Life of Automobile, The

by Parissien, Steven

  William Clay Ford junior, the great-grandson of the firm’s founder, had always wanted to run what he still saw as the family business. He had worked for Ford since 1979 and felt that, in contrast to the cosmopolitan arriviste Nasser, his interests were the company’s interests. A keen ice-hockey player, enthusiastic folk singer, and vice chairman of Ford-sponsored American football team the Detroit Lions, he seemed to embody the same timeless American virtues as the firm’s products. He also encouraged new sustainability projects, steering Ford towards a greener vehicle development programme and speeding up the introduction of flexible-fuel hybrids. In April 2006, feeling that things were finally going his way, he added the roles of president and CEO to his tally of company posts. But his triumph did not last long. Hampered by the appalling relationship between his two British vice presidents, Sir Nick Scheele and David Thursfield, who could not bear to talk to each other, Bill Ford’s senior management team became seriously dysfunctional. Five months later, Bill Ford himself was kicked upstairs to a non-executive chairmanship, and his place at the helm of the company was taken by a complete outsider, Alan Mulally, who had no connection whatsoever with the Ford family but had been headhunted from aircraft colossus Boeing.

  The outspoken Mulally was a controversial choice as president of Ford. Leading figures in the motor industry had already turned down the job, regarding it as a poisoned chalice. And Mulally, who knew little about the industry (his original degree had been in aeronautical engineering), almost torpedoed his appointment before he had officially started by publicly praising his Lexus LS430 as ‘the finest car in the world’. He was certainly not sentimental about automotive history, as his rapid disposal of the premium British marques showed.1 Declaring that he ‘had no regrets’ about selling Jaguar and Land Rover to Tata, in 2008 he also sold Aston Martin to a private Anglo-Kuwaiti consortium (though the famous marque kept its German CEO, the former Porsche, BMW and Daewoo executive Ulrich Bez). Three months after selling Jaguar, Ford also finally completed the sale of Volvo to Zhejiang Geely Automobile of China.

  Sweden’s famed manufacturer of reliable and safe cars could seemingly do no wrong until, at the height of the merger mania of the 1990s, it was forced into a shotgun marriage by Pehr Gyllenhammar. Although he had no background in the car industry,1 Gyllenhammar had effortlessly risen to become CEO of Volvo by virtue of being the son-in-law of the previous chairman. In 1993 the Francophile Gyllenhammar had announced a merger with the French state-owned car maker, Renault. But on closer inspection, this was not a merger but a takeover by the French. The French government now held 46 per cent of Volvo’s shares; Renault controlled 65 per cent of the company; and it was formally announced that the new combine’s headquarters would be based in Paris. Even the French industry minister acknowledged that Renault would be the ‘driving force’ in the partnership, with Volvo the ‘minority partner’. Furious at being duped, Volvo’s board demanded, and received, the resignation of Gyllenhammar and his allies. Proud Swedes, for whom Volvo had always been a key ingredient in defining their national identity, now regarded Gyllenhammar as an unprincipled pariah. Renault turned instead to a partnership with Mercedes, and the subsequent merger with Nissan. But Gyllenhammar’s policy had fatally weakened the previously rock-solid Swedish auto maker, which was now globally perceived as being vulnerable to takeover. In 1999 Ford helped itself to Volvo’s car operation, leaving the rump of the company to concentrate on trucks.2

  Whilst Volvo Group, as the trucking business was known, went from strength to strength, Ford seemed to have no forward strategy for the car division after Nasser’s departure in 2001 – much as GM had seemed to have little idea what to do with its new Swedish subsidiary, Saab. However, following its sale by Ford, Volvo fortunately avoided Saab’s fate. Having passed into Chinese ownership – with a Chinese chairman, Li Shufu, and a former VW executive, Stefan Jacoby, installed as new its president and CEO,1 respectively – Volvo survived the recession in good shape and by 2010 possessed an impressive model range spanning almost all major market sectors.

  Ford’s rapid disposal of Volvo demonstrated how serious Mulally was about ensuring that the company concentrate on its traditional core business. But his strategy was not just about disposals. At the same time as selling most of Nasser’s acquisitions, Mulally resurrected the Taunus brand in Germany, believing that it still had some life in it. He also instilled a sense of commercial reality into the corporation, repeatedly telling groups of Ford workers that ‘we have been going out of business for forty years’, while making 47 per cent of the workforce redundant between 2006 and 2010. Robots, Ford had discovered, could now do the job of thousands of human workers.

  Mulally also learned from his mistakes. Widely criticized, along with other motor industry leaders, for flying to bail-out talks with the US government in 2008 in an expensive corporate jet, Mulally, despite his aircraft industry background, subsequently sold all but one of Ford’s aircraft fleet and travelled to his next meeting in Washington in a hybrid Ford Fusion. Clearly, Alan Mulally was no Lee Iacocca. And in the years that followed, Ford’s impressive performance seemed to justify his appointment. During the recession of 2008–10, Ford was the only one of America’s former Big Three that did not have to rely on federal loans to survive. Indeed, when the federal government demanded the dramatic downsizing of both GM and Chrysler as the price of its subsidies, Ford emerged briefly as the nation’s biggest car maker – a claim it had not been able to make since the early 1920s.2 As William Clay Ford candidly admitted in 2009: ‘Alan was the right choice, and it gets more right every day.’

  …

  While Detroit’s Big Three may have stumbled in the years following the demolition of the Iron Curtain in 1989–91, their counterparts in former Soviet Russia, now exposed to foreign competition for the first time, completely collapsed. By the end of the century, indeed, the communist era’s major car makers were virtually unrecognizable. Many of them had been rescued by Western rivals; others had simply disappeared.

  The most celebrated Russian victim was Lada. After the worthy VAZ-2101 ceased production in 1984, Lada failed to follow up its success with anything similar. The much-heralded (and surprisingly large) VAZ-2110 of 1996, for example, was a mechanical disaster which had to be repeatedly recalled. The following year Lada threw in the towel and withdrew from Western Europe, though it continued to sell cars to Eastern Europe and South America. The buoyancy of these latter markets helped Lada to survive near-bankruptcy and to subsist long enough to make common cause (in 2001) with General Motors – an organization that had, before 1990, been reviled in Soviet Russia as an incarnation of Western capitalism at its worst. In 2008, with GM facing its own domestic difficulties, Renault stepped in and bought a 25 per cent stake in AvtoVAZ. In the economic crisis that then engulfed the globe, and which once more brought the maker of Lada cars to its knees, Russian prime minister Vladimir Putin made a televised public statement expressing his personal determination to save the firm. His public declaration saw the value of AvtoVAZ’s shares leap by 30 per cent and saved the company from insolvency.

  Other venerable Russian marques were not so fortunate. Moskvitch of Moscow went bankrupt in 2002 and was formally dissolved in 2006, while in 2007 GAZ ceased production of Volga cars, using the brand thereafter merely to rebadge mid-range Chryslers. Global economics had arrived in Russia with a vengeance.

  Further east, even the biggest Japanese manufacturers were turning to global alliances to offset the economic and ecological demands of the new century. Nissan had performed so well in the 1980s that in 1991 the company dared to open its new technical centre in the suburbs of Detroit, right under the noses of the Big Three. But by 1999 Nissan’s stake in the export and international markets was eroding under pressure from Toyota and Honda, and the firm was $20 million in debt. Its models looked uninspiring when compared with Honda’s and Toyota’s new products, while its new luxury marque, Infiniti, was wallowing in Lexus’s wake.

 
It was Carlos Ghosn who came to Nissan’s rescue. Renault bought a 43.4 per cent stake in Nissan, and Ghosn, having installed himself as boss, turned the company round, investing abroad (in 2003, for example, a new Nissan factory opened in Canton, Mississippi) and completely rethinking the company’s ageing model range. In 2002 Ghosn launched a new version of Nissan’s legendary Z series sports cars, the 350Z – styled not in the retrospective idiom that his designers favoured but devised as a forward-looking, clean-limbed car with distinctly American lines. In 2004 Ghosn also launched the company’s first light pickup truck aimed specifically at the American market (and made in Mississippi), the Titan. More controversially, Ghosn also cut thousands of jobs, shut outmoded car plants and sold off underperforming parts of the Nissan empire, such as Nissan Aerospace. In 2006 he even contemplated acquiring a 20 per cent Renault-Nissan stake in General Motors. His success earned him celebrity status in Japan, where the comic book series The True Story of Carlos Ghosn was first serialized in 2002. By 2010 Nissan announced it could do without Toyota’s technological know-how in developing hybrid cars and launched its own all-electric, lithium-powered Nissan Leaf to international acclaim.

  In 1989 Toyota felt strong enough to enter the lucrative but perilous luxury car market, then dominated by BMW, Mercedes, Volkswagen’s Audi and Jaguar (which was shortly to be bought by Ford). Once again, though, Toyota had not been the pioneer. Honda had, predictably, led the way with its upmarket export brand, Acura, in 1986 – an initiative it supported with the creation of sixty new American dealerships. However, Acura’s marketing strategy closely tied the new marque to the established Honda brand, then closely identified with small family cars. The result was that the Acura marque failed to seize consumers’ imagination, and sales of the first model, the Legend, were disappointing. Nissan’s launch of its upmarket Infiniti brand in North America in 1989 was similarly cautious, and that marque, too, stalled. Toyota, learning from its rivals’ mistakes, ensured that its new premium range, Lexus, was properly distanced from the existing Toyota brand, then popularly associated in America with small pickups and small cars like the Camry.1

  Toyota never pretended to be innovative in the fields of styling or engineering. Critics pointed out that the first Lexus, the LS 400, bore a marked resemblance to its European rivals and railed at its ‘derivative styling’. Its profile did indeed resemble that of the Mercedes 300E, while its rear end recalled that of the BMW 735. Toyota did not bother to deny the comparisons; the firm was merely keen to avoid undue risk, given the vast investment it had made in developing this new brand over the last six years. After a predictably shaky start (in December 1989 Toyota had to recall eight thousand LS 400s due to a wiring problem), Lexus sales in the US soared – largely because they were so much cheaper than their German rivals from Mercedes and BMW. To Detroit’s horror, over a third of new Lexus buyers were found to be part-exchanging Lincolns or Cadillacs, while Lexus’s highly competitive pricing even prompted the German manufacturers to accuse Toyota of dumping Lexuses in America as loss-leaders. Realizing that Lexus was here to stay, the Germans launched their counter-attack: Mercedes slashed the prices of their E-and S-Class models, while BMW unveiled revamped 3 and 5 Series saloons (the hugely successful E36 and E39, respectively). But it was too late: Lexus had already won a firm toehold in the American luxury market. By 1998 Lexus had introduced a sports saloon, the ES; a midsize sports sedan, the GS; an SUV, the LX; and a crossover SUV, the RX. In 1999 the millionth Lexus was sold in America, and in 2001 the firm introduced a luxury compact, the IS. In 2004 Lexus launched the world’s first luxury hybrid SUV, the RX 400h; and in 2006 the firm launched its F series as a reply to new high-performance models from Mercedes’ AMF marque and BMW’s M division.

  By 2008 Toyota was the world’s biggest car maker. It had achieved a 17 per cent share of the US market and had overtaken all of Detroit’s Big Three in terms of both size and global sales. Toyota had also carved out a dominant market share in Japan, accounting for 44.3 per cent of Japanese car production in 2010. It had built a new plant at Valenciennes in France, doubled the size of its British plant in Derby, and opened new American factories at Princeton in Indiana (in 1991), Huntsville in Alabama (in 2001) and San Antonio in Texas (in 2006). Toyota also opened a technical centre in Ann Arbor, Michigan, helpfully adjacent to the academic expertise of the University of Michigan and squarely in the back yard of America’s Big Three. J. D. Power named Lexus as the most reliable brand in the US fourteen times between 1995 and 2009, while Interbrand ranked Lexus as Japan’s seventh-largest worldwide brand by sales, just below Panasonic but ahead of Nissan. Significantly, the Lexus marque was contributing a large proportion – perhaps as much as half – of the Toyota group’s profits.

  Yet cracks had started to appear in the edifice. In November 2008, Toyota reported its first operating loss in decades. Analysts attributed this downturn to the fact that management was focusing too much on the US market, where Lexus seemed to be doing so well, at the expense of the rest of the world, where innovative car makers such as VW and Hyundai were making big inroads. Then two big shocks hit the company: the aftereffects of the recession of 2008, which caused luxury car sales to slump; and the disastrous recalls of 2009–10, from which both the Lexus and Toyota brands suffered badly.

  In September 2009, recently made Lexus ES, Lexus IS and Toyota Camry models were recalled, ostensibly because the driver’s floor mat could conceivably jam the accelerator pedal open. Toyota insisted it could rectify the fault easily and that there was no structural fault in the cars. But this obstinate denial merely gave rise to intense speculation in the US media. The New York Times castigated Toyota for failing to provide proper answers to the growing number of complaints about out-of-control cars, and soon declared that it had found more federal reports of unrestrained acceleration. Things then went from bad to worse. On 22 January 2010, eight Toyota and Lexus models, totalling 2.3 million cars, were recalled – supposedly because their accelerator pedals were now sticking when ‘warmed by the car’s heater’. On 27 January, another 1.1 million vehicles were recalled, again because of ‘jamming floor mats’. Toyota still insisted that nothing was intrinsically wrong with their vehicles’ pedals or brakes. On 13 April, the influential US magazine Consumer Reports issued a rare ‘Don’t Buy’ bulletin for the new Lexus GS 460 SUV, claiming that the slow response of the vehicle’s electronic stability control system meant there was a possible rollover risk if the car was turning at high speed. Lexus sales plummeted and the marque’s reputation for reliability nosedived.

  Toyota’s nightmare did not end there. On 25 June, the firm was forced to recall its seventeen thousand Lexus HS 250h luxury hybrids because of a risk of fuel spilling following a crash – an oddly oldfashioned fault for such a supposedly sophisticated car. And on 2 July 2010, around 270,000 Lexus vehicles worldwide were recalled for faulty valve springs – a problem that shamefaced Toyota executives admitted they had been alerted to as early as March 2007. Lexus and Toyota tumbled down J. D. Power’s initial quality study and sales plunged still further.

  American car bosses, caught in the depths of the recession and fighting for their corporate lives, could not believe their luck. GM’s vice chairman Bob Lutz, never a shrinking violet, crowed to the press: ‘Toyota’s god-like status will never be reclaimed … I don’t think they’ll ever reach the exalted status of the world’s best auto company.’ Toyota was subsequently forced to pay a humiliating $16.4 million fine to the US government for hiding car defects, while the company’s president, Akio Toyoda, was summoned before Congress and forced to make a public apology, during which he declared repeatedly that he was ‘deeply sorry’. The end of Toyota’s reign as the world’s largest car maker seemed nigh, and its rivals indulged in an orgy of Schadenfreude.

  Toyota’s board had been dominated by Toyoda family members since 1937. Kiichrio’s son, Shoichiro, was president between 1982 and 1992, and when the next president, Katsuaki Watanabe, retired in 2009, it w
as Shoichiro’s son, Akio, who took his place. The American-educated Akio was a jovial, candid entrepreneur, with a passion for racing cars, who had made his name as an international banker-playboy in the early 1980s after earning his MBA from Boston’s prestigious Babson College. He took the reins at Toyota just in time to face the biggest challenge to the company’s reputation since the Second World War.

  Akio Toyoda’s strategy for coping with seeming disaster was to fall back on the corporate ethos of ‘continuous improvement’, which had long been enshrined in the fabled Toyota production system. While many now believed this philosophy to have been terminally undermined, Toyoda saw it as a way of reminding customers of the car maker’s former reputation for reliability. More pragmatically, and far less subtly, Akio also resorted to an age-old sales technique: a determined campaign of price-cutting. As a result of these initiatives, Toyota swiftly bounced back. In March 2010 sales were reported to be 7.7 per cent down; but twelve months later Toyota announced that profits for 2010–11 were up by 40 per cent on the previous financial year, with Lexus sales up 31 per cent. And this had been achieved while the US market was actually shrinking; American auto sales had fallen by nearly 40 per cent in 2009, to their lowest level since 1970. Toyota had survived the storm.

  Toyota was not the only Asian manufacturer to falter in the modern era. Notwithstanding its astonishing success during the 1980s, by the mid-1990s the poor quality of many of Hyundai’s exports had made the brand a joke in the US, where they were derided on national TV in the same breath as Lada and Yugo cars. It took a corporate lawyer, Finbarr O’Neill, Hyundai’s general counsel since the company’s American launch in 1985, to turn the Korean car maker around in America. In 1998 O’Neill, who had no background at all in the car industry, was appointed the head of Hyundai’s US operation at a time when the firm was desperate for someone to improve its tarnished image.1 O’Neill’s solution to Hyundai’s woes was a traditional one: an eye-catching offer which he called ‘America’s best warranty’, which offered ten years’ coverage on every engine and transmission, the areas that had been the most prone to failure. At the same time, O’Neill cut forecourt prices, ensuring that his cars were priced below their Japanese counterparts and well below their US rivals. These oldfashioned ploys worked: sales soared, and the reputation of Hyundai cars leapt. Though Hyundai cars were still cheap, they were no longer publicly perceived as shoddily built.