried in a Cadillac hearse. Sloan’s brand concept built GM into a powerhouse, and Ford and Chrysler followed suit. But the Sloan model just doesn’t work anymore. Your companies are being smothered by a glut of brands and models within a brand. GM, in particular, is saddled with an unwieldy breadth of market. Does every brand really need a minivan, a big SUV, a little SUV, a crossover, a station wagon, a two-door coupe, a four-door sedan, and a convertible? That’s just plain crazy. It confuses the customers, kills the dealers, and plays havoc with assembly plants, making it almost impossible to build a production schedule to meet market demand.
American car companies need a new, leaner rule of the road that builds brand identity and allows them to streamline the manufacturing process. It would be nice if you could always utilize plants to full capacity, but that’s hard to do these days. A plant’s optimum capacity is about 250,000 vehicles a year, and there aren’t too many models with that instant appeal anymore. So an efficient plant has to be able to build up to five models of about 50,000 each—and that means commonality of parts. I’ve been impressed by Chrysler’s new flexible manufacturing plan that allows them to do just that. Their robots are amazing. You can change the hands on a robot and build an entirely different car. Now, that’s real innovation.
Shuck the losers
Make a list of the three most profitable brands—at the factory level and at the dealer level. Then take the three or so least profitable brands and give them one year to break even. If they can’t get into the black, drop them.
Car companies—like all other big bureaucracies—have a real aversion to giving up on something once they’ve poured a ton of cash into it. There’s always an attitude that success is just around the corner. I hate to say it, but it’s time to cut and run on some of these products. I give GM high marks for dropping Oldsmobile a couple of years ago. It must have been an agonizing decision. Here was a brand that had been around for over one hundred years, but GM rightly determined it was time to end Oldsmobile’s run.
After making such a tough decision with Oldsmobile, closing Saturn should be a no-brainer. Saturn was a mistake to begin with when Roger Smith first imagined building his Japan-beating small car, and the mistake keeps growing. I’ve heard that Saturn has never turned a profit in its thirteen-year life. You have to ask: What is the franchise that GM is protecting?
Ford’s recent mistakes have been costly, and its identity crisis has been demoralizing. I’ve never understood why Ford needed to acquire nameplates like Jaguar, Volvo, Aston Martin, and Land Rover. Sometimes I look at Ford and I feel like asking, “What do you want to be when you grow up?” Ford thought it could buy its way into the luxury car market. It didn’t work.
Off the top, Jaguar’s got to go. Ford has poured over $5 billion into Jaguar, and it’s still in the red. Another money loser is Land Rover. Finally—and this is the hardest—you need to evaluate whether Mercury can be profitable and have some identity in the market.
Follow the market
During my years in the car industry, we hit two out of the ballpark—the Mustang at Ford and the minivan at Chrysler. The formula for their success was a departure from the original Sloan model of a car for every purse. These vehicles were built for lifestyles.
The Mustang was a big success because it was a lifestyle car for baby boomers. In 1964 they were teenagers with their first driver’s licenses. They craved mobility. And they (or I should say their parents) had the disposable income to afford it. They responded to the Mustang because it was a beauty, it had power, and it had an identity. It became a cult car. To this day, when I go to the classic Mustang shows, those now-aging baby boomers treat me like a rock star. That car meant something to them.
In the 1980s, our big success was the minivan. We’d followed the baby boomers, and they’d grown up, married, moved to the suburbs, and acquired a couple of kids and a dog. The minivan spoke to that lifestyle—and, by the way, it still does. Twenty-two years later, with not much competition, Chrysler is still selling 30,000 minivans a month. I guess soccer moms are still alive and kicking.
You cannot lose if you follow the market.
For much of its history the American auto industry took an ass-backward approach to the market. They basically said, “We’ll decide which cars to build, and then we’ll try to convince people that they want and need them.” Then someone came up with a bright idea: “Why don’t we find out what kind of cars the customers want and need, and then build them?” It’s still a bright idea.
The best situation in the world is when dealers are beating down your doors for a car because their customers are beating down their doors for a car. You don’t just roll them off the line and hope you can find a way to get rid of them.
Lighten up
It’s about time we stopped promoting the fiction that bigger, heavier vehicles deliver more safety on the road. America went crazy over the SUV because people believed all that iron protected them. Here’s the truth: You don’t make cars safer by just adding weight. Study after study has shown that weight alone doesn’t protect drivers.
When I bought Jeep, I predicted a market for SUVs of about half a million vehicles. I thought it might be a niche market, or even a fad. I didn’t realize it was the start of something big—a whole new class of vehicles. If you’d told me that in just twenty years about every brand in the world would need an SUV, and that annual sales would get to the five million mark, I would have said you were crazy. But the SUV is a phenomenon.
The question is, why has the SUV been such a success? What is its purpose in life? Very few people go off-road, so it’s not because they need a rugged all-terrain vehicle. The SUV doesn’t have the passenger or storage capacity of a minivan, or the good ride and handling of a car.
So, what is the motivation for buying an SUV? Why are we lugging around all that extra weight? Bigger engines (usually V-8s) are not known for fuel economy and low emissions.
I think the SUV feeds a strong desire for security and control on the road. In this day and age, people want to put as much steel and iron around them as they can. They equate weight with safety. It’s a factor, but in no way compares to solid structural design and the use of multiple air bags. I think people are looking for a competitive edge on the freeway and they like riding high in a command position behind the wheel. With thousands of other SUVs speeding past them, not to mention eighteen-wheelers and cement mixers, drivers just feel more secure. It’s a perception and Detroit promoted it. One SUV brand advertised itself with the headline, “Look upon it as a 4,000-pound security blanket.”
It might be kind of a macho thing, too. The introduction of the 1990 Jeep Grand Cherokee kick-started the whole market and coincided with Desert Storm and those huge wartime Humvees. They evolved into Hummers for home consumption. Hummers are the ultimate example of the bigger-is-safer mentality: If you want guaranteed safety on the road, why not drive a tank!
The oil crisis of the 1970s was a wake-up call: Start to build smaller cars, or die. Well, we got a late start on that, behind our Japanese competitors, but once we started to build smaller cars, we got pretty good at it. Eventually, gas prices leveled off, and we started forgetting the pain of the long gas lines of the 1970s. Maybe we thought gas prices would stay low forever. We began building bigger, heavier vehicles. Today we’ve reached another period of instability with energy prices, and we’ve got to get smarter this time around.
The market imperative is so clear you’d have to be blind not to see it. We need to build more small cars. Right now, none of the smallest cars are built by Detroit.
We need to spend more R&D on hybrids. And we need to do it aggressively. I’m not talking about sticking a toe in the water with the development of crossover vehicles. What the hell is a crossover vehicle? It’s an SUV on a car chassis that will probably never go off-road. It’s smaller than a minivan. Well, let me see…that would be a…CAR! Stop building models that people don’t need, and concentrate on a lean, strong product program.
Detroit has been shamefully late getting into hybrid development. The excuse: Hybrids are not yet as fuel efficient as they should be, and they’re expensive to build. We need to exert some creativity here, or we’ll be ceding the future market to Honda and Toyota.
Lock the Big Three in a room
By the “Big Three” I mean the companies, the union, and the government. There must be across-the-board collaboration to make this comeback work.
As this book goes to press, the UAW is gearing up for a major contract showdown in September 2007. There are a lot of big-ticket issues on the table, and this negotiation is going to require some major leadership.
Here’s the way I see it. There’s a lot of talk these days about whether we live in a faith-based world or a reality-based world. Well, I think this discussion is relevant for the unions. In a faith-based world, the UAW throws its hands to the heavens and says, “GM [or Ford or Chrysler] will provide.” In a reality-based world, the UAW understands that the burdens of legacy costs have the automakers fighting for their lives. In a reality-based world, the UAW sees that companies like Toyota are thriving by building nonunion factories. In a reality-based world, the UAW realizes that Ford and GM have already taken the first shots across their bows with massive employee buyout plans. More than 65,000 workers are taking the buyout money from these two companies and leaving the industry. Two great companies are being hollowed out of skilled workers. It’s madness. Where do you think those workers are going to go? They’re not all retiring. They might even take their skills to Toyota, which would be the ultimate irony.
As for the government, well, if the auto industry really is the heartbeat of America, someone had better warn the government that the old ticker is on life support. The lukewarm interest of the Bush administration has been demoralizing.
When Chrysler was sliding into bankruptcy, and I was trying to sell Washington on the idea of a loan, I raised this question with Congress: Would America be better off without Chrysler? Now, you’ve got to understand that there was huge resistance in Washington and on Wall Street to a bailout for Chrysler. All those free enterprise purists had their noses in the air. They defined free enterprise as survival of the fittest, as if we were playing some kind of ancient caveman’s game. I had to show them it was in their interest to keep Chrysler solvent.
I did it with numbers. The Treasury Department had estimated that if Chrysler collapsed it would cost the country $2.7 billion during the first year alone in unemployment insurance and welfare payments. I said to Congress, “You guys have a choice. Do you want to pay the $2.7 billion now, or do you want to guarantee loans of half that amount with a good chance of getting it all back? You can pay now or you can pay later.” That made people sit up and take notice.
Then, with the help of my friend Speaker of the House Tip O’Neill, I broke it down for each congressman. I think there were only two districts in America that didn’t have a Chrysler dealer or supplier providing jobs. So I put it to them in terms each representative could understand: If Chrysler went under, their district would lose jobs. And I told them just how many. It worked because they came to see a loan for Chrysler as a way to save jobs in their neighborhoods.
Maybe you’re thinking, There he goes again, angling for bailouts. I’m not talking about bailouts. I’m talking about the government understanding that it has a stake in the success of the auto industry. I’m talking about the government agreeing that it has an obligation to help level the playing field.
Look at it this way: The acronyms are killing us. There’s OPEC (the Organization of Petroleum Exporting Countries), which has been around for thirty-six years, controlling the oil spigot at the whim of the cartel. There’s MITI (Japan’s Ministry of International Trade and Industry), which has been around for sixty years, manipulating currency in a way that would be illegal if it were happening in America. And there’s UAW (United Auto Workers), which has been around for seventy-five years, playing the gimmie game with every new contract. Whenever you see an acronym, you know you’re in trouble. And isn’t it a bit much to expect one executive—or even three executives—to take on these long-established and entrenched organizations?
American carmakers have struggled to stay competitive in spite of being saddled with the kinds of burdens the foreign competition never has to worry about—such as skyrocketing pension and health care costs, intractable unions, government regulations, and a growing trade imbalance. All of these factors translate into brutal fixed costs on the production of cars, and a constant scramble for capital. Our Japanese and European competitors essentially have a blank check from either government-owned or highly regulated banks. (For years the going interest rate from the Bank of Japan has been 0–1 percent, if you can believe that!) Year after year our trade representatives sit around eating sushi and making nice with the Japanese, and never push for a level playing field. Meanwhile, our state governments treat the Japanese auto companies like conquering heroes.
Here’s an example. A newly built Toyota plant in San Antonio, Texas, has become the darling of the state. They’ve showered Toyota with millions of dollars of incentives, worth about $600 per car. And that’s not even the best part for Toyota. Its young workforce is nonunion. There is virtually no burden of pension and health care costs. Meanwhile, a couple hundred miles down the road, a thirty-year-old GM plant in Arlington—one of the company’s most successful—doesn’t get any of the red carpet treatment, but it gets all of the headaches. And the biggest headache of all is health care. GM pays $1,525 per vehicle for health care to Toyota’s $201.
Our government ignores the very real and looming crisis of legacy costs at its own risk. How about some incentives for the companies that are keeping retirees solvent? How about a health care plan that won’t bankrupt industry? General Motors is the largest private purchaser of health care in the United States, offering coverage to 1.1 million people. Twenty years ago at Chrysler, I was shocked to learn that Goodyear Tire and U.S. Steel weren’t our biggest suppliers—Blue Cross/Blue Shield was. Today it’s even worse. And it’s not just the auto industry that’s affected. Howard Schultz, the chairman of Starbucks, says his company spends more on health insurance than it spends on coffee beans! What do you think would happen if all of those people were suddenly uninsured? That is a question a responsible government needs to address.
Leadership in the car industry means knowing when corporate policy ends and public policy begins. You see, companies are not separate entities from government. Everyone has a part to play in the recovery of our manufacturing sector. But it will take real leadership in the “Big Three” of corporation-union-government to get it done.
WHO WILL LEAD?
I’ve said before that leadership is born in times of crisis, and Detroit has got a hell of a crisis on its hands. The question is, What kind of leaders are emerging from this crisis?
Here, I have to say, the news is actually very good.
At GM, Rick Wagoner has exhibited amazing cool in the face of a serious arm-twisting by Kirk Kerkorian, Jerry York, and Carlos Ghosn. They pushed a merger with Renault-Nissan that would have solved exactly none of GM’s problems. Kerkorian and York, as I mentioned earlier, know how to play those high-stakes poker games, but Wagoner didn’t fold. Instead, in his low-key, under-the-radar way, he showed the merger specialists to the door, and has instituted a new drive for improved product design, with the help of a savvy veteran, Bob Lutz.
Chrysler’s Tom LaSorda may be just the guy the company needs for a back-to-basics drive to reverse its slump. As a former factory boss (and the son and grandson of labor leaders), LaSorda understands the nuts and bolts of the business. He also has the ability to inspire trust among the workers. When he says, “I know what you’re experiencing,” he means it.
It’s too early to know how Ford’s new chief, former Boeing executive Bill Mulally, will adapt to the car industry. Sometimes an outsider’s perspective can reenergize a tired business plan. I will say one thing about the leadership change. Bill Ford earns my admiration for stepping up and acknowledging the crisis—and admitting that maybe he was in a little over his head and needed help. His move took a lot of guts.
A leader in the auto industry has to have a passion for cars and an enthusiasm for innovation. The leader sets the tone for the entire company, and when I was CEO I always wanted my tone to communicate that we could do great things together. I hope the current leaders feel that way, too. Wouldn’t it be something if the best days of America’s arsenal of democracy were still ahead of us?