CONTENTS
TITLE PAGE
DEDICATION
INTRODUCTION
CHAPTER ONE: HOW DETROIT LOST ITS GRIP
CHAPTER TWO: A FALLEN COMRADE
CHAPTER THREE: TWO PATHS TO THE SAME CONCLUSION
CHAPTER FOUR: JOURNEY FROM THE INSIDE OUT
CHAPTER FIVE: HOT DOGS, APPLE PIE AND CAMRY
CHAPTER SIX: THE CHALLENGER
CHAPTER SEVEN: NIBBLING FROM THE BOTTOM AND THE TOP
CHAPTER EIGHT: DETROIT SOUTH
CHAPTER NINE: THE END OF DETROIT
CHAPTER TEN: WHAT DO CUSTOMERS REALLY WANT?
EPILOGUE: THE WORLD IN 2010
NOTES
SELECTED BIBLIOGRAPHY
ACKNOWLEDGMENTS
INDEX
THE CURRENCY CONNECTION
COPYRIGHT PAGE
For Benjamin Maynard and Parker Maynard
Go confidently in the direction of your dreams.
Live the life you’ve imagined.
—HENRY DAVID THOREAU
INTRODUCTION
AS ANNIVERSARY CELEBRATIONS GO, Honda’s ceremony in November 2002, marking the twentieth anniversary of its first American car plant in Marysville, Ohio, was decidedly low key. There were no marching bands and no balloons, and not even sunny skies to brighten the day, just the cold, gray dreary weather that blankets the Midwest pretty much continuously after the autumn leaves fall. Only about a hundred or so local dignitaries, a few state representatives and some county officials showed up for the reception, chatting jovially around round tables, kicking the tires of Honda’s newest cars, sipping coffee (no champagne was in sight) and munching on sugar cookies in the shape of the state with the number 20 written in pink icing on top. The event’s only headliner, lanky Governor Robert Taft, thoughtful scion of the longtime Ohio political family, arrived in his typically quiet fashion, trailed by a small knot of television cameras and reporters from the state capitol in Columbus, 30 miles away.
The journalists and some Honda officials dodged raindrops in front of the factory, watching as Taft climbed inside a Honda Element, a boxy, unconventional SUV that Honda itself referred to as a “dorm room on wheels.” The Element had just gone into production at Honda’s East Liberty plant, a mile away, marking the first time a sport utility had been built at Honda’s Ohio manufacturing complex. The Element was targeted at a far younger and hipper buyer than the middle-aged governor, who had a politely bemused look on his face as he sat inside and examined the vehicle’s vast cargo space. The governor then obligingly met the owner of a Honda Accord with more than a million miles on its odometer, which had been built at the Marysville plant eight years earlier. With the grip-and-grin complete, Taft and his entourage ducked inside out of the cold.
A few minutes later, standing at a podium in the plant’s small auditorium, the governor launched into remarks that illustrated just how important the plant had become to his state, and indeed, the critical role that Honda had come to play in the American automobile industry. In the 20 years that Honda had been building cars in Marysville, the Japanese auto company had become the single biggest manufacturer of cars in Ohio, producing more than 700,000 Accords, small Civics, luxury Acura sedans, and now the quirky Element, every year. Honda’s production was significantly above the number of vehicles built in the state by either General Motors, Ford Motor Co. or Chrysler Corp., despite the fact that those American companies had been building cars in Ohio for decades, at factories in towns like Youngstown, Dayton and Toledo. Moreover, Honda had progressed from a modest start to become the state’s biggest manufacturer in terms of employees.
When it had struck the $5 million deal that clinched the Marysville factory nearly a quarter-century before, Honda had promised the state that it would eventually hire 1,000 people. By 2002, counting all of its operations in the state, including the Marysville plant and the one nearby in East Liberty, an engine plant 60 miles away in Anna, and its gleaming research and development center in Marysville, Honda had 14,000 employees on its Ohio payroll, far greater than the population of many of the small towns in the surrounding farmland near the plant. Turning to Honda’s North American manufacturing director, a cordial executive named Koki Hirashima, the governor bowed his head in thanks, saying, “Arigato, Koki. Arigato.” Though he slightly mangled the Japanese, the governor’s gratitude for everything Honda had brought to his state was clear.
Koki Hirashima had come to this manufacturing complex 10 years earlier, when Honda’s lineup was only cars—no minivans or SUVs or pickups. Although the Accords and Civics that were built here sold well and their owners seemed very satisfied with them, many experts doubted that Honda would ever become a major player in the industry without a full lineup of vehicles. But Hirashima had learned not to doubt Honda’s capabilities. In the mid-1980s, Hirashima was a young engineer in Japan assigned to develop the Acura Integra hatchback, one of the original cars in the luxury Acura lineup that was introduced in the United States in 1986. One day, unexpectedly, Soichiro Honda, the founder of the company, showed up at the plant in Suzuka, Japan, where the Integra’s development was taking place, and asked to drive a prototype. Hirashima accompanied the company’s founder to the plant’s short test track, where Honda jumped behind the wheel of the Integra, gunned the engine and went barreling down the straightaway. Suddenly, he slammed on the brakes.
Hirashima instinctively closed his eyes and gripped the armrest, bracing himself in case the test model didn’t stop. It did, however, and Hirashima opened his eyes to find Honda glaring at him. “What’s the matter with you?” the company founder thundered. “Don’t you believe in your own brakes?” Recalling the episode later, Hirashima said he had never again doubted what Honda could accomplish.
Like the ceremony, like the company’s entire approach to the car market, Honda’s philosophy was simple. Unlike its American competition, which made sweeping declarations every year about the vast numbers of vehicles they expected to sell, Honda approached the American market one customer at a time. Its vehicles might have originally been bought by young, ecology-minded buyers eager to find an alternative to gas guzzlers from Detroit, but by the time it celebrated its twentieth anniversary as an American manufacturer, Honda’s appeal cut across all strata of backgrounds and income levels, reaching beyond the import-focused West Coast to every corner of the United States. Honda’s name had become synonymous with quality and durability, and its customers’ loyalty was second to none.
Whenever it decided to introduce a new vehicle, whether the Odyssey minivan, the Pilot sport utility or the boxy, unusual Element, Honda already had thousands of customers on waiting lists at dealerships across the country willing to purchase one based solely on their confidence in Honda’s past performance. Honda saw no need to continuously offer rebates or low-interest financing plans to convince buyers to take a chance on something new. Honda had proved, time and again, that it would not let its buyers down. By 2002, Honda’s annual American sales, including its Acura luxury division, had climbed well above 1 million vehicles; the company earned more money in 2002 than General Motors, Ford and Chrysler combined.
At the beginning of that year, only 200 miles to the north in Dearborn, Michigan, the home of Ford Motor Company, journalists and Ford Motor officials had gathered to hear news of a very different sort. Amid the whir of motor drives and the flash of camera bulbs, William Clay Ford, Jr., sat at a conference table to somberly announce that, after posting its first annual loss in nine years for 2001, his family’s auto company would cut 23,000 jobs, close five factories and eliminate five vehicles from its lineup. It had been a terrible few months for the 44-year-old Ford, a member of the fourth generation of the Ford family, and the strain show
ed on his still-boyish face. Clad in a dark gray suit and white shirt, his sandy hair closely cropped, at one point during the two-hour presentation, and a lunch that followed, he folded his fingertips in an unconscious prayer, leaning his forehead against his hands as the magnitude of his task bore down on him.
The auto company was mired in a crisis that had begun about a year and a half earlier, in the summer of 2000, when the world discovered that the Ford Explorer SUV, the industry’s most popular SUV, was plagued by defective Firestone tires that could explode, sending the vehicles hurtling into rollover accidents; already the problem had resulted in dozens of deaths. Ford, then the company’s chairman, had dispatched his handpicked chief executive, a feisty, ambitious Australian named Jacques Nasser, to deal with the situation. Nasser and Ford had joined forces only a year before in a plan that ultimately would elevate Ford, then only 41 years old, to the chairman’s job, and Nasser, not yet 50, to the job of chief executive. At the time that they took control, Ford’s annual profits topped $7.2 billion. The pair seemed to be a golden duo, hailed in newspaper articles and on magazine covers as the perfect combination of family dominance and management expertise.
As Chrysler foundered in the early days of the DaimlerChrysler merger and General Motors struggled to stop its market share plunge, Ford seemed to have a master touch. It gobbled up luxury nameplates, paid $6.45 billion to buy Volvo Cars and added Land Rover to a stable that included Aston Martin and Jaguar. Sales of its popular sport utilities continued to grow, fueling speculation that Ford was on its way to passing GM as the world’s largest auto company. Nasser, known for his boundless energy and his ceaseless store of new ideas, spent millions of dollars on e-commerce ventures and bought a collection of junkyards, an electric car company and an auto-repair business in Europe; he vowed to build Ford into a consumer company as beloved by its customers as Disney or Nordstrom.
But when the Firestone tires began to disintegrate, so, too, did Nasser’s dreams for Ford. Making a critical mistake at a high point in the crisis, he refused to testify before a congressional inquiry into the Explorer rollovers. He quickly reversed himself, but he was forced to spend an entire day sitting silently in a hearing room, visible to anyone who tuned in on C-SPAN, forced to wait until early evening for his chance to speak. While Ford’s sales of the Explorer held firm throughout the crisis, the relationship between Ford and Firestone, forged by heritage and family connection—Ford’s own mother was a Firestone, and Firestone had been supplying Ford with tires for 94 years—soured. By the fall of 2001, Ford was drowning in red ink (it would lose $2 billion that year), its auto sales had stumbled in the strongest market that the industry had ever known and Ford’s reputation for quality, so carefully honed throughout the 1980s and 1990s, when it insisted “Quality Is Job One,” was in shambles.
So, Nasser had to go. Ford himself would have to take Nasser’s place as chief executive. He now needed to come up with a plan to save the company his great-grandfather had founded 98 years before. At the January 2002 news conference, Ford explained how the auto company had failed. “Our success may have caused us to underestimate our competition,” he said. “We strayed from what got us to the top of the mountain. We perceived some strategies that were poorly conceived and poorly timed.” His words, though reflective that morning merely of Ford’s position, echoed what auto industry analysts said of America’s two other major car companies. For in 2002 the mistakes Detroit’s auto companies had made with their customers were clear. Once among the biggest, most profitable and most glamorous of industries, the American automobile companies were no longer the industry’s leaders and its guiding light. Foreign competitors, like Honda, Toyota, BMW and Volkswagen, had emerged, and had finally pulled ahead of Detroit in the eyes of their customers and the minds of the public, if not formally in industry statistics. They did so by simply selling one vehicle at a time. And Detroit’s 100-year grip on the American industry had ended.
CHAPTER ONE
HOW DETROIT
LOST ITS GRIP
DETROIT’S LONG REIGN as the dominant force in the American car industry is over.
Exactly 100 years after Henry Ford sold his first automobile in 1903, imports have taken an unshakable hold on the American consumer and are leading to the demise of inarguably the most important industrial force that America has ever produced. Like the steel industry before it, like the airline industry to an increasing extent, as with retailers, the balance of power in the car industry has shifted away from Detroit’s giant companies—General Motors, Ford Motor Co. and Chrysler Corp.—toward smaller, more nimble players that can react faster to the competitive landscape.
It’s an unthinkable but undeniable reality, one with tremendous ramifications for American life and the business world in general. During the twentieth century, the automobile changed everything in the United States, from the way people commuted to work, to where they lived, to the way they conducted romance. The automobile triggered the development of the interstate highway system, allowing Americans to see every corner of their country at ease. It created suburbs and exurbs, beginning with bedroom communities within a few minutes’ drive of downtown areas, to sprawling developments that extend for 50 miles or more outside major cities. At their peak a scant 40 years ago, Detroit-built vehicles accounted for more than 9 of 10 automobile sales in the United States. Nearly a million people worked in automobile plants, and every manufacturing job created by Detroit generated five more, at auto parts suppliers scattered across the country, at steel mills in Pittsburgh, Cleveland, Detroit and Chicago, and at coal mines in West Virginia and in the Deep South. The neon lights of car dealerships from Maine to California lit the night sky, and the arrival of the year’s new vehicles every autumn generated long lines of automobile enthusiasts eager to see the latest models.
But Detroit’s single-handed control of the American automobile industry has been lost forever. From small cars to luxury cars, from family sedans to minivans, vehicles made by foreign-based companies are escalating in popularity, attracting an unending stream of converts every year from among owners of vehicles built by Detroit’s Big Three. Four of every 10 vehicles sold in the United States in 2003 will be built by companies with foreign nameplates. That is a vivid contrast to 1960, when General Motors alone controlled 60 percent of the automobile market and the U.S. government constantly threatened to use the Sherman Anti-Trust Act break up its operations. Few could have imagined imports’ popularity in 1964, when the Ford Mustang and its creator, Lee Iacocca, accomplished the almost-impossible feat of landing simultaneously on the covers of both Time and Newsweek. At the time, the only imported car that most people knew about was the Volkswagen Beetle. Toyota was selling only a few thousand cars a year in the United States, and Honda had yet to produce its first car in Japan.
Yet today, GM, Ford and Chrysler together control barely the market share that GM itself held four decades ago. Buyers of all ages, incomes, ethnic backgrounds and social strata are choosing foreign companies’ cars and trucks over those produced by Detroit. Consumers may sigh nostalgically over the cars their parents drove, and they still crowd curiously around the vehicles that Detroit puts on display at auto shows and in shopping malls. But when it comes to spending their hard-earned dollars, their decisions tell a much different story.
Thanks to their record of quality and reliability, Toyotas and Hondas have become today’s Chevrolets and Fords. In the luxury market, Lexus and BMW cars have supplanted Cadillacs and Lincolns. Where once foreign cars were considered to be the domain of the wealthy, the eccentric or the unpatriotic, now everybody knows somebody who drives a foreign car—in part because foreign cars aren’t really foreign anymore. Millions of them are built in the United States every year, to an enthusiastic reception from their owners: grandmothers in Michigan, computer programmers in Texas and high school students in Nevada. If the current sales trends continue, cars and trucks from foreign-based companies could easily, some say inevitably, account
for 50 percent of all American sales by the year 2010.
How could this have happened? The automobile industry, after all, has been the biggest economic engine this country has ever known, save for the war effort during World War II (as plenty of people will remind you, this was led by Detroit, which transformed itself overnight into the Arsenal of Democracy). Thanks in part to Henry Ford’s philosophy that factories should be built near where consumers bought products, automobile plants were established in all corners of the country, from Framingham, outside Boston, to Los Angeles, from Minneapolis to Atlanta. The center of production, and of the automotive universe, of course, was Detroit, where afternoon skies were clouded by a gray haze from the automobile, steel, glass and parts plants that churned out a seemingly endless supply. Well into the 1990s, GM produced 70 percent of all the parts that it used on its cars. In 1979, when Chrysler teetered perilously close to bankruptcy, the nation gasped at the idea that one of America’s industrial giants might shut its doors. While there were cynics who argued that Chrysler should be allowed to go out of business, the victim of its own mismanagement, its supporters rallied to convince Congress to pass $1.5 billion in loan guarantees, giving the company time to find its way back.
Today, thanks to the failures of firms such as Enron, WorldCom and United Airlines, a call for help from the automobile industry might well go unheeded or, at the very least, face a much more difficult time being addressed. Indeed, there is a strong chance that by the end of this decade, at least one of Detroit’s Big Three will not continue in the same form that it is in now. Already a German company owns Chrysler, and the difficult economy that has come about in the aftermath of the 1990s bubble is making it all the harder for Detroit to cling to market share. The dissolution of a Detroit automaker would be a tragedy for its employees and vendors. But, given the vast array of vehicles that they can choose from now, consumers might not even miss one of the Big Three companies should it disappear. The shift did not happen overnight. It has taken place slowly but steadily over the past 20 years. Either Detroit wasn’t paying attention, or if it did notice, the center of the automotive universe plodded on blindly in a state of denial.
The End of Detroit Page 1
