For Baker, who had proved his negotiating savvy with management over two decades, that was the clincher. “I’m optimistic,” he told Automotive News, the industry’s leading trade publication, in mid-January 1999. “I think we’ll make it work.”
Yellowstone, it seemed, was falling into place. The idea had passed muster with key staffers at Solidarity House and with Baker. The only disconcerting note came when reporters asked Steve Yokich about the concept. “I haven’t been involved in the discussions,” he replied. “If you don’t know what’s going on, you’re concerned about a lot of things.”
The comment was puzzling to Hogan, because he had kept senior union staffers informed all along. But Yokich’s public statements were often calculated to enhance his negotiating position at the bargaining table, and this seemed no different. So in late April Hogan outlined the Yellowstone concept in a speech to the Society of Automotive Engineers. He also agreed to make a similar presentation for early August, at a high-profile automotive conference in Traverse City, Michigan. And then all hell broke lose.
In early May 1999 Yokich flew into a public rage, angrily telling reporters that General Motors should “put a muzzle” on Mark Hogan, or better yet just fire him outright. It wasn’t entirely clear what had provoked Yokich. But as a traditional unionist, he was inherently suspicious of any “innovations” in labor relations, and as the UAW’s president, he didn’t like being upstaged by local leaders like Baker.
Hogan, for his part, was caught completely off guard. He didn’t even hear about Yokich’s remarks until he got home that night and his wife said, “So, I hear you’ve just been fired by the head of the UAW.”
The next day at work, Hogan was told to stop talking publicly about Yellowstone, so he canceled the August speech. “I’ve got to go dark,” he told the conference’s organizers. “I’ve got to disappear.” Just as Yokich had demanded, General Motors put a muzzle on Mark Hogan.
The company’s executives, it was clear, were afraid of Steve Yokich, the man who was eviscerating Saturn and had gone to the mattresses in Flint. Less than a year after the Flint strike, they dreaded doing anything that might offend the UAW chief. Before long Yellowstone was pronounced dead by GM, even before it got going. And in August Wagoner summoned Hogan to his office and told him he was being transferred to a new job.
Hogan would take charge of e-GM, a new initiative to harness the growing power of the Internet to help the company’s business. The idea was to get him out of Yokich’s crosshairs, Wagoner explained, for his own good and that of the company. Hogan, then forty-eight, would retain his rank of group vice president, but his career was clearly derailed. He wasn’t being formally fired, as Yokich had demanded, but was being consigned to GM’s version of the witness protection program.
By the time Hogan was exiled, more than a few unionists were hoping that somebody—anybody—at General Motors would stand up to Steve Yokich. One of them was Art Baker in Lansing, who regarded Yokich as a bully whose affinity for confrontation was hurting not just GM but also the UAW itself.
Another was Mike Bennett at Saturn. In June 1999, at the same time Yellowstone was coming unraveled, Bennett stepped down from the chairmanship of the local union at Spring Hill after a bruising defeat for reelection. His opponents had strong backing from Yokich, who added yet another scalp to his belt. Standing up to Yokich, it seemed, was career suicide, for both union leaders and company executives.
Lansing eventually did get a new GM assembly plant, but it provided only half the efficiencies that Yellowstone would have offered. As for Saturn, in 2003 the local union members would vote to scrap their special contract and return to the UAW’s national agreement with GM—with its plethora of job classifications, work rules, and seniority clauses. Before long the Saturn name was taken off the Spring Hill factory, which was assigned to build Chevrolets instead of Saturns. America might have been ready for Saturn, but GM and the UAW weren’t. Sadly, both sides had found Saturn too different and too alien—which was Saturn’s great strength but also its unfortunate weakness.
Over a twenty-year period General Motors had launched ambitious efforts to redefine its relationship with the UAW—Nummi, Saturn, and Yellowstone—only to turn its back on all of them. The missed opportunities didn’t appear to mean much at a time when SUV profits were rolling in, but would that really last forever? After the trauma of the Flint strike, GM’s labor relations strategy—unstated but nonetheless clear—was the appeasement of Steve Yokich. From retirement, Mike Bennett watched it all in sadness. “I wake up at night sick,” he would say, “thinking about all the things that might have been.”
NINE
FROM RICHES TO RAGS
Though their internal dynamics were different, all three Detroit companies had one thing in common as the new millennium began: virtually the only vehicles on which they were making money were trucks, not cars. Gas-guzzling pickups, SUVs, and (to a lesser extent) minivans were their sole sources of profits. The reason was that their cost structures were bloated by soaring healthcare costs, gold-plated pensions, union work rules, and lavish white-collar perks. At Chrysler, for example, every retired executive got free use of two new cars, every year, for life.
It was an inherently unstable business model, though it would take a few years for the Big Three to understand that. They had ended the twentieth century on a roll, still providing nearly seven out of ten vehicles sold in America, partly because the Japanese weren’t major players in trucks and SUVs. But each of the Big Three would spend the next five years struggling with fundamental issues—and at Chrysler and Ford, fierce internal politics—that threatened to snatch disaster from their unprecedented prosperity.
While the destructive warfare between GM and the UAW was grabbing headlines, the people at DaimlerChrysler were busy fighting each other, equally insanely, in the biggest German-American clash since the Battle of the Bulge. It hadn’t seemed that way at first; the entire year after the transatlantic “merger of equals” was announced in May 1998 was party time, at least on the surface.
A month after the announcement ten top executives of Daimler-Benz flew to Chrysler’s headquarters in Auburn Hills, Michigan, to test-drive Chrysler cars. As they drove minivans around the test track, they kept muttering about the “fipers.” Their hosts thought it meant windshield wipers until they realized that the boys from Benz actually were asking about the Dodge Viper, Chrysler’s 450-horsepower V10 sports car.
The Germans did get to drive Vipers, and each guest was given a Matchbox-toy Viper. CEO Jürgen Schrempp’s special gift was a new olive-green Jeep Wrangler, not a Matchbox toy but the real thing. In return, Chrysler’s Bob Eaton got a new $47,000 Mercedes CLK convertible sports car. Eaton got the better deal, but who was keeping score? They were all family now.
When the deal closed on November 17, each of the 428,000 employees of the merged company, DaimlerChrysler, got a Swatch embossed with the new corporate logo. Marching bands with cheerleaders trooped through the factories in Europe and America. Company quartermasters in Germany served American Thanksgiving fare in their cafeterias, while Chrysler returned the compliment by serving spaetzle and strudel in the United States.
In early December the first joint management meeting in Seville, Spain, was highlighted by a raucous bash. Schrempp led the executive revelers in singing “Bye, bye, Miss American Pie …” Well after midnight he tossed his assistant (and future wife), Lydia, over his shoulder, grabbed a bottle of champagne, and shouted “See you later, boys” before heading upstairs. At the Detroit auto show in January 1999, Chrysler set up a cabaret in a rented warehouse, where the cochairmen, Eaton and Schrempp, hosted journalists while a swing band named Squirrel Nut Zippers revved up the party.
But by then fights were breaking out behind the scenes. Not fights about product development strategy, parts-purchasing policies, factory automation, or anything like that. Instead, the first contretemps was about something really important—the size of the business cards.
Standard European business cards were slightly larger than American business cards, and neither side wanted to compromise. The debates dragged on for hours in the conference rooms of Stuttgart before the Germans and Americans agreed on a compromise—DaimlerChrysler would have American-size business cards but with a European “style.”
Then both sides moved on … to another squabble, compounded by the fact that the culture clash wasn’t just krauts versus cowboys but also patricians versus plebeians. The Germans were scandalized that the Americans would desecrate their corporate logo by putting it on paper napkins and plastic cups—items that people would dirty with their mouths and then toss in the trash. After hours of arguing back and forth on that one, the two sides agreed to disagree.
It was a solution that wouldn’t be used much in the months and years to come. The early fights about business cards, paper napkins, and other silly things were just a prelude to events that would destroy high-powered careers and billions of dollars of wealth and eventually send Chrysler to the brink of oblivion.
Compared to the high-level infighting at Chrysler as the turn of the century neared, General Motors was a model of management stability. Sure, the company had pushed aside executives who offended Steve Yokich, but collateral damage was part of life in the corporate big leagues. That aside, consensus and stability reigned. The unanimous choice to succeed Jack Smith as CEO was the all-American boy. G. (for George) Richard Wagoner hailed from Richmond, Virginia, where he had captained the high school basketball team and graduated third in his class before moving on to Duke University, where he also played basketball in the early 1970s.
But Wagoner—president of Delta Tau Delta, where his frat-boy nickname was “Wags”—would graduate summa cum laude and Phi Beta Kappa and head for an MBA instead of the NBA. After getting his advanced degree from the Harvard Business School in 1977, Wagoner quickly was identified within General Motors as a “high pot,” GM-speak for a high-potential individual. He moved through the “T.O.,” GM’s New York treasurer’s office, which served as the company’s executive boot camp and where one of his compatriots was E. Stanley O’Neal. Both were future CEOs—Wagoner of GM, O’Neal of Merrill Lynch. Years later their paths later would cross again on the GM board.
When he became chief financial officer after GM’s boardroom revolt of 1992, Wagoner, three months shy of his fortieth birthday, jumped over a slew of senior executives. His progression after that to president and chief operating officer en route to becoming CEO made Wagoner the perfect person to lead General Motors into the twenty-first century—at least on paper.
• • •
Some of the disputes between the Daimler-ites and the Chrysler-ites at DaimlerChrysler were more substantive, of course, than the size of the business cards or the designs on paper napkins. Daimler-Chrysler was like any blended family, where the two sets of kids had grown up with different standards on dating, curfews, and allowances. One key difference was executive pay, which was considerably richer in American corporations than it was in most German ones.
In 1997, the last year before the merger, Eaton had received $16 million in total compensation, while Schrempp got a mere $2 million. And when the two companies merged, the Americans were the biggest winners financially. Bob Eaton, who had jumped to Chrysler from GM at just the right time, was paid $70 million for his personal Chrysler holdings, while Schrempp got nothing because his company was buying instead of selling.
Much of the pay imbalance was due to Chrysler’s lavish stock options and bonuses, which were typical for American companies but not significant in the pay packages of German executives. It was unrealistic to expect the imbalances in compensation to be resolved immediately. It was equally unrealistic, however, to expect that resentment wouldn’t fester in the meantime.
The operating styles were different too. The key to Chrysler’s success had been a philosophy that “fast is better than big,” but Jürgen Schrempp believed firmly in “bigger is better.” In early 1999, just a couple months after closing the deal with Chrysler, he launched negotiations to take control of ailing Nissan and thus create a tripartite automotive colossus that would span the globe. It was classic Schrempp overreach: trying to grab another prize even before he had made the Chrysler deal work. The Chrysler team, joined by some allies from the Daimler side, managed to dissuade him.
The Chrysler people were already getting annoyed by the new company’s many formalities, committees, and innumerable conference calls between Germany and America. The heads of staff departments such as marketing, finance, and public relations had dual reporting lines—to an operating executive at Chrysler and to the group staff chief in Stuttgart—that slowed every decision. As 1999 unfolded, some Chrysler executives resented making one-day trips to headquarters in Stuttgart to attend meetings. They would grab an overnight flight from Detroit, shower and shave when they landed, and attend a full day of meetings, then get the late-afternoon flight home.
The Germans, for their part, were confounded by Chrysler’s preoccupation with quarterly earnings reports, which weren’t required in Germany. But the Americans knew that Wall Street analysts watched the quarterly reports closely and expected to be signaled in advance if their profit forecasts were out of whack. That’s exactly what happened in July 1999, when DaimlerChrysler reported that its earnings for the second quarter had been flat, after most analysts had forecast a handsome increase. Chrysler’s finance men had advised issuing a profit warning before the disappointing report, but the Germans had rejected the idea. DaimlerChrysler’s shares dropped 9 percent that day to $77—down from a high of $107 right after the merger.
One reason for the earnings shortfall was that DaimlerChrysler wasn’t getting anywhere near the $1.5 billion in first-year cost savings that Eaton and Schrempp had promised. When the Chrysler executive charged with delivering these “synergies” had the temerity to tell Eaton and Schrempp that he needed more direct authority to deliver them, he was soon dismissed.
Then Chrysler’s sales chief, Jim Holden, was promoted to president, because Eaton believed his polished style would wear well with the Germans. In November 1999 Holden convened the Chrysler executive team and told them to “get back to doing what we’re really good at” while putting postmerger angst behind them. Fat chance. The next shoe dropped on January 26, 2000, when Eaton announced that he himself would retire eighteen months ahead of schedule, leaving Schrempp solely in charge.
The Chrysler people weren’t terribly surprised. They knew Schrempp was running the show anyway, and many were angry at Eaton, whom they viewed as either a traitor or a dupe for selling their company. Publicly, Eaton explained that he was leaving because the merger was well on the way to fruition. Privately, however, he told friends that “the biggest business mistake of my life was misjudging the character of one man,” meaning Jürgen Schrempp, whom he belatedly concluded was a power-hungry egomaniac. Bob Eaton was no traitor, but he sure had been duped.
Eaton got out just in time. In early 2000 Holden flew to Stuttgart to tell Schrempp that Chrysler’s earnings for that year would be less than half the $5 billion that the premerger plan had predicted. The Germans went ballistic, and not just because they had paid nearly a 40 percent premium for Chrysler’s stock compared to its premerger price. (Maybe they, instead of Eaton, had been duped.) Mercedes was a German national icon, and Schrempp had promised not only Daimler-Benz shareholders but also the entire nation that its stature would be enhanced by Chrysler. Schrempp and his team shouted that Holden should do whatever it took to make the $5 billion target.
The young executive walked out of the meeting shaken. “If this business plan was a movie it would be Old Yeller,” he told his Chrysler colleagues when he returned to Auburn Hills. “And I would be the dog that gets shot at the end.”
A movie that debuted that very year, The Perfect Storm, was also appropriate because that’s what was hitting Holden and Chrysler. The fallout soon would reach Belvidere, where by now two generations of Youn
gs, Fred and Gene, were working at the factory. In 1999, at age thirty-two, Gene had taken a job on the Belvidere assembly line, where having a family connection didn’t hurt.
Gene’s wages were more than double those in his previous job—which was more important to him, understandably, than the high-level infighting between the Germans and the Americans. When he went to buy a new SUV (a Dodge Durango) and said he worked at the Chrysler plant, his loan was instantly approved.
Nonetheless both Youngs, father and son, took notice when, shortly after the merger, Belvidere’s assembly line speed was cranked up to 85 or 90 cars an hour from the previous 70. The idea was to improve profits, but the unfortunate side effect was to reduce quality as managers and workers scrambled to meet their new production quotas. Before long the PTM program that allowed workers to help design their workstations was scaled back in another effort to save costs.
The PTM program would be eliminated entirely in a couple years, right around the time Fred Young retired. He decided to depart in 2001, at sixty-three. During his thirty-six years on the job, his wages had grown from $1.85 an hour to about $35 hourly. He had saved money, had a comfortable pension and generous medical benefits—and was confident that both were guaranteed by Chrysler’s contract with the UAW. Times were getting tough again for Chrysler, he knew, but over the years he had seen the company swing repeatedly between crisis and prosperity. This time, Fred figured, wouldn’t be any different.
The DaimlerChrysler merger’s “synergies,” meanwhile, continued to fall short of projections; forecasting them was one thing, but actually producing them quite another. It wasn’t like the fussy engineers at Mercedes were going to start using Dodge door handles on their cars. And the Mercedes door handles were too expensive to put on Dodges.
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