On November 10, 1982, the first Honda Accord (a gray four-door sedan) rolled off the assembly line at Marysville. By then the Volks wagen factory in Pennsylvania, which had been organized by the UAW, was struggling with lousy quality, labor unrest, and tension between the Germans and Americans, leading many in Detroit to question whether Honda could succeed where Volkswagen seemed headed for failure. (Which it was: VW would close the Pennsylvania factory in 1988.) Even the very people who should have been enthusiastic about Honda, the company’s U.S. dealers, were skeptical. Many balked at ordering U.S.-made Accords, because they suspected the quality would be inferior to the cars Honda shipped from Japan.
Some Honda customers felt the same way. Savvy shoppers learned to look at the little vehicle identification number mounted near the driver’s-door latch on each car. The numbers on American-made cars began with V, but the numbers on Japanese-made cars began with J. More than a few buyers insisted on cars with a J. But the issue quickly evaporated, because it became clear that Accords from Ohio were just as good as those shipped from Japan. American workers were showing that, when they were properly managed and treated with respect, they could build cars just as well as the Japanese.
Detroit initially was unable to see the differences in strategy, and delighted with Honda’s expansion into Ohio. Chrysler’s Lee Iacocca declared that the move would “level the playing field” between Detroit and Japan, because Honda finally would have to deal with American labor. The UAW was pleased as well: its leaders knew they never could organize autoworkers in Japan, who had their own unions, but when Honda’s hiring in Marysville hit a critical mass, those workers would surely come into the UAW fold. And in truth, Honda’s senior executives back in Tokyo had assumed the same thing. From the beginning, the Honda headquarters brass figured that recognizing the UAW would be inevitable and was just part of being a “good corporate citizen” in America.
In 1983 the presidency of Honda passed to yet another graduate of Honda R&D, Tadashi Kume. It was a pivotal point in Honda’s history: the United States, as opposed to Japan, was becoming its single largest market, but the company’s early success in Ohio remained fragile. The man Kume installed as president of Honda American Manufacturing, Soichiro Irimajiri (pronounced eerie-mah-jeerie), would tell his fellow executives that Honda was like a fly buzzing around the head of a lion—meaning the giant car companies up in Detroit, especially GM. If the lion got sufficiently annoyed, it could flick his paw and kill the fly. The lion that was really focused on Honda, however, wasn’t General Motors. It was the UAW.
The union viewed the nonunion plant in Marysville, correctly, as a threat that couldn’t go unchallenged. Before long UAW president Douglas Fraser, who had succeeded Leonard Woodcock, was holding private discussions with President Kume. Fraser had little formal education but possessed a first-rate intellect and a personal charisma that made him respected, and even liked, by most auto executives—especially those who didn’t have to deal with the day-to-day work rules on the factory floor. The talks with Kume had gone well, and Fraser believed it was only a matter of time before Honda recognized the UAW as the collective bargaining agent at Marysville.
But over in Ohio, Irimajiri and other Honda executives, especially Yoshida, had qualms. The issue wasn’t money: Honda paid its factory employees wages and benefits very close to those earned by UAW workers. To have done otherwise would have been to roll out the red carpet for the union’s organizers. Instead, Yoshida saw the UAW’s relationship with Detroit’s car companies as unduly antagonistic—a situation, he believed, for which both sides shared blame. And even when the relationship was smooth, he thought, the union’s contract with the Big Three handcuffed management’s ability to, well, manage. It took an outside vision to question what had been seen as inevitable. Many Detroit executives believed the same thing but felt powerless to address the issue. They didn’t know how to repair relations with the union, yet ousting the UAW was unthinkable.
So Detroit executives made do with a UAW contract that, by the 1980s, had a table of contents nearly twenty pages long. Besides specifying the number of union committee members that the company had to pay in each plant, the contract limited the amount of components a car company could buy from a nonunion supplier. The result often was parts purchased at a higher cost and perhaps of lower quality. There also were detailed rules for filing grievances and for the four-step appeals process. And besides the national contract, each factory had its own local contract with still more rules and provisions governing who could do what and when.
The Japanese managers whom Honda had posted to America thought all this smacked of the excessive reliance on legalese that so puzzled them about the country. Success in the marketplace, not lawyerly language, should be the best guarantee of job security. Certainly they expected Honda’s “associates” to work hard. In fact, working on the Honda assembly line was an aerobic workout that caused some associates to lose twenty pounds after a few months on the job. Factory discipline meant associates couldn’t swig soda, smoke cigarettes, or munch on snacks while working, as the workers in Detroit’s factories could do.
But there were benefits. Instead of being told, in effect, to check their brains at the door, Honda’s workers were encouraged to contribute their ideas, as well as their manual labor, to the manufacturing process. If their suggestions produced efficiencies that eliminated someone’s job, even their own, the person would be transferred to another job instead of being laid off. Workers were told they wouldn’t be laid off except as a last resort, and Honda’s growing U.S. sales (which rose nearly 50 percent between 1980 and 1985) meant layoffs never happened.
None of this was rocket science, but it was effective. Everybody was on the same team, rather than being divided into two factions that warily circled each other, trying to gain the upper hand. Yoshida understood the difference because he had spent more time in America than virtually any other Honda executive. He believed the bosses back in Japan didn’t understand what recognizing the UAW would mean. Yoshida could duck the issue for a while but not forever.
In December 1985 the UAW presented the Marysville managers with petition cards from hundreds of Honda employees and asked for immediate recognition as their bargaining agent. Management could either recognize the union straightaway or ask for a secret-ballot election by workers. The UAW had forced the matter. Now Honda would have to react.
As Yoshida’s boss and the head of Honda’s U.S. manufacturing operations, Irimajiri was the man on the spot. When the UAW petition cards landed on his desk, he convened a Saturday meeting of his managers, both Japanese and Americans, at a hotel in Dublin, Ohio, an upscale suburb of Columbus. Throughout the day the group discussed the pros and cons of recognizing the UAW and decided that there weren’t any pros other than avoiding a potential confrontation with the union. At the end of the day Irimajiri said simply, “I think we fight.” That Monday Honda polled its associates and found that 78 percent of them wanted a secret-ballot vote.
The UAW, having been through this sort of thing before, knew what to do next. Union operatives filed three complaints against the company for unfair labor practices. Valid or not, the complaints had the potential to embarrass Honda management and to undo all the favorable publicity that Honda had reaped by building cars in America. Sure enough, President Kume soon summoned Irimajiri and Yoshida back to Tokyo, where he wanted to know why the Ohio plant hadn’t recognized the UAW.
Yoshida, who bore the brunt of the questioning, wasn’t foolish enough to oppose the pressure from Honda’s president outright. But neither did he say yes. Instead he remained evasive and noncommittal, even though Kume was clearly getting annoyed, and Irimajiri uncomfortable, as the meeting dragged on. Finally, much to Yoshida’s relief, Kume excused himself for another appointment. Later, on the flight back to the United States, Yoshida realized just how thin the ice had been. Irimajiri, seated next to him, confided that during the meeting he had been trying to kick Yoshida under the table, to s
ignal him to agree to Kume’s wishes. But Yoshida had been seated just out of reach. Years later Kume would privately thank Yoshida, telling him that he had been right.
Historians say Napoleon might have lost the Battle of Waterloo because his hemorrhoids flared up at just the wrong moment. So the UAW might have lost the Battle of Honda because Shige Yoshida was sitting just out of kicking range from his boss. The secret-ballot election at Marysville was scheduled for February 1986, but the UAW asked for a postponement. The union’s organizers sensed that they didn’t have the votes. A few months later, with the prospect of defeat certain, the union went further and “temporarily” withdrew its petition for a plebiscite. Temporarily would mean forever. The UAW never reinstated its request for recognition at Honda.
In only twenty years a little car company had come out of nowhere to challenge the Japanese government, its bigger Japanese competitors, Detroit’s Big Three, and the powerful United Auto Workers. With the UAW vanquished, Irimajiri would lead Honda through a spurt of aggressive expansion. The company built more U.S. factories and pursued a “five-part strategy” that even included exporting some cars made in Ohio back to Japan.
Between 1980 and 1990 Honda’s U.S. sales surged 130 percent, from 375,000 to 855,000 cars. More than half were built in America, which proved to be a marketing and public relations bonanza for the company. Iacocca’s belief that Japanese car factories in America would “level the playing field” by erasing Japan’s edge in quality and efficiency proved another historic miscalculation. Honda’s success in Ohio prompted Japan’s other car companies—Toyota, Nissan, and all the rest—to build their own assembly plants in America, which industry executives dubbed “transplants.” Japan’s automotive invasion of America entered a whole new phase.
The UAW’s presence in the transplants would be limited to a few factories—the joint ventures between Japanese and Detroit companies, where the union was grandfathered in. But those factories got special contracts that were much more streamlined, and had far fewer work rules, than the UAW’s cumbersome contracts with the Big Three. Switching to similar contracts at GM, Ford, and Chrysler would have made sense for everyone, but UAW politics made that impossible. Too many shop committeemen and grievance committee members held prized union desk jobs that depended on the existing system.
In the years to come, as Honda grew exponentially, it inevitably lost some of the entrepeneurial, “crazy speed” spirit that had caused it to buck the status quo. But after Honda came to Ohio, nothing ever would be the same for the UAW or the Big Three. Just as Japanese imports had broken Detroit’s market oligopoly in the 1970s, so Honda broke the UAW’s labor monopoly in the 1980s.
SIX
REPENTANCE, REBIRTH, AND RELAPSE
American business history is filled with spectacular corporate crack-ups and a smaller number of remarkable recoveries. But not much resembles the round-trip roller-coaster ride that Detroit took between 1980 and 1992. The twelve-year period began with Chrysler nearing collapse and begging for a government bailout, and Ford reeling from red ink and not far behind. It ended with the Big Kahuna, General Motors, struggling to remain solvent and with a frightened GM board sacking its CEO for the first time since Billy Durant was ousted some seventy years before.
In between, the Big Three, especially Ford and Chrysler, staged incredible comebacks and earned record profits that shocked even the executives. Chrysler’s Lee Iacocca became America’s first celebrity CEO, starring in television commercials and writing a best-selling autobiography in which he exacted sweet revenge on Henry Ford II for firing him. The book described Henry Ford II as “a real bastard” and an “evil man.” One passage described Henry II boasting that his favorite food in the Ford executive dining room was hamburger. No one dared reveal, Iacocca wrote, that for the boss’s burgers the corporate chef was grinding up prime strip steak.
Iacocca was even touted, briefly, as a candidate for president, before both he and the politicians thought better of it. GM’s CEO Roger Smith, in turn, became corporate America’s anticelebrity, starring unwittingly and unwillingly in Michael Moore’s 1989 film Roger and Me. The wicked satire lampooned GM and its chairman for the factory closings and worker layoffs that produced the demise and decay of Flint, Michigan—the birthplace, as it happened, of both GM and Michael Moore.
Perhaps the one thing General Motors did right during the decade was to lead Detroit in establishing U.S. joint ventures with Japanese car companies. General Motors and Toyota partnered to build small cars at a shuttered GM plant in Fremont, California, near Oakland. The venture, called New United Motor Manufacturing Inc., or Nummi (pronounced new-me), was announced in February 1983, just three months after Honda started building cars in Marysville.
Nummi was followed by Diamond Star Motors, a joint venture between Chrysler and Mitsubishi Motors in Illinois, and American Automotive Alliance, a Ford-Mazda factory in the Michigan town of Flat Rock (which the men from Mazda invariably pronounced as “Frat Lock”). All three manufacturing partnerships were intended to give Detroit an up-close, firsthand look at how the Japanese competition really worked.
So the Big Three discovered, for example, that the Japanese didn’t store weeks’ worth of parts in their assembly plants, at great cost, just to keep from running short, as the Detroit companies did. Instead the Japanese kept inventories lean, a few hours’ worth at most, and expected suppliers to deliver parts just in time, without fail. They expected and rewarded workers for suggesting improvements in the production process, such as ergonomic assembly lines. Instead of expecting workers to bend down to attach components underneath a car, the Japanese elevated the assembly line and angled it so the workers could perform the task standing up. Thousands of such things gave the Japanese their edge in quality and efficiency.
The disastrous 1970s, followed by record losses in the early 1980s, provided enough motivation for Detroit to begin to change. Big organizations, and the people in them, often resist fundamental changes unless prompted by pain. And in the early 1980s, pain was prevalent in Detroit.
In late 1979 a scornful new word entered the lexicon of the United Auto Workers. On November 27, the UAW agreed to $403 million in “givebacks”—reversals of wage-and-benefit gains previously won at the bargaining table—as part of a new three-year contract with Chrysler. The cuts in pay and benefits were required by law so that ailing Chrysler could qualify for government assistance, but the union’s rank and file were reluctant to accept them. President Doug Fraser, knowing full well that Chrysler could collapse, campaigned hard for the deal. Iacocca, meanwhile, cajoled the workers and Congress by agreeing to work for one dollar a year. Instead he got Chrysler stock options, which later would be worth millions.
The United States was entering a three-year recession that hit the Big Three especially hard, because they were facing the economic downturn and growing Japanese competition simultaneously. Betwen 1979 and 1982 Chrysler and Ford would post cumulative losses exceeding $5 billion—a breathtaking number at the time.
In 1981 even mighty GM lost money, $763 million, which the company had managed to avoid even during the Great Depression. Early the next year both GM and Ford got their own givebacks from the union: a wage freeze to last two and a half years, the postponement of cost-of-living allowances, and the elimination of some paid holidays. But GM’s Smith immediately made a historic blunder.
On the same day that union members voted to approve the give-backs, GM disclosed a new pay plan—buried in the fine print of its proxy statement but noticed nonetheless—that made it easier for executives to earn larger bonuses. A sense of entitlement clearly wasn’t limited to UAW members. Fraser and the union cried foul, but the damage was done. In decades to come, General Motors would pay for this blunder many times over in combative labor relations.
In February 1982 the number of autoworkers on indefinite layoff at all three companies topped 250,000 (nearly double the total number of hourly workers whom Detroit still would employ in 20
09). White-collar workers got whacked as well. Chrysler slashed its managerial ranks to 22,000 people in 1983, compared to 40,000 five years earlier.
Detroit’s pain served its purpose, however, especially at Chrysler, which made the harshest cuts. In 1983 the company staged a recovery that allowed it to repay its government-guaranteed loans a full seven years early. The repayment ceremony featured Iacocca standing in front of an $863 million check the size of a billboard—“like Patton in front of the flag,” boasted Chrysler’s PR men, referring to the opening scene of the movie Patton, where the general fronts an American flag that fills the entire screen.
Between 1979 and 1983, the draconian cost cuts chopped Chrysler’s break-even point—the number of vehicles it had to sell each year to make money—in half, from 2.4 million cars and trucks to just 1.2 million. “We intend to hold it there,” Iacocca wrote in the company’s annual report for 1984. (Once the government loans were repaid, however, the company quickly bought a fleet of corporate jets.)
As Chrysler’s CEO, Iacocca was proving a surprisingly effective pitchman and was becoming famous in the company’s television commercials. “If you can find a better car, buy it,” he intoned on TV. And the United States, finally, was beginning to enjoy the fruits of the Reagan economic recovery. After dropping to 10.6 million vehicles in 1982, total U.S. car and truck sales soared to a record 16.3 million in 1986, an increase of more than 50 percent. The effect was like rain after a long drought, because in the car business, volume—as in sales volume—cures all ills.
To develop a new car and bring it to market, companies incur enormous fixed costs. They pay salaries for engineers, designers, and safety experts; add nine-figure outlays for factories, production machinery, and components; and spend millions more on marketing, as well as on wages and benefits for the workers who actually build the car. Only after sales hit a certain volume level (which varies by car and by company) does the automaker recoup the costs and start making money. But once that happens, it’s all cream thereafter, and the higher the sales volume, the richer the cream. Chrysler’s cream was especially rich in 1984, thanks both to the economic recovery and to the work of its combative but brilliant product development chief, Hal Sperlich.
Crash Course Page 9