Where Have All the Leaders Gone? (14 page)

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.

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.

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.