Sperlich had been a key figure in developing the Ford Mustang in the early 1960s. But he ran afoul of Henry Ford II, who in 1977 fired him, and he landed at Chrysler a year before Iacocca arrived. When he left Ford, Sperlich carried with him plans for a vehicle that Henry Ford II had stoutly refused to develop despite Sperlich’s repeated urgings. It was a small passenger van that would be built on a light, front-wheel-drive car chassis instead of on the heavy, rear-drive platform used on existing vans and pickup trucks. Ford didn’t have such a platform, but lo and behold, it existed at Chrysler when Sperlich arrived. It was as if Michelangelo had happened upon the perfect piece of marble.
It wasn’t stone that he found but metal: a 2.2-liter four-cylinder engine and a front-wheel-drive transaxle from Chrysler’s small European subsidiary, Simca. It formed the underpinnings of the Dodge Omni and Plymouth Horizon, whose early quality shortcomings were remedied after a shaky start, and the “K cars,” the Plymouth Reliant and Dodge Aries, that spurred Chrysler’s recovery. The same underlying architecture proved ideal for the underpinnings of Sperlich’s proposed small van. And Iacocca, unlike Henry Ford II, was willing to listen.
Chrysler introduced minivans in the fall of 1983, the onset of the industry’s 1984 model year. It was basically a K-car chassis topped by a big box, with optional third-row seating occupying what would have been the trunk on an ordinary sedan. The minivans were woefully underpowered, especially when carrying a family and full kid gear; Chrysler didn’t make any six-cylinder engines due to its recent cost-cutting efforts and had to make do with four-cylinder motors only. Also, the quality could be suspect. When Chrysler staged a press event for Iacocca to drive the first minivan off the assembly line, the van’s sliding rear door got stuck, locking in the dignitaries seated in the backseat. When reporters snickered, the company’s PR chief announced that the childproof lock had been accidentally engaged. The minivan didn’t even have a childproof lock—but the journalists didn’t know that.
The minivan’s shortcomings, though, were outweighed by it obvious advantages. It was small enough to fit in a garage—and thus was named Caravan, for “car and van”—but big enough to seat up to seven people. Women drivers were seated high enough to see the road, and children had space to spread out, not fight, and not drive their parents nuts. “The Caravan is a true multipurpose vehicle, ideal for a multitude of family and individual lifestyles,” said Chrysler’s sales brochures.
The minivan factory was in Canada, but Chrysler nonetheless asked Bruce Springsteen to license his hit “Born in the USA” for commercials. The singer said no, so Chrysler commissioned a knock-off called “Born in America.”
In 1984, with Sperlich’s minivan leading the way, Chrysler sold more than 1.7 million cars and trucks, half a million vehicles above its break-even point. That year the company ran every one of its factories on full, flat-out overtime. Profits boomed to $2.4 billion, more than Chrysler’s profits of the preceding fifteen years combined. The company didn’t have to pay income taxes, thanks to the tax credits that stemmed from the prior years’ losses, but that benefit was just icing on the cake. After years of crisis Chrysler had everything going its way.
At the Belvidere factory Fred Young was working nine hours a day and a full shift every other Saturday. He had been with the company nearly twenty years and had seen it go from the brink of oblivion to incredible prosperity. The Japanese challenge had forced Chrysler to improve its quality, which still wasn’t fully competitive with Honda and Toyota but was far better than before.
Just a few years earlier Young and other Chrysler workers had worried that the company might fail. Now the good times were rolling at Belvidere and at other Chrysler plants. The “givebacks” of a few years earlier got restored (as they did at Ford and GM). Fred Young and his co-workers reveled in their overtime pay and took to calling Iacocca “Uncle Lee.”
Iacocca’s growing celebrity earned him a guest cameo appearance on television’s Miami Vice. When Parade magazine reported, in error, that Iacocca was available for free appearances at “birthday parties, benefits and bar mitzvahs,” so many requests poured in that Chrysler had to hire three extra staffers just to handle his mail. Time magazine, which had dubbed Iacocca the “Comeback Kid” in 1983, honored him again in April 1985 with a cover story titled “America Loves to Listen to Lee.”
The man indeed was quick with quips, though not all of them were suitable for the pages of Time. Once after The Wall Street Journal ran a negative article right next to a Chrysler ad, Iacocca angrily berated Chrysler’s top PR guy. When the hapless publicist explained that the Journal’s news and advertising departments were strictly separate, Iacocca waved his ever-present long cigar and snapped, “Are you saying we’ve been fucked by juxtaposition?”
The f-word was used about as often as, say, minivan in Chrysler’s sharp-elbowed, towel-snapping executive suite. Its senior occupants, like Iacocca and Sperlich, had all fled the buttoned-down halls of Ford and thus called themselves the “Gang of Ford,” a parody on the “Gang of Four” clique of hard-core Maoists in China. Most had risked their careers by coming to Chrysler, lured by Iacocca’s persuasiveness coupled with generous grants of stock options. When Chrysler’s stock soared from under $1 a share in 1981 to more than $22 six years later (adjusted for stock splits), the Gang of Ford made very capitalist fortunes.
During this time another man tied his fate and fortune to Chrysler. At thirty-six, after nearly fifteen years as a high school teacher and coach in Maine, Gene Benner wanted a new challenge. A friend of his, an older man who had a Chrysler dealership in the little town of South Paris, suggested that Benner buy a small stake in the business and come aboard.
His timing was couldn’t have been better. Americans were in their postrecession car-buying spree, and Benner’s many contacts from his years as an educator provided a ready-made pool of potential customers. Just as in teaching and coaching, he quickly concluded, in selling cars “people skills” meant a lot, because if people trusted you they would buy from you. Soon he was selling enough cars to make a better living than he had as a teacher and to improve the overall fortunes of the dealership.
While Chrysler was raising itself back from the near-dead with the minivan, Ford was betting its recovery on a new midsize sedan with edgy styling called the Taurus. Its development was championed by Ford’s president and number-two man, Donald E. Petersen, a temperamental but talented veteran of Ford’s product-planning ranks. In the early days of the Taurus “program” (Detroit’s term for developing a new vehicle), Petersen drove over to the Ford Design Dome and asked the stylists if they liked the car they were creating. When he got blank stares, he suggested that they draw a car that they’d actually want to drive.
That might have seemed a simple, commonsense suggestion, but in fact the designers were surprised and dumbfounded. Ford had a decades-long habit of following the lead of GM, which was wedded to upright, boxy, bland styling because it was judged to be safely nonoffensive—like Velveeta cheese on wheels, though nobody would admit that. But Petersen pressed his point, and Ford’s designers went back to the drawing board. By the time they were finished, the Taurus and its near-twin, the Mercury Sable, sported sleek, rounded, European-type styling, more like an Audi sedan than anything made in America.
Ford’s engineers, meanwhile, “identified over 400 of the best features available on competitors’ automobiles around the world,” as the company put it, and tried to beat those benchmarks in everything from the seats to the suspension system. Some $3 billion and five years later, the Taurus and Sable were nearing completion. In December 1985, after Petersen ascended to CEO, the cars went on sale at a base price of $9,645.
Ford’s Detroit competitors sniped at their styling right away. Iacocca said the Taurus resembled a “flying potato,” and a fast-rising GM vice president named Bob Stempel called the Taurus and Sable “the bulls and furry animals.” Some early cars, like the first mini-vans, were plagued by quality glitches, in
cluding faulty emission-control systems that emitted a sulfur-dioxide odor and smelled like a giant fart. Ford executives held their breath—figuratively, of course—because they were betting the ranch on the new cars.
It turned out to be a great bet. Within months Ford was selling every Taurus and Sable it could make, and the company’s older models showed surprising sales strength too. For several years Ford executives had fretted that they were spending so much money to develop the Taurus that they couldn’t afford to downsize the Ford Crown Victoria, Lincoln Town Car, and other aging land barges in their lineup. But that proved to be a blessing in disguise. In the mid-1980s, contrary to all forecasts, gas prices were dropping and Americans started buying big cars again. The “Crown Vic” and Town Car didn’t get the praise accorded to the Taurus and Sable, but they actually were far more profitable because their development costs already had been depreciated.
The company sold six million cars worldwide in 1986, about the same number as in 1979, but the profits were three times higher because Ford had cut $5 billion in costs in the interim. In 1985 and 1986 the company boosted its stock dividend five times and threw in a three-for-two stock split.
Petersen also launched a concerted effort to change Ford’s factional, combative culture, albeit with mixed results. Employees attended training sessions where they were asked to hug the person next to them. Executive vice president Bob Lutz heaped scorn on such sessions. He wrote a satirical guide to the “new Ford-speak,” lacing it with such terms as “team-oriented transformational buy-in” and “interactive post-adversarial consensus.” His irreverence didn’t wear well, and not long afterward Lutz departed for Chrysler, becoming the latest addition to the Gang of Ford.
At the same time Ford developed a cooperative new labor-management relationship that was unique in Detroit—and a sharp contrast to the surly worker sabotage that had plagued the Vega in Lordstown. At Petersen’s behest Ford began using “statistical process control,” which empowered workers to monitor the manufacturing process and ensure quality. Ironically, the method had been developed in America, but it was spurned by the Big Three and initially adopted in Japan instead—a classic consequence of Detroit’s inbred arrogance. Ford seemed to be breaking out of that mind-set, however, and was boosting quality close to Japanese levels.
In the process, the company was becoming a profit machine. In 1986, for the first time in 62 years, Ford’s income of $3.3 billion topped that of General Motors, even though GM was 40 percent bigger than Ford. In 1988 profits rose to $5.3 billion, a record for any car company in history. Betwen 1980 and 1989 Ford’s stock price surged 1,500 percent. The only blip on the company’s windshield was the death of the patriarch, Henry Ford II, on September 29, 1987, at the age of seventy. His passing deprived the company’s controlling family—which had just 4 percent of the stock but 40 percent of the votes, thanks to their supervoting shares—of its longtime leader.
But Petersen’s public profile was on the rise, thanks to Ford’s incredible success. Because of Ford’s quality ratings and amazing financial performance, Detroit’s once-unknown CEO began to supplant Iacocca as the Motor City’s latest media hero. Roger Smith professed that he wasn’t worried about GM’s performance vis-à-vis Ford. He explained that Ford was playing a short-term game, while GM was investing for the twenty-first century.
• • •
In Smith’s view, Ford was developing only new cars, while he himself was developing something far bolder: a brand-new corporation. In 1984 Smith abolished the General Motors Assembly Division, the ill-fated outfit that ran the assembly plants, and Fisher Body, which ran the stamping plants, and replaced them with two enormous car groups, Chevrolet-Pontiac-Canada (CPC) and Buick-Oldsmobile-Cadillac (BOC), with integrated responsibility for manufacturing and marketing. The sweeping corporate reorganization was intended to eradicate GM’s powerful, balkanized fiefdoms. At the outset, however, it created organizational disarray.
GMers grimly joked about the apocryphal manager who walked out of his office and told his secretary, “If my boss calls, please get his name.” Smith, undeterred, moved next to modernize GM’s electronic infrastructure—not by hiring a computer services company but by buying one: Electronic Data Systems of Dallas. With the financial acumen he had acquired during his ascent through GM’s financial ranks, Smith paid for EDS not with cash but with an innovative new class of GM stock—Class E shares—that would pay dividends tied to EDS’s results.
EDS’s founder and CEO, billionaire H. Ross Perot, joined the GM board and stayed at the helm of EDS, overseeing the effort to overhaul GM’s technology infrastructure, everything from record keeping to factory automation. In the September 1984 union contract negotiations, to ease the UAW’s fears about automation, GM offered a pioneering program called the Jobs Bank, which would pay workers displaced by factory automation 95 percent of their wages until the company found them a new job.
GM initially proposed Jobs Bank eligibility for workers with at least ten years seniority and wanted to cap the program’s spending at $500 million over three years. But the UAW—still smarting from Smith’s bonus sleight-of-hand a couple years earlier—demanded more. By the time the contract was finished, the company agreed to a spending cap of $1 billion, and soon afterward it lowered the eligibility threshold to just one year’s seniority.
Ford and Chrysler were forced to accept the Jobs Bank too, to avoid a potentially crippling strike. UAW members’ jobs were “more secure than ever in history,” the union told its members. Perhaps, but years later it would become clear that Smith and the union had created a monster.
But Smith was busy teasing the press, in early 1985, about another acquisition that would be, in his coy midwestern expression, “a lulu.” It was the multibillion-dollar purchase of Hughes Aircraft, the aerospace arm of the Howard Hughes empire, which made night-vision devices, satellite systems, and other technology that Smith deemed the key to the car of the future. He wasn’t alone: Ford was eager to buy Hughes as well, for the same reason. Ford was so confident of winning that it hired a painting crew to paint its blue-oval logo on the roof of Hughes’s Los Angeles headquarters. But Smith built his bid around another new class of shares, GM Class H, which would pay dividends tied to Hughes’s results, like the Class E shares at EDS. After learning that Smith’s financial wizardry had won the day, Ford sent its painters packing—and a jubilant Smith told reporters, “Lulu is home!”
There were still more blockbuster moves in Smith’s headlong charge to transform General Motors into a twenty-first-century corporation. Besides partnering with Toyota in California, Smith also announced that General Motors would launch its first new brand in half a century, Saturn, to build small cars with innovative labor relations and high-tech manufacturing. Smith further embraced advanced technology—with help from EDS—to make GM’s existing cars by building new factories or refurbishing old ones. Headquarters kept a “robot count” for each factory, and rewarded managers who had the most.
The only thing that didn’t seem exciting about General Motors between 1983 and 1985 was, well, its cars. In August 1983 the cover of Fortune magazine pictured four maroon sedans that were GM’s new entries in the critical midsize segment, which the company had dominated for decades. The magazine was making the point, in visually striking fashion, that the Chevrolet Celebrity, the Pontiac 6000, the Oldsmobile Cutlass Ciera, and the Buick Century all looked alike. They were products of a system GM called “badge engineering,” in which the company saved billions in development costs by taking the same basic car and then tweaking it for the different divisions—some plastic body cladding on the Pontiac, a special front grille for the Buick, square taillights for the Olds, and so on. Far from being chastened by the Olds Rocket engine scandal of a decade earlier, GM was further blurring the identity of its decades-old brands. Increasingly, the only meaningful difference among its cars, alas, was their price.
The Fortune cover caused a stir, but not for long. General Motor
s seemed to be reorganizing and revitalizing with a veritable industrial blitzkrieg. For a brief time, after the press had tired of Iacocca and before it discovered Don Petersen, Roger Smith actually became a media darling. In April 1985 Financial World magazine named him CEO of the Year. Two months later BusinessWeek called him the “cherubic chairman of General Motors,” a reference to his pudgy physique and ruddy complexion, and quoted Smith’s prediction: “You’re going to see the greatest corporation in the world.”
That was precisely the fear at both Ford and Chrysler. By the mid-1980s both companies were enjoying unaccustomed success in competing against “the General,” but they had spent too many years following in GM’s footsteps to kick the habit completely. If General Motors deemed diversification to be a prudent hedge against the threat from the Japanese, well, they would diversify too.
So the cover of Chrysler’s 1985 annual report carried the company’s newest model—not a car, but a Gulfstream executive jet. “Chrysler is diversifying into industries and businesses that can supplement our core automotive operations,” Iacocca wrote to shareholders. “Gulfstream gives us a strong entry into the growing aerospace and defense industries”—where, he didn’t have to add, the Japanese weren’t a factor.
Iacocca also bought consumer-finance and commercial-finance companies and restructured Chrysler itself as a holding company. The car business, Chrysler Motors, became just one of four divisions, along with Chrysler Financial, Gulfstream, and a new entity called Chrysler Technologies that was created to seek high-tech acquisitions. Chrysler’s only automotive deal during this buying spree was the 1987 purchase of American Motors from its controlling shareholder, the French automaker Renault. The crown jewel of AMC was Jeep, a specialty brand for which Iacocca saw significant potential.
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