Casting the old GM brands aside, Smith eroded differences between divisional ranges while failing to address complex differences in the engineering of each model – the exact opposite of the strategy then being adopted by car makers such as Volkswagen, BMW and Ford. GM cars thus began to look more alike outside, while still remaining bewilderingly (and expensively) different inside. In 1982, for example, the once-prized Cadillac badge was applied to a top of the range model from the inexpensive J-car platform, the Chevrolet Cavalier, to create the Cadillac Cimarron, a crude sleight of hand that lost GM thousands of customers. In a similar vein, the Chevrolet Citation, the most basic version of 1981’s frontwheel-drive X-car platform,1 cost only $100 less than its supposedly more upmarket sister compacts, the Pontiac Phoenix, Oldsmobile Omega and Buick Skylark. What was the point of buying a Chevrolet if you could have a Buick for almost the same price? For a man with a prestigious MBA and years of accountancy training, Roger Smith seemed to have a surprisingly poor grasp of pricing strategy.
Smith’s irreversible erosion of Sloan’s brand ladder was eagerly seized upon by his competitors – most notoriously in Young & Rubicam’s notorious ‘Valet’ television advertisement for Ford’s Lincoln division of 1985. Y&R’s film featured a parking valet who, when asked by a well-heeled couple to produce their black Cadillac, kept bringing out other GM products, Buicks and Oldsmobiles, by mistake; but, when asked by another couple for their Lincoln Town Car, had no problem identifying the model. The ad worked: Lincoln-Mercury sales soared, while Cadillac dealers complained strongly (though in vain) to Ford’s exultant management.
Roger Smith was particularly fascinated by new technology and placed a naive, boyish faith in its ability to transform GM’s prospects. During the 1980s he spent more than $90 billion on robots and other automated short cuts. His vision was of ‘the light-out factory of the future’, in which only a handful of employees supervised the automatic robots – a cost-effective dream, certainly, but one that did little to endear him to the unions. And while he may have been right in the long term, Smith, like many pioneers, was bound to make mistakes from which others were later able to profit. His joint venture with the Japanese robot manufacturer Fujitsu-Fanuc, GM Robotics, created the largest manufacturer of robotic machines in the world. But his early robots were, inevitably, somewhat unreliable, and often malfunctioned hilariously – painting each other instead of the cars, or welding car doors shut.1 Thus they were never able to achieve the efficiencies that Smith imagined. As a result, GM’s hi-tech, $600 million Hamtramck, Michigan, plant rarely operated at more than half capacity, while the Buicks and Cadillacs it produced were so poorly made that the factory’s luxury car contract was soon cancelled.
Smith’s spending spree did not stop with robots. Once again ignoring the need to invest in GM’s core brands, he made two disastrous investments. Both were in cutting-edge technology. Both were bought at a high price, and both were intended by Smith to diversify out of GM’s manufacturing base and into technology and services. In 1984 Smith bought Electronic Data Systems (EDS) for $2.55 billion from its billionaire founder, Ross Perot. Now best known for his quixotic campaigns for the US presidency in 1992 and 1996, the prickly, opinionated Perot had founded EDS in 1962 and had since made millions of dollars. Smith saw the acquisition of EDS as a means of absorbing advanced technology easily; Perot – who had become GM’s largest single shareholder and had recently joined its board of directors – saw it as a way of reorienting America’s largest corporation. After 1984 Perot became a constant critic of the hapless chairman, publicly censuring everything from factory overmanning to the opulence of Smith’s offices.1 As Perot told Fortune magazine: ‘I come from an environment where, if you see a snake, you kill it. At GM, if you see a snake, the first thing you do is go hire a consultant on snakes. Then you get a committee on snakes, and then you discuss it for a couple of years. The most likely course of action is – nothing. You figure, the snake hasn’t bitten anybody yet, so you just let him crawl around on the factory floor. We need to build an environment where the first guy who sees the snake kills it.’
As early as September 1985, the notoriously volatile Smith raged at Perot at a major GM meeting. EDS’s chief financial officer subsequently recorded: ‘People in the room later would remember Smith’s angry explosion as being wondrous and terrifying at the same time: wondrous for the extreme colors and sounds it brought to the room, terrifying because none of them had ever seen someone lose his temper so completely in a business meeting. The EDS officers stared in disbelief as the chairman of the world’s biggest and most powerful company lost it.’
Only two years after buying EDS, Smith’s patience snapped, and he bought out Perot’s stock for $743 million – a sum considerably above the market rate and one that Perot, while cheerfully accepting the cash, publicly denounced as an outrageous purchase at a time when GM was closing plants and laying off hundreds of thousands of workers.1 Meanwhile, the EDS acquisition had proved an administrative disaster. EDS had been run almost on military lines, with strict dress and moral codes; employees were, for example, forbidden to live together. Thus it naturally proved difficult to blend EDS personnel into GM’s elephantine bureaucracy, let alone to ensure that the two worked harmoniously together. In 1996, Smith’s successor sold off EDS.
The money Roger Smith spent on EDS, however, was dwarfed by the expenditure necessitated by his 1985 purchase of Hughes Aircraft for an astronomical $5.2 billion – a price tag that many analysts calculated was five times what Hughes’ assets were actually worth. On New Year’s Day 1986, Smith paid over $2.5 million to rent Disneyland for an ostentatious away-day for Hughes employees. But Hughes never made a profit for its new owner, and in 1997 was broken up and unloaded.
As GM’s financial reserves evaporated and its plants atrophied from lack of investment, Smith seemed unaware of the mounting criticism. In 1986, the year in which he paid way over the odds to buy out Perot, he spent yet another big chunk of money, $20 million, on British niche sports car manufacturer Lotus, a tiny outfit whose production methods seemed wholly at variance with those of the Detroit auto giant. Smith declared that the purchase was designed to acquire Lotus’s computer-based performance engineering. But to GM’s workers, and the international motoring press, it looked more like an old man’s selfish indulgence – buying a sports car in order to satisfy a mid-life crisis. And it was an indulgence that GM patently could not afford; at the same time as buying Lotus, Smith coolly announced the closure of thirteen plants and the loss of forty thousand additional jobs.1
Smith compounded his business disasters with some appalling public relations blunders. While spending billions of dollars on puzzling new acquisitions, he pressured the unions to cut both jobs and wages, aiming to replicate Japan’s labour costs (which in 1981 were $8 per car less than GM’s) while conveniently forgetting that Japanese car makers generously subsidized their workers’ housing and food. In order to cut costs, he imposed a wage cut for every GM executive of $135 per month, a tiny drop in the ocean for senior management but a hefty blow for junior grades. To make things worse, Smith gave himself and his senior staff a whopping 18.8 per cent pay rise. The vehement protests that this astonishing own-goal elicited at 1982’s meeting of GM shareholders failed to persuade Smith to rethink his plans; he merely announced that he would limit shareholders to two minutes of podium time each and would in future conduct half the day in private and accept only written questions. The outcry that greeted this proposal forced Smith, for once, to back down; but, typically, he then publicly blamed the media for making something out of nothing, with the result that relations between GM and the press were permanently soured. (Smith also publicly condemned his Chrysler rival, Lee Iacocca, whom he accused of undermining US car making. In 1981 Smith had earned $56,250 per month, while the publicity-savvy Chrysler boss had ostentatiously taken only a $1 annual salary from his company.)
Smith seemed to learn nothing. Over the next two years, with an astonis
hing disregard for his own employees and for public opinion, he openly pursued a policy of closing plants in the US while creating new GM jobs south of the border in Mexico, where labour was far less expensive.1 By 1990 Roger Smith had become the leading hate figure for the unions of America.
Ford, led by its low-profile president, Donald Petersen,2 fared much better than GM during the 1980s. The profits from Ford of Europe kept the firm in the black, while in America the new Ford Taurus offered a way forward. Introduced for the 1986 model year, the Taurus’s aerodynamic body was based on that of the European Sierra, but was sensibly provided with a pronounced trunk. It introduced flush front headlights and a flush rear fender to the US, and abandoned the classic American front grille in favour of a ‘bottom breather’ nose – innovations that helped cast the car as the futuristic police transport in the 1987 film Robocop. But not everything in the Ford garden was rosy. The Taurus was launched far too soon; only a week after the model’s official launch, 4,500 Tauruses and Sables3 were recalled to amend defective ignition switches. Two months later, back they went again to have their substandard window glass replaced. And it took Ford months to remedy the car’s pollution-control system, which emitted a distinct odour of rotten eggs. Nevertheless, the Taurus/Sable survived these mishaps to notch up impressive sales figures, helping Ford to achieve record profits in 1986–8. In July 1988, Standard & Poor’s elevated Ford’s credit rating above that of General Motors for the first time in history.
Meanwhile, on the other side of Detroit, Ford’s former president was making Chrysler a viable entity once more. In November 1978 Lee Iacocca had been ruthlessly fired from the summit of Ford by an increasingly imperious and out-of-touch Henry Ford II, who effectively replaced him with his own brother, William Clay Ford. (‘It’s personal,’ Henry II had blurted out incoherently, ‘and I just can’t tell you any more. It’s just one of those things.’) Iacocca soon made Ford regret its decision.
Lee Iacocca was perhaps the greatest of the automotive big beasts of the 1980s. The son of Italian immigrants who ran hot-dog restaurants, movie theatres and car rental businesses in working-class Allentown, Pennsylvania, he graduated as an engineer and joined Ford in 1946. There he gradually worked his way up the company’s ranks, in the process metamorphosing from a shy, introverted engineer to a bullish, aggressive salesman.
The Chrysler that Iacocca joined was in a bad way. There seemed to be no financial controls (odd for a company that had been largely run by former accountants since the war) and no forward planning. Volkswagen had looked at purchasing the ailing giant but had swiftly walked away from its administrative and financial chaos. As Iacocca harshly but truthfully put it in his autobiography: ‘Chrysler executives had a better reputation for their golfing abilities than for any expertise with cars.’
Iacocca was understandably livid at being so abruptly discarded by Ford, and immediately set about rejuvenating Chrysler in order to hit back at his former employers. Typically, he began by promoting himself as the star of his own TV commercials. Despite his wooden delivery and over-rehearsed one-liners, let alone the cringingly embarrassing guest slots filled by pals such as Frank Sinatra (‘I’m a man of business myself’), Iacocca gave America a corporate face and projected candid honesty. He also emphasized the home-grown origin of Chrysler’s products – ‘Made in the USA’ became a ubiquitous Chrysler marketing tag line – in an attempt to undermine Japanese imports. It was an image that seemed light years away from the corporate fat cats of GM and Ford, and it worked. In 1981, in a commercial promoting the Chrysler LeBaron, Iacocca stumbled across his archetypal message: ‘If you can find a better car, buy it.’ It was a slogan he proceeded to milk for the next eleven years.
Buoyed by his televisual success, Iacocca began to foster his own personality cult – even conniving at an ‘Iacocca for President’ campaign.
But Iacocca’s chutzpah could work wonders for Chrysler. He secured an aid package of $1.5 million from the federal government – a deal that had been denied his predecessor. He also appointed UAW president Douglas Fraser to the Chrysler board. (This strategy, while common in Germany, caused enormous controversy in conservative Detroit; but it helped bring Chrysler to the attention of the nation.) He launched safe, dependable new models, such as the insipid but reliable Dodge Aries/Plymouth Reliant compact and America’s first minivan, the Dodge Caravan/Plymouth Voyager. He exhumed the luxury Imperial marque, and persuaded the equally venerable Frank Sinatra to extol its virtues on TV. And in 1983, having announced that the company had repaid the last of its federal loans, early, he opened exciting new Chrysler Design Centers in California and Arizona.
If Iacocca had stepped down in 1984 (the year in which his ghostwritten autobiography was published), he would have departed with a stratospheric reputation as The Man Who Had Saved Chrysler. After 1985, however, it all started to go wrong. Just like Henry Ford II in the 1970s, Iacocca’s growing paranoia about possible rivals to his Olympian throne seemed to dominate his thoughts and adversely affected his ability to manage effectively.
In 1986 Iacocca hired a disgruntled Bob Lutz from Ford – largely so as to discomfit his former employers. Lutz’s recent and highly public ridiculing of Ford’s increasingly impenetrable business-speak had made him a marked man at Dearborn. Even when Lutz came up with such signal successes as the superb Dodge Viper sports car of 1991 – an instant classic based on the iconic Anglo-American AC Cobra of the 1960s – Iacocca still seemed determined to ensure that Lutz never succeeded him.
Iacocca’s behaviour, moulded by his messianic self-belief, was growing increasingly eccentric. He embarked on a bizarre spending spree that almost matched that of GM. In 1985 Chrysler acquired Gulfstream Aerospace, makers of corporate jets (Iacocca, naturally, nabbed a top of the range Gulfstream G4 for himself). He also tried to buy Hughes Aircraft, which went instead to GM. Iacocca even tried to emulate his Detroit rival by announcing the Liberty project, a misguided attempt to set up a new division in the mould of GM’s costly, Japanese-style Saturn project. (Thankfully, Chrysler executives managed to bury this concept before too much money had been spent, and before any cars had been made.) Iacocca then spent $500 million of Chrysler’s money on acquiring a large stake in Maserati, then owned by his Argentinian friend Alessandro de Tomaso (who in turn had bought the niche sports car maker from Citroën in 1975). In order to validate this deal to his board, Iacocca sought to develop a fantasy Maserati-Chrysler, the Chrysler Turbo Convertible. This particular TC, however, was no Top Cat. When it finally reached US showrooms in 1988, it bombed. Only seven thousand TCs were sold before the model was terminated, in 1991.
Iacocca was not deterred by this failure, despite the fact that virtually all of Chrysler’s multi-million dollar investment in the Maserati project had to be written off. In 1987 (the year he embarked on a messy and very public divorce from his second wife, Peggy), he bought Lamborghini, another world-famous Italian sports car manufacturer. Chrysler’s top brass were delighted, as they were each able to acquire a free Lambo. But despite the fame of the marque, the legendary Italian car maker rarely made more than four hundred cars per year. Moreover, Lamborghini was mired in debt, having recently gone bust and having, over the past decade, endured more changes in ownership than there had been Italian governments. Moreover, neither Iacocca nor Chrysler really had any idea what to do with their new toys. After Iacocca’s departure, Lamborghini was sold to a cartel of Indonesian businessmen (who in turn sold it to Volkswagen in 1998), while Maserati was offloaded to Fiat.
One Iacocca purchase of the late 1980s did make business sense. In 1987 Chrysler bought AMC, largely for its Jeep marque. The Jeep Grand Cherokee, which had been developed by AMC at Kenosha and which was launched by Chrysler in 1992 as America’s first midsize SUV, proved a great success with both critics and public. However, Iacocca’s interference in the sedan market was less helpful. He insisted on boxy styling for the 1987 Chrysler range, just when Ford’s Taurus had popularized a rounded, org
anic look. As a result, in 1987 as in 1947, Chrysler’s cars looked distinctly more oldfashioned than those of its rivals. Bob Lutz publicly commented that Chrysler was now offering only ‘yestertech’.
Iacocca’s reaction to the economic downturn of 1987–8 was equally maladroit. When he proposed closing the former AMC factory at Kenosha, Wisconsin, and transferring production of the new Chrysler LeBaron and its K-car platform clones from Detroit to Mexico – a flagrant betrayal of his own, much-vaunted ‘Buy American’ campaigns – the media revealed that the Chrysler president’s previous year’s pay had totalled $17.9 million. In the furore that followed, Kenosha was reprieved, for a while. But in 1989 the Jefferson Avenue plant in Detroit was demolished, and the following year Kenosha was finally axed, along with the firm’s St Louis factory. Iacocca’s shopping spree had finally caught up with him.
Faced with a corporate meltdown, Iacocca’s response was to put pressure on his senior staff – many of whom, as a result, abruptly left the company.1 In 1990 Iacocca attempted to sell a big stake in Chrysler to Fiat and, astonishingly, to Ford, but got nowhere. At the same time, and despite the firm’s mounting losses (Chrysler’s 1991 deficit was almost $800 million), Iacocca’s lifestyle became increasingly presidential. Whisked from meeting to meeting in a fleet of limousines or his personal Gulfstream (he refused to fly commercially, as the wiser chairmen of Ford and GM were now doing), his New York apartment was extensively renovated at great expense just as he was announcing a new round of cuts. He also seemed to have lost his gift for public relations. In 1986, interviewed on NBC television about the safety of Chrysler’s new minivans, he came across as rude, patronizing, complacent and sexist. In 1988, as his executives announced the closure of the Kenosha plant – and Wisconsin state officials accused him of breaking his word – Iacocca awarded himself yet another huge pay rise. By 1992 he was earning over $14 million per year in salary, bonuses and stock options.
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