Crash Course

by Paul Ingrassia

Just as unexpectedly, in the mid- and late 1990s the Japanese themselves skidded off course. Japan’s automakers missed the SUV boom, Honda was reeling from a corporate kickback scandal, and Nissan almost went bankrupt. At the end of that decade, Detroit was raking in record profits and had a sterling opportunity to surge ahead for good.

  But what might have ended as an admirable—indeed, heroic—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. It was like a Biblical cycle of repentance, reform, and going astray, again and again, as Detroit was repeatedly lured by the golden calves of corporate excess and union overreach.

  The cycle reached its peak at the beginning of the new millennium, when the Big Three plunged from record profits to breathtaking losses in just five years. By then the UAW too was reeling, having dropped to just 655,000 members from 1.5 million a quarter-century earlier. Neither the companies nor the union could muster the will to change without a crisis; that would make them both desperately vulnerable when events spun out of control.

  Detroit’s final descent into disaster began on September 15, 2008—just one day before General Motors, ironically, would celebrate the hundredth anniversary of its founding. The fifteenth happened to be the day that bank failures on Wall Street sparked another historic event—the collapse of the U.S. stock market. Almost immediately car sales collapsed too.

  Two months later the Big Three CEOs swooped into Washington on their private jets to ask for money. They came away, instead, with Detroit’s worst PR drubbing in forty years. After Congress said no, President George W. Bush opened the public purse anyway—just enough so he could pass the presidency, along with Detroit’s crisis, to Barack Obama.

  In late March, just two months after taking office, the new young president himself launched a last-ditch effort to save Chrysler, even though many of his own advisers opposed the idea as foolhardy. And he defrocked the CEO of General Motors—a onetime boy wonder just like the president himself—prompting GM’s directors to mount an angry rebellion. But it collapsed when they realized who held the purse strings and thus the power. Those steps, and all the behind-the-scenes maneuvering that preceded them, were just the beginning.

  In April the president’s people slapped down Chrysler’s creditors, which included some of the nation’s biggest and most powerful banks. They forced the UAW to swallow things it had fought successfully for years. In the process they pushed Chrysler into bankruptcy and into the orbit of an unlikely savior—an Italian company that had fled the United States more than thirty years earlier because its cars were shoddier than even the worst of Detroit’s.

  Then in May, while Gene Benner and Gene Young were wondering how Chrysler’s bankruptcy would affect their fates, attention turned to General Motors. The only way to save the company, the president’s aides concluded, was to do what GM had stoutly and stubbornly resisted—dismantle much of the industrial empire that the company had built over the previous hundred years. But doing that would force the company that once had been the biggest and most powerful on earth into bankruptcy court—albeit lubricated by billions of dollars of additional government bailout money.

  The bankruptcy filing on June 1, 2009, began with rhetorical flourishes that evoked General Motors’ glorious history. “For over one hundred years,” the filing began, “GM has been a major component of the U.S. manufacturing and industrial base, as well as the market leader in the automotive industry … General Motors’ highly-skilled engineering and development personnel designed and manufactured the first lunar roving vehicle driven on the moon.” In addition, the company noted, it had made 450 million earth-bound vehicles during its century of existence.

  But the company’s new CEO, Fritz Henderson, soon dispensed with lofty language and described GM’s grim reality. The company would sell or shutter half of its brands, eliminate hundreds of dealers, and cut thousands more employees on top of those already shown the door. “There is simply no other alternative” to bankruptcy, he said in his own court affidavit. “There is no other sale, or even other potential purchasers, present or on the horizon…. There is no other source for financing. The only alternative available is liquidation.”

  Actually, had General Motors come to grips with reality earlier, there would have been another alternative. It was evident in plain view, right across town: Ford, the only American car company that had steered clear of bankruptcy. In the nick of time Ford had made tough and painful decisions. It had changed the CEO, even though his name was on the building. It had dumped money-losing brands. And it had mortgaged every asset it had—including its iconic blue-oval logo—to fund a turnaround effort without government help.

  The measures Ford took were all things that General Motors could have, and should have, done. But even some retired GM executives had 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 by every American taxpayer as well.

  None of this was inevitable, as Ford proved by its just-in-time awakening. Hubris and sclerosis had been building for years in Detroit, in a heedless union and feckless managements. The signs included inverse layoffs, bulletin board committees, segregated bathrooms, corporate recoveries followed by repeated relapses, and the success of American workers led by Japanese management. Everything that happened to Detroit’s auto industry in 2009 was so avoidable and so incredibly sad, especially when measured against the brilliant promise of the early years of America’s automotive age.

  TWO

  DYNASTY AND DESTINY

  Modern America’s love affair with the automobile began in a run-down red brick building on Woodward Avenue in Highland Park, Michigan, a little municipality surrounded by the city of Detroit. The four-story building, which today stands near the Model T Plaza shopping center and has a shoe-outlet store in the rear parking lot, was built nearly a century ago by Henry Ford. It’s still owned by the Ford Motor Company, which uses it to store old documents. A dark-green historical marker, largely obscured in spring and summer by overgrown shrubbery, explains the building’s more illustrious past: “At this plant, Ford instituted the ‘five dollar day,’ a generous wage for the time. In factory ‘H,’ located directly east of here, he began mass producing automobiles on moving assembly lines.” It was 1913, and the automobiles produced here were Model T Fords, the car that changed the world.

  Surveying the faded glory of Highland Park, and the desperate state of Detroit’s auto industry, in the winter of 2008–09, the wealth and power of America’s car companies during most of the twentieth century seemed incomprehensible. They had reshaped America’s landscape and its society with suburbs, interstate highways, fast-food restaurants, shopping malls, and drive-in everything: banks, movies, churches, and more.

  They created an industrial base with supporting industries—steel, oil, glass, rubber, advertising, electronics—that made America the world’s wartime “Arsenal of Democracy.” And they fostered personal mobility that changed movies, music, books, status symbols, and sexual mores. “Most of the babies of the period were conceived in Model T Fords,” wrote John Steinbeck in Cannery Row in 1945, “and not a few were born in them.”

  In 1923, a decade after Henry Ford invented mass production in Highland Park, another automobile magnate, Alfred P. Sloan, Jr., invented mass marketing. Sloan’s vision of automobiles was radically different from Ford’s. To him, cars were vehicles for aspiration as well as transportation. Under 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 owner’s social status to any onlooker.

  Ford and Sloan were the two giants of the American auto industry’s formative years. A mathematician might express the collective result of their work wi
th this equation:

  Mass production + mass marketing = mass consumption = modern America

  That’s at least as true as, say, E = mc2, and it’s probably better for the economy.

  Henry Ford was born less than a month after the Battle of Gettysburg, on July 30, 1863, on a farm about a dozen miles west of Detroit, in what today is Dearborn, Michigan. As a boy he preferred tinkering with machines to doing farm chores, and at sixteen he departed for Detroit to work in the city’s machine shops. At thirty he was chief engineer at Detroit’s Edison Electric Company. As a sideline, he built his first car, the Quadricycle, so called because it basically was a motorized platform carried on four bicycle tires. So focused was Ford on getting the device to work that he didn’t measure the door of his workshop and had to knock down a wall to drive the car onto the street. Henry’s first two attempts to start car companies with help from local investors ended in failure, because he had a way of clashing with his backers.

  Detroit was a mecca for automotive entrepeneurs back then, just as San Jose is for Internet innovators today, and then as now most of the inventions failed. But in 1901 Henry Ford cemented his reputation and won a $1,000 prize by scoring an upset victory in a race on a dirt track in what is now Grosse Pointe. So in 1903 Ford found new investors to start a third company, the Ford Motor Company. With himself as vice president and chief engineer, it turned out a few hand-built cars a day. His engines came from the Dodge brothers, Horace and John, who accepted 10 percent of Ford stock in lieu of cash. “I will build a car for the great multitude,” Ford said, describing his ambition. “No man making a good salary will be unable to own one, and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”

  By 1908 Ford had located his company in a brick building on Detroit’s Piquette Street, which is now filled with abandoned buildings and lots but then was home to a hive of fledgling factories. He walled off an area on the third floor of his factory to develop his dream car. Like his previous cars, this one was named for a letter of the alphabet and was called the Model T. In September of that year Henry, along with aides, took the car on an extended test drive around Lake Michigan. Heading north from Detroit, traversing Michigan’s Upper Peninsula, driving through Wisconsin and Chicago, then heading home, they covered nearly fourteen hundred miles. On October 1, 1908, the Model T Ford went on sale.

  Henry Ford was like Steve Jobs a century later; as word spread that Ford was up to something special, his new car was greeted with the sort of hoopla now reserved for iPhones. Before the Model T went on sale, Ford dealers ordered fifteen thousand of them—nearly twice the number of cars that Ford had sold the year before. The initial price was $850, about two-thirds that of competing Buicks and Chevrolets, but price wasn’t the only appeal.

  The Model T had parts that were readily interchangeable, making repairs easy. Its frame used a new steel from Europe called vanadium that was strong but light, so the Model T weighed about 25 percent less than a comparable Buick. Most cars of the day, including the Buick, used ultra-heavy frames to cope with America’s rough and rutted roads, which made them prone to getting stuck. But Ford’s car flexed with the road, which allowed it to go places that other cars couldn’t.

  The Model T’s four-cylinder, 20-horsepower engine—less horsepower than some of today’s John Deere lawn tractors—could go nearly forty miles an hour and get almost twenty miles a gallon. In 1909 a Model T won a transcontinental race from New York to Seattle. Later it emerged that Ford had cheated by replacing the car’s engine en route. But he had already reaped a publicity bonanza from the victory.

  In 1913, after moving to the Highland Park plant, Ford got the idea for a moving assembly line by studying the meat-packing plants of Chicago, which were basically disassembly lines. Ford tried the assembly line in the “sub-assembly” of components such as engines and transmissions and soon spread the concept—with its enormous gains in productivity—to his entire operation. To simplify the production process further, he decreed that instead of making the Model T available in red, green, and blue, customers henceforth could have “any color they wanted, as long as it’s black.” Ironically, the actual color was called “Japan black enamel.” Had Henry known what the Japanese would do to Detroit a century later, he might have chosen a different color.

  Thanks to the moving assembly line, production time dropped from thirteen hours a car to about ninety minutes. Early the next year, on January 5, 1914, Ford made a stunning announcement. The company would immediately start paying its factory workers $5 a day, more than double their previous wages. Ford started a new Sociological Department to ensure, as Time magazine later would explain, that “the extra pay went only for better homes, milk, fruit, vegetables and Ford cars—not for liquor and riotous living.”

  The $5 day generated enormous publicity and powerful marketing momentum for Ford Motor, just as Henry and his aides had foreseen. Model T sales soared, and Ford was besieged with letters from grateful workers who no longer had to hire out their children as servants. Other industrialists were outraged, however, and The Wall Street Journal ranted on January 7, two days after the announcement, that Ford “has in his social endeavor committed economic blunders, if not crimes.”

  But Ford stuck to his guns, explaining that his employees should be able to afford to buy his cars. “If an employer does not share prosperity with those who make him prosperous,” he wrote (with collaborator Samuel Crowther) in his 1926 book Today and Tomorrow, “then pretty soon there will be no prosperity to share.” What began at least partly as a commercial move, in short, quickly took on sweeping social significance and planted the seeds for America’s middle class.

  In the six years between 1908 and 1914 Henry Ford unleashed more creativity than most men exhibit in a lifetime. He developed an innovative car, introduced a revolutionary production method, and instituted a wage level that would change America forever. New companies grew up to make Model T accessories, including an attachment that converted the hot engine manifold into a handy griddle, forming a mini-industry.

  New competitors sprang up, including the Dodge brothers, who started their own car company even while they remained the third-largest shareholders in Ford. Meanwhile, success was changing Henry Ford himself, and not for the better. His personality, always cantankerous, took a turn toward erratic venality. In 1918 he ran for the U.S. Senate, believing he could cruise to victory without campaigning. But he lost. Stung by defeat, he became a publisher by buying his hometown newspaper, the Dearborn Independent. He used it to write anti-Semitic diatribes, asserting that the Jews had started the Great War so the Gentiles would kill each other.

  In 1919 Henry and his son Edsel, whom he had installed as president of Ford Motor, announced they would quit and start another car company, of which they would be the only owners. It was a brazen attempt to scare Ford Motor’s minority shareholders into selling, and it worked. Henry paid $105.8 million to buy them all out, including the Dodge brothers.

  None of Ford’s erratic and imperious behavior seemed to matter, however, as the 1920s began. In 1923 Model T sales peaked at 1.8 million cars, and Ford was outselling all his competitors combined. In 1925 the company cut the Model T’s base price to an all-time low of $260. But by then the buying public was no longer responding to Ford’s price cuts. The Roaring Twenties were under way, and Americans wanted more from their cars than basic, no-frills transportation. Henry Ford’s singular success had made him unwilling to change, and that in turn was making Ford Motor vulnerable. Smug self-confidence was a force that would play out again and again in the annals of the automobile industry. The path lay open for men with newer, more modern ideas about cars to leave Henry Ford in the dust.

  One of the upstart challengers was Billy Durant, whose remarkable life was a corporate soap opera, sort of a cross between Barbarians at the Gate and As the World Turns. Durant created General Motors, lost it, founded Chevrolet, regained control of GM, lost it again, and ended his career
running a bowling alley in Flint, Michigan—convinced that bowling would be the Next Big Thing of the 1940s. Along the way he amassed an enormous personal fortune and then went bankrupt.

  Durant hired many of the formative figures of the American auto industry, including Walter Chrysler, who would start his own successful car company, and Alfred P. Sloan, Jr., who would make Durant’s dream for General Motors a reality. Durant used the stock market as his personal playground, creating stock in his companies that he used, in turn, to buy more companies. But his uncanny ability to buy and sell companies was matched only by his utter inability to run them.

  William Crapo Durant was born in Boston in 1861 and raised in Flint. He found the new horseless carriages appearing on Flint’s streets noisy and annoying until, in 1904, he drove a smoother, quieter machine made by a local contractor named David Buick. Durant went to work for Buick as general manager, bought out the founder, and took control of the company.

  In 1908 he incorporated General Motors in New Jersey (after rejecting the name “International Motor Car Company,” suggested by Wall Street bankers) and moved to consolidate the fledgling auto industry. Armed with $12 million he reaped from a GM stock offering, Durant bought Oldsmobile from Ransom E. Olds, acquired the struggling Oakland Company of Pontiac, Michigan (later renamed Pontiac), and Cadillac. Within eighteen months of launching General Motors, Durant acquired nearly thirty companies that made cars and components. The one that got away was Ford Motor, which Henry Ford had agreed to sell for $8 million as long as the money came in cash. But Durant wanted to pay with GM stock, which Henry declined. A deal that would have changed the auto industry forever didn’t get done.

  Which was just as well, because by 1910 GM had issued too much stock and too much debt and wasn’t selling enough cars to support it all. The company had ten different brands offering nearly two dozen models, many nearly alike, and the needless duplication greatly increased GM’s complexity and costs. (The same issues, ironically, would bring General Motors down nearly a century later.)