Their antipathy for bureaucracy sometimes caught up with them. “Chuck or Lee Sterling would arrive in the Paris shop with a new model of watch and simply change it for the old model,” lamented Gentzbourger. “One day a customs official came into the shop in Paris to check the merchandise. None of the numbers on the watches fitted the invoices.” The shop was fined 20,000 francs. Gentzbourger, the good gérant, got it reduced to 1,000.
CHAPTER 5
Riding the Tiger
When Feeney and Miller were collecting orders onboard navy ships, they found themselves being asked if they were the guys who sold cars. They weren’t, but they soon were. They discovered that American service personnel abroad had the right to buy cars duty free and have them shipped to their home port, and some rival salesmen had already got in on the act. Miller and Feeney picked up brochures from car showrooms and brought them on board the ships. They found that selling cars was just like selling booze. They took a deposit, paid an advance to the car dealer, and ordered the car shipped to the customer’s home port.
Once they did become known as the guys who sold cars, they were overwhelmed with orders. The car-manufacturing business had picked up in Europe, and European cars were popular in America. They began hiring salesmen to tour the Mediterranean ports and military bases. They employed ex-GIs like Joe Lyons and Bob Matousek, who had served in the army in West Germany, to work the German bases, where a total of 300,000 American troops were stationed. They called this venture Cars International. The business quickly expanded. Feeney crisscrossed Western Europe to set up a network of agents selling cars, booze, and cigarettes to the U.S. military. He designed flyers and put advertisements in such military publications as the Stars and Stripes. As with the fleet, the salesmen’s success depended on getting access to the NCO and officers’ clubs and military housing at army bases. Being ex-military, they knew the ins and outs, said Matousek, a former army captain.
It was a good time to be an American on the make in Western Europe. Many older Europeans saw the Americans as liberators, and the U.S. troops as protectors against Soviet communism. American movies and consumer products were popular with the postwar generation of young Europeans. The economic miracle known as the Wirtschaftswunder had brought a new era of political stability to Western Germany, and France and Italy were entering a time of unprecedented prosperity. The American ex-GIs who signed on with Feeney were themselves newly liberated, finished with their military obligations and unfettered by the straitlaced conventions of 1950s America. They were free to spend their money as fast as they made it and have a good time. Chuck Feeney and his team were aggressive, self-confident, and borderline legal. They enjoyed a great sense of camaraderie. The new age of affluence in the United States meant that their American customers had disposable cash, and the money rolled in. They were in the right place at the right time.
Feeney and Miller established eight car-sales offices in West Germany. They took over a Volvo showroom in Frankfurt in the heart of the U.S. military zone and got demonstration cars from other dealers to show the customers. They rented space in an old munitions factory next to a bar. They printed lavish brochures that they mailed to servicemen who could not get to their showrooms. These listed every foreign make in vogue at the time: Sunbeam Tiger, Austin Healy, Porsche 911, Renault R-8 sedan, MG sports, Spit-fire, Volvo, and Volkswagen Beetle. The Volkswagen, the tough, reliable creation of the German car designer Ferdinand Porsche, was in demand in the United States as a runaround and was the most popular buy: A soldier could save $500 on a Volkswagen 113 sedan costing $1,700 in the United States. The buyer gave Cars International 10 percent of the cost, and the company booked the order for 5 percent. “The customers were funding us, and the suppliers were also giving us credit in a funny way,” said Feeney, who arranged for Geico to provide financing when the soldiers or sailors needed it.
The key to their success was, as always, that they did not have to maintain inventories. They sold liquor and cars, neither of which required a dollar of up-front money. And the business was “offshore,” which meant they did not have to pay U.S. taxes. It seemed the perfect business model. A customer could pick up his automobile in France or Germany, or wait until he was back in the United States. If he drove it around for a while in Europe, it was considered a used car and subject to less road tax back home. Matousek once sold two automobiles to a two-star general who had an aversion to paying the tax. “He just drove them around the block, and then we put them on a boat and shipped them to the U.S. as cars that he had already driven in Germany.”
Like car salesmen everywhere, the former GIs talked up the qualities of the automobiles with the best commission for themselves. Their main problem, however, was getting their orders filled by the European car manufacturers, as the supply of automobiles in France, Germany, and Italy could not keep up with burgeoning domestic demand. In France, car ownership tripled in the 1950s to 6 million. Cars International sometimes had to make it worthwhile for contacts in the automobile factories to “gray-market” cars, that is, deliver cars to them that were meant to go elsewhere. Bob Miller recruited Hans Schaefer, head of Export Department 6C at Daimler Benz in Stuttgart that handled the Korean quota, to provide him with gray-market cars. On paper they were shipped to Korea, but in reality they went to the United States. The scheme was discovered when a lieutenant commander turned up at the Daimler Benz factory to inspect a car he had ordered for delivery to Jacksonville, Florida. He was told, “Ah, yes, commander. It will be delivered to Seoul, Korea, in about eight weeks.” The game was up. Hans Schaefer was fired but instantly reemployed, along with his German secretary, Helga Flaiz, by Cars International in Frankfurt.
At its height, Cars International bought a full-page advertisement in Time magazine’s overseas military edition. It boasted that “Cars International’s unique Stateside Delivery Program enables GIs to choose from a wide variety of 492 American and European cars at low export prices.” The sales order slip printed in the advertisement carried an “exclusive guarantee from Sales Director Charles Feeney” that any customers not satisfied after forty-five days would get their money back.
Feeney also used advanced public relations gimmicks to promote sales. He donated a $2,650 MGB sports car for a charity raffle held among the crew of 5,000 on the aircraft carrier USS Forrestal, hailing it in brochures distributed to the sailors as a “woman weapon . . . if you do not have a wife, the MGB might be very useful in attracting one!” The winner of the raffle, machinist’s mate Wilson Hoy of Michigan, was quoted in the next brochure as saying, “Wife? Who needs one with a beauty like this little number.”
Feeney went looking further afield for business. Anywhere there was a military base, there were potential customers. He took off on trips around the world, looking for opportunities to set up sales offices, touching down in Saigon, where the American military presence was being built up, and flying via Havana to Guantanamo, the U.S. base in southern Cuba. Perhaps inevitably, the CIA saw Cars International as a good cover for its spy operations. Many former GIs were, like Chuck, approached to do intelligence work; one ex-Marine who worked for the company in Europe became a CIA operative in South America, according to former agent Philip Agee in his book Inside the Company: CIA Diary.
Meanwhile, another Cornellian came into the car business and would become instrumental in expanding it across the world. Jeffrey Cornish Mahlstedt, a graduate of the Cornell Hotel School from Old Greenwich, Connecticut, and a former customer of Chuck Feeney’s sandwich business, was serving in the Pacific as a lieutenant JG on the U.S. Seventh Fleet when he got a letter from Feeney saying, “You need to come to Europe after you leave the navy. It’s fun, and it is sunny, and there are pretty girls.” But Feeney wrote soon afterward with a different proposition: Mahlstedt should stay in the Pacific and try to sell automobiles there for Cars International. “I told him how we were going to get rich and how the whole Far East was open,” recalled Feeney. “I said we are going to make our first million
, so Jeffrey said, ‘I’m game!’”
Cars International and Tourists International were facing ever more stiff competition in Europe. Salesmen flogging everything from cars to perfume and alcohol were elbowing each other out of the way to get onto the U.S. ships. Feeney believed that there could be more lucrative opportunities in the less-crowded Pacific. He sent Mahlstedt some literature about the business.
When due for “separation” from the navy in January 1960, Mahlstedt persuaded the captain to discharge him in Yokosuka, the big U.S. naval base at the mouth of Tokyo Bay that served as headquarters of Commander Naval Forces Far East. U.S. ships were constantly coming and going, but in postwar Japan there wasn’t much for the sailors to spend their money on, other than the leisure activities one found at every port in the world. Mahlstedt discovered that nobody was selling them duty-free items of any kind. There was no market for liquor because the fleet’s home ports were in California, which permitted only one bottle of duty-free liquor per sailor. He set out to sell cars.
“I moved to a little Japanese inn and got a Japanese girlfriend whom I used as my interpreter,” said Mahlstedt. “Each day I would go to the navy base, using my old active duty ID. And I would go on a ship and they would ask, ‘What’s your business?’ and I would say, ‘Just visiting friends,’ and go down to the ward room and start talking to people.” Perhaps because the sailors didn’t expect salesmen, there was a lot of suspicion about Mahlstedt’s pitch, and after three weeks he had not sold a single automobile. His first sale came when he took a weekend break in Tokyo and got talking with a U.S. Army captain on the train, who said he would like to buy a car and asked Mahlstedt what he would recommend. The quick-thinking salesman glanced down at a copy of Time magazine on his lap, saw an advertisement for Peugeot, and asked his companion, “Are you aware that Peugeot is the motorcar of the year?” Before he got off the train, the captain gave him $400 as advance payment on a Peugeot. “I think he told me how much cash he had in his pocket, and I manipulated the deposit,” recalled Mahlstedt.
Mahlstedt’s persistence in Yokosuka paid off, and in the following three weeks he took deposits for twenty cars. He punched out the orders sitting cross-legged on a futon in his Japanese inn and sent them to Feeney and Miller in Villefranche. He got cards made up that said he represented “Tourist Duty Free Sales Establishment, Vaduz, Lichtenstein.” It was such a mouthful, he said, “No one had any idea what I was saying.”
Mahlstedt believed that the real action in the Far East was not in Japan but in Hong Kong, where the U.S. Navy ships berthed on the way home, and where the sailors splurged out before returning to the United States. Early in 1960, he booked a passage to Hong Kong on a Japanese freighter. He made one last sale in Japan to a chaplain on an aircraft carrier, also Hong Kong bound, who gave him a deposit of $200, telling him that if there were any problems he could be contacted c/o American Express in Hong Kong. Mahlstedt’s boat was delayed, the chaplain arrived first and couldn’t find him and reported that he had been swindled. An admiral put out an all-fleet message warning sailors, “Beware of Jeff Mahlstedt, who represents himself as being from Vaduz, Lichtenstein.” Mahlstedt was apprehended at immigration in Hong Kong but explained what had happened, and the chaplain did eventually get his car.
Mahlstedt set up an office in Room 1404 in a Chinese hotel on Nathan Road in Kowloon. He pinned automobile posters around the walls and registered the enterprise on June 23, 1960, as Tourist Duty Free Sales Company (Hong Kong) Limited, with directors Chuck Feeney, Robert Miller, and Jeffrey Mahlstedt. His “office” was so cramped that a customer could not get out past the bed until the ex-navy lieutenant opened the door.
Business picked up as U.S. sailors in the Pacific got wind of the deals on offer. Feeney suggested to Bob Miller that he should go to Hong Kong to help Mahlstedt expand operations in the Far East while Feeney continued developing Europe. “We divided the world, so to speak,” said Miller, who arrived in Hong Kong in September 1960 to start working with the former navy lieutenant.
Two months later, dressed in dark suits and ties, Miller and Mahlstedt opened a car showroom in Rediffusion House in Wanchai. Champagne bottles popped and a long string of fire crackers was set off to dispel the bad spirits. “I know the date because we had the South China Morning Post open on the coffee table and it had ‘JFK Elected President of the United States,’ November 9th, 1960,” recalled Miller. The showroom was well located. The naval launches came to a jetty in front of the building. All around were topless bars and music parlors with accommodating hostesses and just along the street was the Luk Kwok Hotel, featured in The World of Suzie Wong, that year’s hit movie. Rediffusion House was conveniently topped with a three-pointed neon star that looked just like the Mercedes emblem, to which Mahlstedt would direct the sailors going on shore leave.
“We sold everything,” said Mahlstedt. “If you wanted a Mercedes or a Sunbeam Alpine you got it. It didn’t matter if we had it or not, we had it.” They also began selling liquor to the navy in the Far East when the prohibition on bringing five-packs of duty-free liquor to California was lifted. Bob Edmonds, working on his own, had gone to Sacramento and successfully lobbied the California legislature for a change in the regulations, arguing that it discriminated against military personnel.
Miller, meanwhile, had learned about a duty-free opportunity in Hawaii. On the way to Hong Kong, he had stopped off in Hawaii and stayed with his old friend Peter Fithian, a 1951 graduate of the Cornell Hotel School. The blond Bostonian had set up a company called Greeters of Hawaii and employed girls to dress up in hula-hula skirts and greet incoming airline passengers with a lei and a kiss. He was once featured in the then-popular CBS show What’s My Line?, in which contestants were interviewed by panelists who tried to guess their unusual occupation: his was kissing girls for a living. The airport terminal in Honolulu was a Quonset hut made of corrugated iron with a plywood floor. A new terminal was under construction to cope with a surge in tourism as Pan Am and American Airlines started replacing their eighty-seat Douglas DC-8 airliners with bigger Boeing 707s. Fithian introduced Miller to several of the concessionaires at the airport. “When they asked what I was doing, I told them I was in the duty-free business,” said Miller. “They said, ‘Oh, that’s interesting, because when the new terminal is finished, there will be a tender for a duty-free concession here.’”
Over a year later, when Miller was in Japan on a business trip, he got a call from Fithian to say the deadline for bidding on the duty-free concession at Honolulu airport expired that week. If he wanted to submit a tender, he would have to get to Hawaii right away and submit financial statements and a deposit. Miller called Feeney, who was in Geneva: “Chuck, I need a balance sheet in twenty-four hours. Can you send one out please?” Feeney got the accountant in the Geneva office to work up some figures and figured out how much they should bid, then telexed them to Miller, who flew to Hawaii. The bid, in the name of Tourists International Sales Ltd., guaranteed to pay Honolulu airport $78,000 for five years, starting on May 31, 1962, for the duty-free concession. It was a huge sum for a tiny retail space in the new terminal, but Feeney and Miller were gambling on the duty-free business picking up as tourism increased. Miller hardly slept the night before the opening of the bids. There were five contenders. They assembled at a government building to witness the director of transportation write the numbers on a large blackboard. Tourists International was successful. The second-highest bidder was a company called Mercury International, which was a money changer. When they realized they had lost, their manager offered Miller $100,000 to default on the bid. “No way!” he said.
A few months later, Miller and Feeney also secured the first duty-free concession at Kai Tak International Airport in Hong Kong. A new terminal building was also being constructed there to replace the British-built Nissan huts that had served passengers since World War II, and the runways were being extended to cater to the 707s. Dick Folta, a part-time car salesman, noticed in the weekly
publication of airport tenders that the Hong Kong authorities also intended to introduce a duty-free concession for alcohol and tobacco in the new terminal, so he tipped off his bosses. Feeney and Miller bid for the concession under the name Tourists International (HK) Sales. Miller dropped off the tender in a box in the Hong Kong Civil Aviation building. To get the three-year contract, they guaranteed 28 percent of their gross sales, plus a nominal sum for the concession and all service charges. There was no public opening of bids in the British colony. Miller simply received a government letter one morning informing him that they had won.
At the time, the two airport duty-free concessions were seen by the four Cornellian entrepreneurs now running the cars and liquor sales operation—Feeney, Miller, Sterling, and Mahlstedt—as sideline businesses that might or might not make money. They stocked the duty-free shops and appointed managers, but travel in the Pacific was in its infancy and the tiny stores did little business when they opened. Selling cars to the military and liquor to American tourists was where the big money was to be made. They were, however, prepared to take their chances with whatever opportunities arose. Though operating in an opportunistic manner, without a written plan or strategy, they were getting bigger and bigger all the time. “It was like riding a tiger,” said Miller. “It took you wherever it was going.”
The Billionaire Who Wasn't Page 5