Ingrassia crash course; the american automobile industrys road to bankruptcy and bailout and beyond (2010)

For my parents, Regina and Angelo Ingrassia, who left too soon Contents TIMELINE ONE TWO THREE FOUR FIVE SIX SEVEN EIGHT NINE TEN ELEVEN TWELVE THIRTEEN AFTERWORD Where the Weak Are Killed and Eaten Dynasty and Destiny Glory Days of Ponies and Goats Crummy Cars and CAFE Society Honda Comes to the Cornfields Repentance, Rebirth, and Relapse “Car Jesus” and the Rise of the SUV Potholes and Missed Opportunities From Riches to Rags The Hurricane That Hit Detroit Chapter 11? As the Precipice Approaches Bailouts, Bankruptcies, and Beyond Another Chance ACKNOWLEDGMENTS NOTES Timeline ONE WHERE THE WEAK ARE KILLED AND EATEN It really wasn’t intended to be a prophecy It was just a smart- alecky T-shirt worn for years by local teenagers to annoy their parents and show their perverse pride in the Motor City’s toughtown image It said: DETROIT: WHERE THE WEAK ARE KILLED AND EATEN But the menacing message seemed all too appropriate in the bleak winter of 2008–2009, when signs of weakness—indeed, desperation— erupted everywhere in Detroit One bankrupt car-components company economized by servicing the bathrooms in its suburban headquarters only every other day Some of the bathrooms ran out of toilet paper, prompting employees to hoard it or bring their own from home In the city itself employment prospects were so bleak that some prisoners begged to stay in jail to get food and shelter—“three hots and a cot,” in the local parlance The city’s battered economy was re ected on the football eld, where the University of Michigan was enduring its rst losing season in forty years, and the Detroit Lions were plummeting to pro football’s rst 0–16 season During their 47–10 drubbing on Thanksgiving Day 2008, fans unfurled a banner reading BAIL OUT THE LIONS It was a gallows-humor reference not only to the football team but also to the weakest teams in town—General Motors, Ford, and Chrysler Since the beginning of the century America’s Big Three car companies, bleeding from more than $100 billion in losses in four years, had shed more than 333,000 employees, enough to populate the city of Cincinnati In November 2008 GM’s stock closed below $3 a share for the rst time since 1946, when Harry Truman was president To conserve cash, the company ended its nine-year endorsement deal with golfer Tiger Woods, who was making more money than GM anyway That same month Detroit’s automakers went to Washington to beg Congress for a bailout—in a last-ditch Iacocca “just a four-wheeled motorcycle”: Masaaki Sato, The Honda Myth (New York: Vertical, 2006) Improbably, a Japanese boy: Yoshida interview “Hippies,” he said “Blue jeans”: Ibid “We’re going tomorrow”: Jim Duerk, interview by author, November 5, 2008 The entire trip lasted just four and a half days: Ibid One of the rst to apply: Al Kinzer, interview by author, March 2009 Kinzer protested that Honda was ignoring: Ibid “I thought I had made a mistake”: Brad Alty, Honda worker and later manager, interview by author, October 2008 “It was all about speed, crazy speed”: Toshi Amino, interview by author, October 2008 “Where is the airport in Columbus”: Yoshida interview The union viewed the nonunion plant in Marysville: Rev Peter Laarman, former director of public a airs, United Auto Workers, interview by author, January 9, 2009 Certainly they expected Honda’s “associates”: Ed Buker, former Honda factory manager, interview by author, January 14, 2009 “I think we ght”: Chan Cochran, Honda consultant, interview by author, October 2008 Yoshida, who bore the brunt: Yoshida interview Six: Repentance, Rebirth, and Relapse No one dared reveal: Op cit Iacocca with Novak, Iacocca “birthday parties, bene ts and bar mitzvahs”: Urban C Lehner, The Wall Street Journal, January 4, 1985 “Are you saying we’ve been fucked”: Retired Chrysler executive, interview by author, 2009 “identi ed over 400 of the best”: Ford sales brochure, 1986, National Automotive History Collection, Detroit Public Library “more secure than ever in history”: Je rey McCracken, “Idle Hands,” The Wall Street Journal, March 1, 2006 CEO of the Year: Financial World, April 1985 CEO of the Year: Financial World, April 1985 “cherubic chairman of General Motors”: William J Hampton and Marilyn Edid, BusinessWeek, June 17, 1985 “Chrysler is diversifying”: Lee Iacocca, chairman’s letter, Chrysler annual report, 1985, National Automotive History Collection, Detroit Public Library Other automation-software malfunctions: Amal Nag, “Auto Makers Discover ‘Factory of Future’ Is Headache Just Now,” The Wall Street Journal, May 13, 1986 “Roger Smith works on everything”: H Ross Perot, interview by Doron Levin and Paul Ingrassia, Dallas, May 1986 “The rst EDSer who sees a snake”: “Ross Perot’s Crusade,” BusinessWeek, October 6, 1986 “What’s Plan B?”: Former GM executive, interview by author, 2009 It was all perfectly legal: Gary Hector, “Cute Tricks on the Bottom Line,” Fortune, April 24, 1989 “re ect the company’s renewed commitment:” Lee Iacocca, letter to shareholders, Chrysler Annual Report, 1989, National Automotive History Collection, Detroit Public Library “I see it’s three against one”: Robert Stempel, interview by author, 1990 “We realize the urgency of change”: John F Smith, Jr., letter to shareholders, General Motors Annual Report, 1992, National Automotive History Collection, Detroit Public Library Seven: “Car Jesus” and the Rise of the SUV Honda executives told each other: Former Honda executive, interview by author, 2009 “has given Jeep’s renowned Cherokee”: Dennis Cauchon et al., “What’s Hot, What’s Not,” USA Today, December 24, 1990 “People from Ford prefer Chevy trucks”: Joane Lipman, “Feud Revs Up Over Chevy’s ‘Ford’ Ads,” The Wall Street Journal, January 11, 1990 “Nobody really loves you but your momma”: Lindsay Chappell, “Billmyer Sentence Satis ed Ex-Dealer,” Automotive News, October 9, 1995 He threw Billmyer out: Ibid “kissing the ring”: United States v John W Billmyer, U.S Court of Appeals, First Circuit, No 95–2147 “Rolex conventions”: Holman Jenkins, “‘Tis the Season of Sin at Honda,” The Wall Street Journal Europe, December 18, 1996 “Car Jesus”: Scott Higham, “Bribe Case Steers Honda to Court,” Baltimore Sun, July 21, 1996 Cardiges made it happen: Ibid Another dealer who contributed: Bill Krueger, “Auto Tycoon Hendrick Indicted,” Raleigh (NC) News and Observer, December 5, 1996 One New England dealer: Jenkins, “‘Tis the Season.” “mutual agreement”: United States v John W Billmyer “could well be accused of being negligent”: James Bennett, “Four Former Honda Employees Sentenced in Kickback Case,” The New York Times, August 26, 1995 “It’s a case of damage limitation”: Seth Sutel, “Japan Carmakers Losing U.S Sales,” Seattle Post-Intelligencer, March 17, 1994 The new Ram pickup: Keith Bradsher, High and Mighty: The Dangerous Rise of the SUV (New York: Public Affairs, 2004) But by 1995 that ratio was reversed: Ward’s Automotive Yearbook, 1996 “We wish we could just shrink-wrap”: Former Chrysler executive, interview by author, 2009 “We started jumping for joy”: Ibid “We’ll have the size, the pro tability”: Another former Chrysler executive, interview by author, April 21, 2009 When the cover was pulled o the new vehicle: Former Ford executive, interview by author, 2009 “It’s wonderful to be in this industry”: Gregory L White et al., “Bumper Crop,” The Wall Street Journal, January 8, 1999 Eight: Potholes and Missed Opportunities “the largest auto show exhibit ever”: “General Motors Begins “the largest auto show exhibit ever”: “General Motors Begins Construction of Largest Auto Show Exhibit in North America,” PR Newswire, November 12, 1999 At the “line-o ” ceremony: Former Toyota executive, interview by author, 2009 “Don read books—and let the other guys know”: Retired UAW staff member, interview by author, 2009 “Our job was to prevent management”: Mike Bennett, interview by author, March 13, 2009 “the greatest threat to our livelihoods”: Ibid “like heaven; a nice, clean new plant”: Ann Fox, interview by J Halpert, March 2009 “You felt more loyal,” she would explain: Ibid “People would shoot back: ‘You Saturn guys’ “: Former Saturn executive, interview by author, 2009 “Where does that put the rest of what GM builds?”: Kathleen Kerwin, “Saturn: GM Finally Has a Real Winner,” BusinessWeek, August 17, 1992 One senior executive: Elmer Johnson, former GM executive vice president, interviews by author, 2009 “The UAW thanks Brother Ephlin”: UAW convention brochure, July 20, 1989, Walter Reuther Labor Library, Wayne State University “Can America Still Compete?”: S C Gwynne, “Can America Still Compete?” Time, October 29, 1990 “scares the liver out of”: Ibid “Shinjirarenai” (“Unbelievable”): Former Honda executive, interview by author, 2009 Dealers were equally enthusiastic: Tom Zimbrick, interview by J Halpert, March 2009 In these decisions Mike Bennett tried to play: Bennett interview He was Stephen P Yokich, the child: Terril Yue Jones, “Stephen P Yokich, 66, Former President of UAW,” Los Angeles Times, August 17, 2002 “The cardinal’s a fucking prick!”: Stephen P Yokich, interview by Jacob Schlesinger and Paul Ingrassia, Detroit, 1988 129 It was the sort of utter craziness: James R Healey and Micheline the sort of utter craziness: James R Healey and Micheline Maynard, “The Uncivil War,” USA Today, June 29, 1998 The strike’s impact caused the entire: Associated Press Financial News, July 16, 1998 “I mean it’s nuts,” Yokich told reporters: Healey and Maynard, “The Uncivil War.” ll out an internal “score sheet”: Micheline Maynard, “Toasting New Harmony,” USA Today, December 16, 1998 “building lean and agile’ plants too quickly”: Thomas Donlan, “Now a Strike of Capital,” Barron’s, August 10, 1998 a peace parley with Yokich: Maynard, “Toasting New Harmony.” “I’m optimistic … I think we’ll make it work”: David Sedgwick, “GM Plan to Reinvent Factory Gets Cautious OK from UAW,” Automotive News, January 18, 1999 “I haven’t been involved”: Jennifer Bott and Ted Evano , “President of Auto Workers Union Undecided on General Motors’ Car Plan,” Detroit Free Press, January 13, 1999 “put a muzzle” on Mark Hogan: David Sedgwick, “GM Comments on Yellowstone Get Frosty Response from UAW,” Automotive News, May 17, 1999 “So, I hear you’ve just been red”: Mark Hogan, interview by author, February 10, 2009 “I’ve got to go dark”: Ted Evano , “To Please Union, General Motors Quiets Talk on New Manufacturing Plans,” Detroit Free Press, May 27, 1999 regarded Yokich as a bully: Art Baker, interview by author, March 11, 2009 “I wake up at night sick”: Bennett interview Nine: From Riches to Rags The Germans did get to drive Vipers: Gregory L White, “Test Drives and Presents Help Lubricate a Car Merger,” The Wall Street Journal, September 18, 1998 “See you later, boys”: Bill Vlasic and Bradley A Stertz, Taken for a Ride (New York: HarperBusiness, 2001) the size of the business cards: Former DaimlerChrysler executive, the size of the business cards: Former DaimlerChrysler executive, interview by author, 2009 another squabble: Ibid “get back to doing what we’re really good at”: James Holden, interview by author, October 23, 2009 “the biggest business mistake of my life”: Another former DaimlerChrysler executive, interview by author, 2003 “If this business plan was a movie”: Holden interview “It had to be done”: Tim Burt and Richard Lambert, “The Schrempp Gambit,” The Financial Times, October 30, 2000 “Occupied Chrysler”: Jerry Flint, “Occupied Chrysler,” Ward’s Auto World, November 1999 “getting butts into seats”: Justin Hyde, “Focus on ‘Getting Butts into Seats’ at Chrysler,” Reuters, March 28, 2001 “So now you have your monarchy back”: Alex Taylor III, “The Fight at Ford: Behind Bill’s Boardroom Struggle,” Fortune, April 3, 2000 He hired an “executive coach”: Former Ford executive, interview by author, 2009 So Nasser commissioned an internal Ford study: Another former Ford executive, interview by author, 2009 “I see too many white male faces”: Retired Ford manager, interview by author, 2009 “Australian blue”: Current and former Ford executives, interviews by author, 2009 “be in a ght almost every day”: Betsy Morris, “Idealist on Board: This Ford Is Different,” Fortune, April 3, 2000 “a cross between Al Gore”: Alex Taylor III, “Jac Nasser’s Big Test,” Fortune, September 18, 2000 A high-powered Washington consultant prepped him: Former Ford executive, interview by author, 2009 “It’s like tying two cats by the tails”: Stephen Power and Clare Ansberry, “Bridgestone/Firestone Says It Made ‘Bad Tires,’” The Wall Street Journal, September 13, 2000 “nobody could have done a better”: Robert L Simison, “Behind the Wheel: For Ford CEO Nasser, Damage Control Is the New Job One,” The Wall Street Journal, September 11, 2000 “This decision is a painful one for me personally”: Joseph B White et al., “Ford Intends to Replace Millions of Tires,” The Wall Street Journal, April 23, 2001 “Jack Welch has 10 guys around him”: Alex Taylor III, “Crunch Time for Jac,” Fortune, June 25, 2001 In October he tried to recruit Jim Holden: Holden interview “Gee, it’s like the Lions won a game”: Terril Yue Jones, “Bill Ford Takes Reins,” Los Angeles Times, October 31, 2001 “The question shouldn’t be about me keeping the job”: Jim Mateja, “Taking a Spin with GM’s CEO-in-Waiting,” Chicago Tribune, February 18, 2000 “Rick’s older brother”: Former Fiat executive, interview by author, 2009 Wagoner balked at the “put” provision: Ibid Around midnight on Sunday: Kathleen Kerwin et al., “For GM, Once Again, Little Ventured, Little Gained,” BusinessWeek, March 27, 2000 A Forbes headline declared: Jerry Flint, “Time to Praise GM,” Forbes, December 10, 2001 “Expected to operate as a play-it-safe”: Alex Taylor III, “Finally GM Is Looking Good,” Fortune, April 1, 2002 But when the recommendations were presented: Former GM executive, interview by author, 2009 a cover story titled “The End of Cheap Oil”: Another former GM executive, interview by author, 2009 “When the going gets tough”: Chris Reiter, “DaimlerChrysler Won’t Back Away from Global Plan,” Dow Jones Newswires, April 8, 2004 “I don’t like saber rattling … a surprise”: Danny Hakim, “A UAW Chief Awaits a GM Showdown,” The New York Times, June 23, 2005 “We strongly believe the auto business”: GM press release, January 19, 2005 Ten: The Hurricane That Hit Detroit The company’s healthcare expenses: David Welch, “GM Is Losing Traction,” BusinessWeek, February 7, 2005 In March 2005 crude oil hit a then-record price: Je rey Ball and Joseph B White, “Rising Gasoline Prices Threaten Viability of Biggest SUVs,” The Wall Street Journal, March 22, 2005 “a signi cant full-year loss”: GM press release, March 16, 2005 165 “GM’s big retiree handicap”: Welch, “GM Is Losing Traction.” “We have a problem”: Steve Miller, interview by author, January 10, 2009 “Nobody wants to be the guy”: Justin Fox, “A CEO Puts His Job on the Line,” Fortune, May 2, 2005 “Once again, we see the disgusting”: UAW press release, October 8, 2005 “Behind all this nancial drama”: Steve Miller, interview by author, October 12, 2005 “Beyond Delphi, things are going”: Ibid “Our people are irate about the approach”: Joseph B White and Je rey McCracken, “GM Presses UAW for Health-Care Deal,” The Wall Street Journal, October 15, 2005 “Our plans not include anything”: Joseph B White and Lee Hawkins, Jr., “GM Cuts Deeper,” The Wall Street Journal, November 22, 2005 “It started out bad”: Peter Brown et al., “Wagoner: 2005 Began Poorly, Then Worsened,” Automotive News, December 19, 2005 “Do you have to shoot yourself in the foot”: David Gow, “DaimlerChrysler Shareholders Rebel,” The Guardian, April 7, 2005 “I am, and always will be, a Chrysler man”: Brett Clanton and Christine Tierney, “How Zetsche Won Top DCX Job,” Detroit News, July 31, 2005 “in the best interest of GM right now”: Monica Langley, “Preemptive Strike,” The Wall Street Journal, June 5, 2006 180 “I wouldn’t be in this job”: Ibid “While I will not o er excuses”: Rick Wagoner to GM shareholders, April 28, 2006 “Who does this guy from Las Vegas”: Monica Langley et al., “Who does this guy from Las Vegas”: Monica Langley et al., “Road Warriors,” The Wall Street Journal, October 7, 2006 “It’s not logical or responsible”: Automotive News, September 27, 2006 “The company has made excellent progress”: Jerome York to GM, resignation letter, October 6, 2006 “We’re pro table this year”: Peter Brown and Amy Wilson, “Bill Ford: Company Is in Crisis, Not Chaos,” Automotive News, December 5, 2005 Eleven: Chapter 11? “My next project may be called”: Mark Phelan, “Charged Up,” Detroit Free Press, January 8, 2007 “I don’t care what junior analyst”: “BreakingViews,” GM Quotes, booklet, June 1, 2008 “Our entire GM team”: GM 2006 Annual Report Cerberus’s founder: Andrew Ross Sorkin, “A Recluse Lifts the Veil a Little,” The New York Times, April 15, 2008 “We’ve done a lot of things”: Micheline Maynard, “73,000 UAW Members Go on Strike Against GM,” The New York Times, September 25, 2007 202 “bold gamble that it could get”: NPR.org, September 25, 2007 “not impossible”: David Shepardson, “Wagoner Seeks to Quell GM Bankruptcy Speculation,” The Detroit News, July 11, 2008 “The stunning series of events”: Andrew Ross Sorkin, “Lehman Files for Bankruptcy; Merrill Is Sold,” The New York Times, September 15, 2008 “I don’t think it’d be a very smart move”: “Memorable Quotations of 2008,” Automotive News, December 29, 2008 Twelve: As the Precipice Approaches The preponderance of the material in this chapter came from dential interviews with individuals directly involved, in a wide range of capacities, in the e orts to rescue General Motors and Chrysler For simplicity’s sake, these interviews aren’t individually cited here; only material obtained from other sources is cited “Quite frankly, the White House”: David Shephardson, “In Unlikely Role, Bush Is Last Hope for Detroit,” The Detroit News, Decmber 15, 2008 “We need these loans”: Steven Mufson, “White House Moves Toward Auto Bailout,” The Washington Post, December 13, 2008 “I am so proud of Rick”: George Fisher, interview by John Stoll, “I am so proud of Rick”: George Fisher, interview by John Stoll, December 2008 Deese was going to Washington: David E Sanger, “The 31-YearOld in Charge of Dismantling GM,” The New York Times, June 1, 2009 “that new-car smell”: CBS, Late Late Show, June 5, 2005 “strategic reviews—including their potential sale”: “General Motors Corporation, 2009–2014 Restructuring Plan,” February 17, 2009 Thirteen: Bailouts, Bankruptcies, and Beyond The preponderance of the material in this chapter came from dential interviews with individuals directly involved, in a wide range of capacities, in the e orts to rescue General Motors and Chrysler For simplicity’s sake, these interviews aren’t individually cited here; only material obtained from other sources is cited “I guess the UST is running it!”: Neil King, Jr., and Je rey McCracken, “U.S Pushed Fiat Deal on Chrysler,” The Wall Street Journal, June 6, 2009 “Uncle Sam wasn’t going to be Uncle Sucker”: Micheline Maynard and Michael J de la Merced, “Will GM’s Story Have a Hero?” The New York Times, July 26, 2009 One eighty-one-year-old man in suburban Chicago: Kim Mikus, “GM Fallout,” Chicago Daily Herald, June 5, 2009 “We prefer to restructure outside of bankruptcy”: Bill Vlasic and Nick Bunkley, “GM, Leaking Cash, Faces Bigger Chance of Bankruptcy,” The New York Times, May 8, 2009 “more than I can handle right now”: Nick Bunkley, “GM Tells 1,100 Dealers It Plans to Drop Them,” The New York Times, May 15, 2009 “an icon for retirement-home parking lots”: Adrian Imonti, “GM’s Death Watch 172: Buick’s Enclave,” Thetruthaboutcars.com, April 15, 2009 The U.S government—by default: Maynard and de la Merced, “Will GM’s Story.” “Microsoft and Apple and Toyota all rolled”: John D Stoll et al., “A Saga of Decline and Denial,” The Wall Street Journal, June 2, 2009 Afterword: Another Chance After closing twenty-two factories between 2004 and 2008: Bill Vlasic and Nick Bunkley, “Scars of an Ailing Industry,” The New York Times, July 31, 2009 “With apologies to Karl Marx”: Sergio Marchionne, interview by author, June 4, 2010 And then regulators delved into the data recorders on Toyota cars: Mike Ramsey and Kate Linebaugh, “Early Tests Pin Toyota Accidents on Drivers,” The Wall Street Journal, July 13, 2010 In 2005 the company had recalled 2.38 million cars in America: Norihiko Shirouzu, “Reduced Speed, Toyota’s New U.S Plan: Stop Building Factories,” The Wall Street Journal, June 20, 2007 About the Author PAUL J INGRASSIA is an award-winning nancial journalist and author with nearly a quarter century of experience in writing about the automotive industry in America and around the world In 1993 he won the Pulitzer Prize along with his colleague Joseph B White for their reporting on the management crisis and boardroom revolt at General Motors Ingrassia and White coauthored Comeback: The Fall and Rise of the American Automobile Industry Ingrassia has chronicled the car industry’s successes and epic failures over the past twenty- ve years in the pages of The Wall Street Journal As a former executive of Dow Jones, he is one of the few authors who has been trained as a journalist and has direct experience in running a business He and his wife live in New Jersey and have three grown sons Copyright © 2010 by Paul Ingrassia Afterword copyright © 2011 by Paul Ingrassia All rights reserved Published in the United States by Random House, an imprint of The Random House Publishing Group, a division of Random House, Inc., New York RANDOM HOUSE and colophon are registered trademarks of Random House, Inc LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Ingrassia, Paul Crash course : the American automobile industry’s road from glory to disaster / Paul Ingrassia p cm eISBN: 978-1-58836-891-1 Automobile industry and trade—United States—History I Title HD9710.U52I55 2010 338.4′76292220973—dc22 2009033152 www.atrandom.com Title page photograph, by iStock Cover design: Chin-Yee Lai v3.0_r1 ... chronicle of comeback wasn’t to last Throughout the 1980s and 1990s, every time the Big Three and the UAW returned to prosperity, they would succumb to hubris and lapse back into their old bad habits... Sloan, General Motors created a social ladder of brands, with Chevrolet at the bottom and Cadillac at the top and several rungs in between Each brand, and each model within the brand, signaled its... taken to calling the company’s inept board of directors the “board of bystanders.” The consequences of GM’s denial and delay would be paid by the company’s stockholders, employees, and dealers—and