Crash Course

by Paul Ingrassia

  The car that proved Honda’s engineering prowess, the 1975 Civic CVCC. The letters stood for “Controlled Vortex Compound Combustion,” an engine design that allowed the car to meet strict U.S. air-quality standards without a catalytic converter device. (HONDA MOTOR ARCHIVES)

  Honda founder Soichiro Honda and colleagues inspect plans for the company’s first U.S. factory, a motorcycle plant in Ohio, in 1977. (HONDA MOTOR ARCHIVES)

  Shige Yoshida, the executive who decided to put Honda’s first U.S. factories in Ohio, and hired the company’s early employees there. His careful screening of applicants for diligence and a strong work ethic was critical to Honda’s success in the United States. (HONDA MOTOR ARCHIVES)

  A Honda executive rides the company’s first U.S.-built motorcycle off the assembly line in Marysville, Ohio, 1979. (HONDA MOTOR ARCHIVES)

  Ohio governor James Rhodes and Honda president Kiyoshi Kawashima break ground for the company’s automobile assembly plant in Marysville, in 1980. Rhodes avidly pursued Honda, a decision that since has brought tens of thousands of jobs to Ohio. (HONDA MOTOR ARCHIVES)

  Consumer activist Ralph Nader and UAW president Douglas Fraser at a press conference in 1981. Nader’s 1965 book Unsafe at Any Speed exposed safety flaws in the Chevrolet Corvair, giving GM an enormous black eye. Fraser led the UAW during the deep recession of the early 1980s, and agreed to painful contract concessions that helped Detroit’s Big Three survive that crisis. (ASSOCIATED PRESS)

  Lee Iacocca introduces Chrysler’s first minivan in late 1983. Iacocca led Chrysler from near oblivion to record prosperity—appearing in television commercials and writing an autobiography that made him an international celebrity. The minivan was a new type of family vehicle that took America by storm. (CHRYSLER ARCHIVES)

  GM chairman and CEO Roger Smith poses in front of one of the company’s cars shortly before his retirement in July 1990. Smith led GM for a decade, during which its market share began a thirty-year descent that eventually helped put the company into bankruptcy. (ASSOCIATED PRESS)

  The first Saturn sedan, the 1991 SLI. Roger Smith viewed Saturn as the key to modernizing GM. Despite the initial popularity of the brand, opposition from within GM and the UAW eventually doomed Saturn and its cooperative labor-relations model. (GENERAL MOTORS ARCHIVES)

  Chrysler’s Bob Lutz drove a new Jeep Grand Cherokee through a window, rigged with tiny explosives set to go off at the right moment, at the 1992 Detroit Auto Show. Lutz’s drive generated wide publicity and launched an era of ever-more-elaborate publicity stunts that captured the over-the-top spirit of America’s fifteen-year SUV boom. (CHRYSLER ARCHIVES)

  UAW president Steve Yokich at an informal press conference in 1998. The firebrand Yokich had just led a bitter strike against GM in Flint, Michigan, that cost the company more than $2 billion. An unstinting opponent of cooperation with management, Yokich also led opposition to the innovative labor-relations methods at Saturn. (ASSOCIATED PRESS)

  Ford Excursion SUV, 2000. This was the largest SUV ever, and symbolized the Detroit companies’ reliance on SUVs and trucks as their sole source of profits. The strategy backfired badly when gas prices began to soar in late 2005—the Excursion’s last year of production. (FORD MOTOR ARCHIVES)

  Ford CEO Jacques Nasser in June 2001, being sworn in for his congressional testimony on the recall of Firestone tires on Ford Explorers. Dozens of deaths were attributed to the defect, and Nasser publicly squabbled with Firestone executives over who was to blame. During Nasser’s three years as CEO, the company’s performance plunged in almost every respect. (ASSOCIATED PRESS)

  Gene Benner in front of Bessey Motors, his Chrysler-Jeep-Dodge dealership in South Paris, Maine. The quintessential small-town car dealer and all-American success story Benner took tough action to restore his business to profitability during 2008, enabling him to survive Chrysler’s culling of its dealer ranks in 2009. (BESSEY MOTORS)

  Fred Young, retired auto worker in Belvidere, Illinois. Young started at Chrysler’s Belvidere factory in 1965, shortly after it opened, and worked there until 2001. During Chrysler’s crisis of 2008 and 2009, Young worried that he might lose his pension. The pension remained intact, but his medical benefits were reduced. (GENE YOUNG)

  Gene Young, Fred’s son, shown aligning headlight beams in the Belvidere plant in 2007. Gene started at the factory in 1999 and worked there ten years—bouncing back and forth between the assembly line and the Jobs Banks, thanks in part to periodic “inverse layoffs.” (GENE YOUNG)

  The hefty 2006 Chrysler 300C sedan, which helped revive Chrysler’s fortunes under Daimler, but only briefly. When gas prices soared after Hurricane Katrina, sales of the 300C—along with those of Chrysler’s SUVs—plunged. Chrysler returned to red ink and Daimler sold the company in 2007. (CHRYSLER ARCHIVES)

  Ford CEO Alan Mulally and chairman Bill Ford, Jr. In late 2006, with Ford in crisis, Bill Jr. stepped aside as CEO, and Ford brought in Mulally. It was the first of several critical steps that enabled Ford to emerge as the only American car company to avoid bankruptcy. (FORD MOTOR ARCHIVES)

  Left to right: GM’s Rick Wagoner, Chrysler’s Bob Nardelli, Ford’s Alan Mulally, and the UAW’s Ron Gettelfinger appear before the House Financial Services Committee on November 19, 2008, to request emergency financial aid. When ABC News reported that the three CEOs had flown into Washington on their corporate jets to beg for a bailout, the result was a PR fiasco for Detroit. (ASSOCIATED PRESS)

  SUVs parked around the altar during a prayer service for government assistance for Detroit’s car companies on December 7, 2008, at the city’s Greater Grace Temple. The SUVs were all gas-electric hybrids—a Ford Escape, a Chevrolet Tahoe, and a Dodge Aspen. (CHARLES V. TINES, THE DETROIT NEWS)

  Steven Rattner, chief of President Obama’s Automotive Task Force. Rattner delivered the bad news to GM’s Rick Wagoner that the Obama administration wanted him to resign. Rattner and his colleagues also developed the bailout plan that required GM and Chrysler to declare bankruptcy. (STEVE RATTNER)

  UAW president Ron Gettelfinger at a press conference in May 2009. He abandoned UAW orthodoxy to make healthcare concessions to the Detroit car companies in 2007—but the move was too little and too late to allow GM and Chrysler to avoid bankruptcy. (ASSOCIATED PRESS)

  Ron Bloom, who along with Rattner led Obama’s Automotive Task Force, and crafted the deal that gave Italy’s Fiat operational control of Chrysler. His work with the United Steelworkers union gave Bloom credibility with the UAW, but he pushed the union hard to make concessions in the bailout. (ASSOCIATED PRESS)

  Harry Wilson, a senior member of the Automotive Task Force who took the lead in developing GM’s post-bankruptcy restructuring plan. (HARRY WILSON)

  Sergio Marchionne, CEO of Fiat—and now of Chrysler, too. Because Fiat was Chrysler’s only suitor, Marchionne drove a hard bargain that allowed Fiat to take control of the company without putting in any cash. (CHRYSLER ARCHIVES)

  GM’s new CEO, Frederick “Fritz” Henderson, speaks to reporters after departing federal bankruptcy court in lower Manhattan on June 1, 2009, the day GM’s became the second largest bankruptcy filing in U.S. history. (ASSOCIATED PRESS)

  President Obama, in a pensive pose, as he passes a portrait of George H. W. Bush on June 1, 2009, just prior to addressing the nation about the bankruptcy of GM. Bush’s son, George W. Bush, stood at the opposite end of the ideological spectrum from Obama, but both men committed billions of taxpayer dollars to keep GM and Chrysler afloat. (ASSOCIATED PRESS)

  President Obama, flanked by members of his cabinet, addresses the nation on June 1, 2009, just hours after General Motors filed for bankruptcy. The federal government ultimately committed more than $100 billion to bail out the American auto industry. (ASSOCIATED PRESS)

  In November, however, the daily Ford-Firestone headlines were eclipsed by a far bigger story: the constitutional crisis of a razor-thin presidential election that would be decided by the Supreme Court. The controversy was receding, th
e tire recall was progressing, and in early 2001 Ford would introduce a brand-new version of the Explorer that would be lower-to-the-ground and less prone to roll over. Ford Motor and Jac Nasser seemed to have weathered the storm.

  But they hadn’t. While the Ford-Firestone dispute faded from public view in the early months of 2001, the fight over who was at fault continued behind the scenes. On May 21 and 22 both companies went nuclear.

  The first to strike was Firestone, which announced that, after a century of supplying Ford, it would no longer sell tires to the company. The next day Ford announced it was recalling another 13 million Firestone tires because it could no longer vouch for their safety, a claim that Firestone labeled outrageous. The move, the biggest recall in automotive history, would cost Ford $3 billion.

  Both companies launched new salvos of public accusations at each other. Bill Ford appeared with Nasser at a company press conference and declared, “This decision is a painful one for me personally,” alluding to his dual family heritage. Ford versus Firestone was becoming Detroit’s version of the Iran-Iraq War. But bad as it was, the crisis was just one of many problems festering inside Ford Motor.

  Running a car company, like running a restaurant, requires constant attention to detail and at least reasonable management stability. But Ford had neither. While Nasser was shaking up everyone and everything at Ford, executive turnover was soaring. The company began losing its grip on the basics of its business.

  Two days after Ford announced the new tire recall, the respected J.D. Power Initial Quality Survey reported that Ford had dropped to dead last among major automakers. The quality woes were widespread. Ford Focus, the company’s new subcompact car, was recalled six times during its first year on the market. The Escape, a downsized SUV, had five recalls in its first nine months. Even the new Explorer had suffered an embarrassing recall to repair tires (not Firestones) that had been accidentally slashed on the assembly line at Ford’s factory in Louisville.

  What’s more, Ford’s productivity, like its quality ratings, was heading south in a hurry. The annual Harbour Report, the auto industry’s bible for measuring factory efficiency, found Ford’s productivity had dropped 7 percent in 2000, while GM’s had increased 8 percent. Employee morale at Ford was so bad that insiders joked, “Jack Welch has 10 guys around him who would take a bullet for him. Jac Nasser has 10 guys around him who’d like to put a bullet in him.”

  The turmoil took a toll on Ford’s bottom line. The auto industry has high fixed costs for factories, machinery, employees, and dozens of other items. It’s critical to keep the factories running at full speed and costs under control, but Ford was losing ground on both fronts. Nasser’s revolving-door executive suite was incapable of spotting the situation in time, much less addressing it effectively. The company followed Chrysler into red ink, losing $752 million in the second quarter of 2001, when General Motors earned $477 million.

  After that Ford announced it was restructuring its executive suite (again) to form a new Office of the CEO that would include both Bill Ford and Jac Nasser. “This new structure will allow both me and Jac to work hand in hand to lead the company,” Bill Ford stated in a press release. It was a polite way of saying he was trying to keep a tighter rein on Nasser.

  As the summer of 2001 gave way to fall, speculation began that Nasser was on his way out. Both men denied it and insisted that, in fact, they had “a very easy relationship,” as Bill put it. But the drumbeat of bad news from Ford continued. On September 11, America suffered the shocking terrorist attacks on the World Trade Center and the Pentagon. In response, Ford cut car production and slashed its quarterly cash dividend 50 percent because it expected the economy to nose-dive. The 9/11 attacks weren’t Nasser’s fault, of course, but many of Ford’s wounds were self-inflicted. In October the company posted a third-quarter loss of $692 million—its first back-to-back quarterly losses in a decade.

  For months, quietly and discreetly, Bill Ford had been consulting with the board of directors and with members of his extended family to drum up support for ousting Nasser. In September Ford’s board approved a rich severance package for the CEO, just in case. That had to be disconcerting to Nasser, but he marched blithely onward.

  In October he tried to recruit Jim Holden, sitting on the sidelines since being bounced from DaimlerChrysler nearly a year earlier, to join Ford as head of sales operations. Wary about executive suite infighting from his DaimlerChrysler days, Holden asked to meet with some Ford directors to get their assurances that Nasser’s job was safe. Nasser agreed to arrange it, but things never got that far.

  On Tuesday, October 30, the ax fell. Ford fired the fifty-three-year-old Nasser and ended his meteoric career with the company, making him the latest example of the hubris that had plagued Detroit for decades. He had been CEO for less than three years, during which time Ford had descended from record profits to widespread disarray with stunning speed. When forty-four-year-old Bill Jr. walked into the company auditorium to be introduced as the chairman and CEO of the company his great-grandfather had founded, an overflow crowd of employees desperate for a new beginning greeted him with a standing ovation. “Gee, it’s like the Lions won a game,” the new CEO quipped with endearing self-deprecation. Now Prince William really did have his monarchy back. But this wasn’t to be a happily-ever-after fairy tale.

  When Rick Wagoner was named CEO-designate of GM on February 2, 2000 (the actual transition wouldn’t occur until June 1), he was a couple weeks shy of his forty-seventh birthday and thus potentially positioned to run General Motors for nearly twenty years. When reporters asked him about that, Wagoner brushed off their questions with easygoing modesty. “The question shouldn’t be about me keeping the job for such a long time,” he laughed, but about “whether I can perform in a way to keep the job a long time.” The self-effacing response would prove more appropriate than Wagoner, or anybody else, could have realized.

  One of his first goals was to expand GM’s international operations, where he had a potential game-changing move in the works. On the weekend of March 11–12 he and GM’s departing CEO, Jack Smith, flew to Milan to negotiate with Italy’s Fiat, whose small diesel engines were popular in European cars and needed by GM Europe. Fiat Automobile was financially troubled, but it was also the centerpiece of a sprawling Italian conglomerate controlled by the Agnelli family, and it was the pride and joy of the family’s aging patriarch, Gianni Agnelli.

  The GM executives knew this well as they settled into the Four Seasons Hotel Milano, a converted medieval convent, for talks with Paolo Fresco, Fiat’s chairman. Fresco was a veteran deal-maker from his decades at General Electric, where he had risen to become Jack Welch’s second in command before Agnelli recruited him to help fix Fiat. Like Wagoner himself, Fresco was tall and outwardly relaxed; the two had developed such a close rapport that Fresco’s Fiat underlings called him “Rick’s older brother.” But like any good negotiator, Fresco knew he needed alternatives—or at least he needed to make the other guy believe he had alternatives. Not by chance, the apparent alternative was camped out in another suite in the Four Seasons in the person of Jürgen Schrempp.

  One might think that the troubles at Chrysler would have suppressed Schrempp’s appetite for acquisitions, but lions never get tired of wildebeest. Schrempp offered to buy Fiat Automobile outright for 13 billion euros, an incredibly generous price for a company that was a money-losing mess. The problem, however, was that selling Fiat to the Germans would offend the pride not just of Gianni Agnelli but of the entire Italian nation.

  Schrempp didn’t know it, but that weekend his role in this opera was to play the foil for Fresco, who engaged in corporate shuttle diplomacy by bouncing between the German and American suites in the Four Seasons. The wiley GE veteran emerged with the perfect deal, at least from the Fiat perspective.

  General Motors would acquire 20 percent of Fiat Automobile by paying Fiat $2.5 billion in GM stock—enough to make Fiat the largest single shareholder in GM (albeit
with only 5 percent of the shares). The transaction would give GM access to Fiat’s diesel engine technology, saving GM the huge cost of developing new diesels on its own. Fiat also got a highly unusual “put” option on its stock that would allow the Italians to force General Motors to buy the remaining 80 percent of Fiat Automobile anytime between 2004 and 2009. The price would be determined by a formula, but Fiat would remain free to find another buyer (well, sucker) who might pay more.

  Wagoner balked at the “put” provision, but Fresco insisted it was a sine qua non. He figured that Fiat Automobile would have to be sold at some point, and that allowing the Italians to control the timing and the process would salvage the pride of the Agnellis and the nation. Around midnight on Sunday, when the deal finally was struck, Wagoner, Fresco, and their colleagues popped open a bottle of champagne and phoned Gianni Agnelli, who was celebrating his seventy-ninth birthday.

  The guy who should have been celebrating was the jilted Jürgen Schrempp. For the apparent winner, General Motors, the Fiat deal would be a bridge to nowhere. A few years hence the deal would unravel in a way that would help Fiat mount a remarkable turnaround. And before the decade was out, after the Germans had retreated to lick their wounds, the Italian company would mount its own takeover of Chrysler. Indeed, irony would be piled atop irony as a result of the Milan Four Seasons negotiations in March 2000, in ways that nobody did or even dared predict.

  Wagoner, meanwhile, returned to Italy in triumph that June oblivious to the woes his “victory” eventually would create for GM. In the lake district town of Brescia he hosted financial analysts and journalists for three days of briefings on the future of General Motors. The young CEO presented the Fiat deal as the centerpiece of a new strategy of global alliances with foreign car companies. Wagoner was the personification of openness, striding through the group during question-and-answer sessions with a wireless mike and declaring, “Our position around the globe is enviable.”