The ultimate irony of Detroit’s demise is that it has been defeated by companies that do the job that Detroit once did with unquestioned expertise: turn out vehicles that consumers want to buy and vehicles that capture their imaginations. Toyota, Honda, Mercedes and BMW have never made industrial size their ultimate priority. They made vehicles their ultimate priority. They poured all their resources—human, financial, engineering, manufacturing, marketing and sales—into achieving their goal. They have not tried to be all things to all people, as GM strived to be with “a car for every purse and purpose,” a philosophy from which it has not strayed since the phrase was crafted by Alfred P. Sloan in the 1920s. They have not focused on one category in their lineup to the detriment of all others, as Ford did during the 1990s with its slavish devotion to sport utility vehicles. With their efficient development methods, their focus on manufacturing, and most important, experienced engineers in critical management jobs, the foreign companies never forgot that they were in business to develop top-quality cars and trucks that appealed to customers, as opposed to rental-car models and government fleets.
The overriding goal of General Motors and Ford has never been to simply be good, but to be big and to grow as strategically as possible. Selling one vehicle at a time to one customer at a time, the way the best foreign companies approach growth, simply was too slow. Throughout the 1990s, GM and Ford poured billions of dollars into a variety of foreign companies, from Fiat at GM, to Jaguar and Volvo at Ford, with disappointing results. Daimler-Benz’s purchase of Chrysler was supposed to provide the German company with a cash machine and easy access to the American mass market. Instead, DaimlerChrysler wound up being bogged down in cultural clashes and product delays, suffering huge losses that set back its competitive drive for years.
Deals, not product development, have driven GM, Ford and Chrysler in the past decade—and no wonder. With only occasional exceptions, Detroit executives have traditionally been finance men who look at vehicles themselves as an end result of a great enterprise, rather than critical products to which the utmost attention should be paid. There has long been a saying in Detroit that General Motors, with its huge credit, financing and mortgage operations, is less of a car company than a bank that builds cars. Indeed, three of the last four GM chief executives, including its current CEO, G. Richard Wagoner, came up through its New York finance staff. Although William Clay Ford, Jr., is the fourth generation of his family to run the auto company that bears his name, he is yet another finance executive, schooled at Princeton and Wharton. Only Dieter Zetsche, the Turkish-born German executive in charge at Chrysler, can claim an engineering background, and it is Zetsche, in fact, who is trying hardest to shift his company away from being seen as a Detroit carmaker. He is fully aware of what imports have done to Detroit’s hold on the American industry and the unebbing erosion that lies ahead. Among all the executives in Detroit, it is Zetsche who is acting the most urgently to help Chrysler avoid that fate, at the same time fully aware that Chrysler’s legacy of substandard quality is its biggest obstacle to success.
The companies that threaten Detroit are led by men who understand vehicles inside and out, who have dedicated their careers to meeting their customers’ needs. There is Fujio Cho, the ebullient chief executive of Toyota, who spent years in charge of Toyota’s giant manufacturing complex in Georgetown, Kentucky, where he walked the long assembly lines daily and spent endless hours getting to know his employees. When other executives at the company doubted that American Toyota workers could match the quality of Toyota’s vehicles in Japan, Cho insisted that they could, and oversaw an expansion of the plant that brought workers the chance to build large sedans and minivans. A modest man—a rarity among CEOs—Cho is taking that same determination now to Toyota on a global scale. By the year 2010, he wants Toyota to sell 15 percent of automobiles worldwide, which would make it the world’s biggest player, exceeding General Motors, which has been the world’s leading car manufacturer since the 1920s.
Helmut Panke, the chief executive at BMW, is another such determined executive. He has made sure that his company has the clearest brand image among the world’s automakers. Tall, lanky, with silver hair and bright eyes, Panke was trained as a nuclear engineer and began as a corporate consultant with McKinsey & Company. He was hired by BMW as it was looking to shift its image from specialty carmaker, with a narrow appeal, to a company all kinds of people could admire. Panke is holding a delicate balance between preserving the German company’s tradition for performance automobiles and seizing upon ideas to enhance BMW’s position. While running BMW’s American operations during the 1990s, Panke heeded his dealers’ cry to develop a luxury sport utility vehicle that would be among the fastest on the road. Panke also saw the promise that the Mini Cooper offered in attracting younger buyers, and he turned the 1960s icon into a smash hit for the new millennium. That open-mindedness helped BMW spar with Lexus in 2002 as the best-selling luxury brand in the United States, and Panke is now aiming to increase sales in the years ahead as he broadens BMW’s lineup. Even as he does so, he is pledging that a BMW will always be a BMW.
Carlos Ghosn, the charismatic chief executive at Nissan, is perhaps the most instantly recognizable automotive figure, aside from GM’s Robert Lutz, in the industry today. With his hawklike face and quick, clipped speech, the Brazilian-born executive of Lebanese descent has become so popular since arriving in Japan in 1999 that he has starred in a series of comic books. Under Ghosn’s leadership, Nissan has undergone a transformation. When he joined Nissan upon its alliance with the French automaker Renault, the Japanese company was saddled with more than $20 billion in automotive debt. Its product lineup was dotted with also-ran vehicles that required thousands of dollars of incentives to sell. And Nissan was bogged down by a corporate culture rooted in the past, with too many interlocking ties to suppliers. Today, Nissan has eliminated its debt. It has become one of the leanest, fastest-moving companies in the world, mirroring Ghosn’s own impatience to push Nissan forward. In 2003, Nissan opened a new factory in Canton, Mississippi, where it has begun building a crucial new series of vehicles, including the Quest minivan, the Titan pickup truck and two big SUVs. In addition, Nissan has even more vehicles coming, all developed swiftly and sharing components with Renault. By the middle of the decade, Ghosn is expected to take control at both Renault and Nissan, coordinating the attack of what he hopes will become one of the world’s leading automotive giants.
Whether based in Tokyo or Munich or California, executives of these foreign companies share the same enthusiasm and drive and belief that their companies, though not the world’s largest (at least not yet, in Toyota’s case), can have a tremendous influence in individual markets such as the United States. In doing so, they shield themselves from the economic forces that have been Detroit’s own undoing. With its emphasis on size and economies of scale, Detroit has always been vulnerable to the boom-and-bust cycles that have been a part of the car industry since its inception. As long as Detroit could rake in enough profits during good times to make up for the losses it encountered during lean years, that never mattered. Before imports’ push began, Detroit’s solution to any softening of sales was simply to shut down its plants to keep its vehicle inventories in line with sales, laying off for months on end. No more: Current United Auto Workers labor contracts at GM, Ford and Chrysler require the companies to pay their workers nearly all of their income, whether they are on the job or not. Moreover, the companies are limited from permanently closing factories without the union’s agreement, and must finalize any such moves during contract negotiations, a process that ensures generous benefits for workers who are losing their jobs.
These contracts, as well as the pensions and health care that GM, Ford and Chrysler provide for their workers, active and retired, have led to a penalty of $1,200 per vehicle that must be overcome before they can book the first penny of profit. That is not the case at Toyota and Honda and the other foreign firms, whose non-union em
ployees are for the most part at least a decade younger than their counterparts in Detroit, and whose health care and retirement costs are structured in a far different way.
Detroit has spent countless hours and millions of dollars trying to figure out the imports’ secrets, studying their marketing methods, dissecting the way their vehicles are assembled, replicating the way they are manufactured, all without being able to truly understand their approach. Each Detroit company has entered into joint ventures with Japanese companies—GM with Toyota, Ford with Mazda and Chrysler with Mitsubishi—in a fruitless effort to find a silver bullet. Unable to find answers, Detroit has come up with countless excuses to explain the foreign companies’ success. It has hurled unfair-competition accusations at its rivals, insinuating that they are dumping vehicles on the market at low prices, maintaining that foreign governments are propping up the companies by keeping currency rates abnormally weak. Detroit has even criticized buyers of foreign companies’ cars for having bad taste, as Bob Lutz, GM’s vice chairman, asserted in 2002. Deconstructing the success of the Toyota Camry, Lutz called it one of the ugliest cars ever to travel the nation’s roadways, thereby slamming the choice of nearly 6 million consumers who might be potential customers for GM. (Even Lutz, however, had to concede the Camry’s sterling quality.)
To understand why Detroit is faltering, however, you need to get out of Detroit and visit places like California, where legions of young “tuners” have transformed their vanilla-flavored Honda Civic compacts into automotive dream machines. Or New England, where more than half of all vehicles sold are now imports, a distinction that once only California could claim. Or visit the headquarters of the imports, in Japan and Korea, where the desks of some of the young engineers are situated right in the lobby of the development centers, where they work oblivious to the flocks of curious visitors who arrive for appointments each day. In these places, Detroit’s illustrious past is merely a memory, and for some of the youngest buyers and employees, not even that.
However, if you attend the annual Dream Cruise, held one week each August on Woodward Avenue in Detroit’s northern suburbs, it would be easy to assume that Detroit’s glory days have continued. Throughout the week, travel slows to a crawl as classic cars from the twentieth century such as Cadillacs, Studebakers and Corvettes trundle up and down the boulevard in a rolling museum, gleaming in the summer sunshine. Here, on the long summer nights, women stroll in poodle skirts and men preen in Hawaiian finery, reliving Detroit’s dominance and wallowing in the nostalgia that American companies still manipulate when they feel the need. A visit to the Dream Cruise would make any onlooker think that since 1965 time has stood still.
But the fact is that there is no longer a single segment of the car market where Detroit is clearly the leading player, either in profits, quality or buzz. Detroit lost its grip on the small-car market first, seeing Japanese companies take command in the 1970s and 1980s. Later, in the 1990s, the Korean manufacturers assumed the dominant position among the industry’s entry-level vehicles. Mid-sized sedans, traditionally a Detroit strength, and still the heart of the automobile market, were ceded to Toyota in the late 1980s and early 1990s with Toyota’s bulletproof Camry and Accord models. More recently, they’ve been joined by Volkswagen, with the sturdy Passat, and Hyundai and its inexpensive Sonata. The highly profitable American luxury vehicle market, the source of numerous fantasy cars like the Lincoln Continentals of the 1930s and the Cadillacs of the 1950s, hasn’t been led by those two brands since 1986. During the past 15 years, the leadership among the most expensive cars has been snared by Lexus, BMW and Mercedes-Benz, and trailed by such challengers as Audi, Acura and Infiniti, despite numerous attempts by the Detroit auto companies to revive their most heralded brands.
In the early 1990s, Detroit found itself on the verge of another near-collapse, beset by a weak economy and the impact of the Gulf War. It sought an answer that would convince customers to buy its vehicles in volume again. It found one in a category called sport utility vehicles. Single-handledly, the SUV became Detroit’s ticket back to prosperity, with profits soaring as high as $15,000 a vehicle on luxury models like the Cadillac Escalade and Lincoln Navigator. Waits for the Jeep Grand Cherokee and Ford’s Explorer stretched for months. By mid-decade, it seemed that Detroit had found one place where it was immune to a charge from the foreign companies. GM, Ford and Chrysler dominated the market, holding more than 90 percent of SUV sales. But imports recognized the new opportunity for sales growth and quickly jumped in.
By 2003, Toyota and Lexus together sold eight different SUVs, from the entry-level RAV-4 to Lexus’s hulking LX 470. Honda, though late to this market, brought out the well-regarded Acura MDX and the Pilot sport utility. Mercedes and BMW entered the luxury SUV market with the M-Class and the X5, respectively. Even Porsche got into the fray with its controversial but breathtakingly fast Cayenne. And the Korean companies began to gobble sales, thanks to vehicles like the Hyundai Santa Fe.
Meanwhile, that most essential family market, minivans, which Chrysler virtually owned throughout the 1990s, was completely turned upside down by a new version of the Honda Odyssey minivan in 1998. With its three rows of seats and its solid handling, the Odyssey destroyed Chrysler’s lock on a market to which it devoted the production of three of its factories. The downfall of its minivans triggered a financial crisis that sent the company into a tailspin and cost Chrysler’s chief executive his job. As other foreign companies came forward with their minivans, such as the Toyota Sienna and the Nissan Quest, Detroit companies’ share of the minivan market fell from 94 percent in 1992 to 70 percent in 2003.
With the intense loyalty that pickup owners feel for their trucks, the truck market was Detroit’s last bastion. Detroit had a long history in the category, stretching back to the industry’s earliest days. (One of the first variations that Henry Ford made on the Model A was a pickup truck.) Together, GM, Ford and Chrysler sell 2 million pickups each year, and the Ford F-series has been the best-selling vehicle in the United States since 1978. But in 1998, when Toyota, which had failed on its initial attempt at a full-sized pickup, created the Tundra, it instantly swept honors from Consumer Reports magazine as the nation’s leading-quality truck, instantly making Toyota a force with which to be reckoned in a market that Detroit thought it would always own. More competition is on its way from the imports, with the Nissan Titan; a new, bigger version of Toyota Tundra; and a sporty pickup that Honda plans to build later this decade.
If the minivans, sedans and luxury cars that the foreign companies have introduced are any indication, those pickups will have customers waiting for them when they arrive at showrooms. Unfortunately for American automobile companies, in many cases the most desirable consumers, with high incomes, good educations and comfortable homes, have switched allegiances and have defected to imports. That has left Detroit to compete for increasingly older, less-educated, lower-income buyers whose sole priority is a good deal. Many of the vehicles that the foreign companies sell are now built in the United States, at plants that American car manufacturers insisted foreign companies build in order to compete on a level playing field. In the past 20 years, foreign companies have built 17 new factories in the United States, many of the newest in the South, and also in states like Ohio, Indiana and Kentucky, where Detroit companies have had plants for years.
Even as Ford, struggling to regain its former glory, proceeds to close factories as part of its bid to restructure and get its manufacturing capability in line with its dwindling sales, imports have continued to open new ones. Together, they now employ 85,000 factory workers, more than Chrysler and almost as many as Ford, and their factories produce nearly 5 million vehicles a year. Not a single one of these new factories has been organized by the UAW, whose only presence among these “transplants” is where the plants began in joint ventures with Detroit carmakers.
This is not the way things were supposed to turn out. Indeed, to many Americans, it is a big surprise that Detroi
t is in such dire straits. As recently as the middle of the 1990s, it looked as if GM, Ford and Chrysler had vanquished or at least outdistanced the foreign invaders. Customers waited months to buy the sexy Dodge Viper, the elegant Cadillac Seville STS sedan and Ford’s seemingly endless variety of SUVs, each bigger and more luxurious than the one that had come before it. Profits were enormous, topping a collective $16 billion for the automakers in 1998. The companies were venturing into all sorts of new businesses, including Internet companies, junkyards and electric vehicle companies, flush with cash that they used to fund their acquisitions. It was fun, again, to be in the automobile business in Detroit. The industry abounded with celebrity CEOs, such as Robert Eaton at Chrysler and Jacques Nasser at Ford, gazing upon their kingdoms with confident smiles. A Time magazine cover portrayed the chief executives of all three companies in profile, aligned to mimic Mount Rushmore.
But the American companies declared victory over the imports long before the game was won. As has happened so frequently throughout the industry’s history, the “good enough” mentality that has plagued the American automobile makers took hold once more by the year 2000. Sadly, the ground that Detroit conquered in the early 1990s had been lost again by the end of the decade, and the loss kept accelerating into the new millennium. In the wake of the 2001 recession and the terrorism that followed, the Big Three relentlessly enveloped consumers in a wave of incentives such as zero percent financing, no money down and no payments for months, and continued the offers for months afterward. Yet GM barely registered an increase in market share, while both Ford and Chrysler lost ground. The most desirable buyers simply shrugged and bought the higher-quality imports, even though the deals were not as widespread.
The End of Detroit Page 2
