Where Have All the Leaders Gone? (13 page)

I had the same reaction when I heard about Jack Taylor’s concept for Enterprise Rent-a-Car. I honestly didn’t think he’d make it. His plan was to go up against the big boys—the Hertzes and Avises—with only one difference. Enterprise would pick customers up at their doors. Jack’s slogan was “Pick Enterprise. We’ll pick you up.” Frankly, it didn’t seem like a great enough incentive to get people to switch from their favorite companies. Shows you what I knew. Enterprise is now the
largest
car rental company in North America.

Here’s another one. When Ted Turner told me he was planning to take on the three networks with a twenty-four-hour-a-day news channel, I said, “Come
on,
Ted, who’s going to watch news twenty-four hours a day?” I thought CNN would last about six months. That was strike three for me!

These were three innovators on a small scale that turned into massive successes. There are plenty of examples of upstarts beating the giants, because the giants have become too fat and arrogant. They’ve stopped looking ahead. In 1943, Thomas Watson, the chairman of IBM, said, “I think there’s a world market for maybe
five
computers.” Okay, we can give Watson the benefit of the doubt; 1943 was a little bit early for computers. But it’s hard to excuse Ken Olsen, the president and founder of Digital Equipment Corporation, who said in
1977,
“There is no reason anyone would want a computer in their home.” These Goliaths never saw it coming.

The lesson: Innovation can be much more important than size. Often, when companies get big they tend to grow sluggish. It takes a constant infusion of fresh ideas and leadership to prevent that.

TOO BIG FOR THEIR BRITCHES

Merger-mania hasn’t just infected the auto industry. These days, everybody wants to merge. Too often they’re just blindly gobbling up as many players as they can, in the false belief that bigger has to be better. It kind of makes you wonder if
merger
-mania isn’t really just
ego-
mania. Or something even more destructive. If you look at it objectively, most mergers do not revitalize companies. Rather, they provide short-term gains for a relatively small group of people, usually Wall Street bankers and lawyers.

Look at the AOL–Time Warner merger in 2000. Everyone praised it as a brilliant marriage of old and new media. It lasted three years. The downfall of the AOL–Time Warner merger has sometimes been blamed on unexpected market forces—like the bursting of the Internet bubble. But the root cause of the failure was our old friend
synergy
—as in, there
was
none. It’s hard to imagine Steve Case and his band of technology buffs in the hushed corridors of the stodgy old Time Warner building. Jerry Levin may have loved the idea of all that new technology, but he hadn’t considered how he’d integrate his movie, TV, and magazine businesses with the Internet.

Lest you think I’m advocating a “small is beautiful” philosophy of business, let me assure you that the situation is more complex than just saying big is bad, small is good—or vice versa. The real choice isn’t between big and small. It’s between efficient and inefficient, profitable and unprofitable. That’s where the ball gets dropped. Almost two thirds of all mergers fail to improve the value of the surviving entity’s stock.

So, if the merger bug is buzzing around
your
company, here are a few things to look for:

Merger of equals? Don’t fall for it.
In my opinion, there is no such thing. Think about it. When have you ever seen a true merger of equals—in business or in life? Someone is always in the one-up position. If you don’t believe me, think about your marriage. Can you honestly say it was a merger of complete equals? Usually one of the partners has an advantage. I think that’s where the term “a good catch” comes from. Well, it’s the same with businesses. As the saying goes, “All people are equal, but some are more equal than others.” Proclaiming a merger of equals is usually just an attempt to put a good face on an acquisition.

It’s all about synergy.
The purpose of a merger is to create a stronger entity than each of the two parts. It’s sort of a 1 + 1 = 3 equation. The new entity should be leaner, more efficient, and more profitable. That can only happen if there’s synergy. Now, it’s easy for the top dogs to put on rose-colored glasses and imagine all the synergistic benefits of a merger. But it’s a good idea to check with the line—the people who actually have to make it work. As DaimlerChrysler learned, synergy doesn’t automatically exist just because you’re in the same industry.

Don’t forget the customer.
At the start of a merger, while you’re busy counting heads, cutting costs, and watching the stock market, don’t let the important things slide—like meeting the needs of your customers. I don’t care what kind of business you’re in, if you lose the customers, you’re dead.

Bigger can be better—but not always.
There can definitely be advantages to bigness. But you have to beware of the deadly mentality that tends to creep into big organizations. Executives start thinking, “We’ve got it good. Why take any chances?” Well, the lessons of history should apply. Whether you’re talking about the fall of Goliath, the fall of Rome, or the fall of IBM, there are just too many stories of the ambitious little guy overcoming the fat, sluggish big guy. If you’re big, you’ve got to find a way to stay lively and creative.

When I was in business, I always believed that my legacy should be to make things better. In 1987 Chrysler had achieved a comeback and business was great. But I thought we were getting a little flabby around the middle. We needed a fresh infusion of creativity and a new challenge. I decided to buy American Motors, the venerable maker of the Jeep. When I put it to a vote among my top management, they voted it down. They couldn’t understand why we’d mess with AMC when things were going so well.

Even my
mother
thought it was a lousy idea. “Why would you take on someone else’s headaches?” she asked. “Why do you need that? Aren’t things good enough?”

“Hey, Mom,” I reminded her. “You know what Pop used to say: ‘If you stand still, you’ll go backward.’”

She didn’t buy it, but I actually believed Pop was right. So I went ahead with the deal to acquire AMC. We paid half a billion in cash and some stock and earned $1 billion in the first year. The profit was gratifying, but more gratifying still was the renewed energy we felt. The acquisition kept us in fighting trim.

Merge because of your hopes, not your fears.
It’s a fact of life that when people or companies make decisions out of fear, they’re already losing. There are a lot of fears driving corporate mergers these days—fear of globalization, fear of raiders, fear of the volatile stock market. But when you run a business based on fear you’re no different than the animals in the jungle that act on the fight-or-flight instinct. Humans have brains—at least most of us do—and that means we can act based on reason and hope and possibility.

I don’t pretend to know all the answers. Every business is unique. But I have a little quiz for any company that’s considering a merger or an acquisition. It’s just three questions:

Otherwise, resist the urge.

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

Assemble a top team

Share the sacrifice

Simplify!

Shuck the losers