Reckoning

by David Halberstam

  General Motors, of course, was the worst. There were no high-level meetings scheduled. In fact, there were no meetings scheduled at all. Someone very junior asked Maxwell if he would like to drive out to the testing grounds and meet with some GM people there. He did, encountering no one in any position of responsibility, though for his troubles he was able to see some of GM’s new models. They looked rather large to him, cars that would surely use a great deal of gas.

  Such was Charley Maxwell’s trip to Detroit. He had not even gotten across the moat. Detroit was Detroit, and more than most business centers it was a city that listened only to its own voice. But he left town worried about what he was sure was going to happen to a vital American industry. Maxwell did not think that the coming change in price would necessarily be so great that even a Detroit that was prepared for change would be severely damaged. Rather, he was worried because Detroit was unprepared—because no one in America seemed willing to practice even the most nominal kind of conservation, which suggested that the country was psychically unready for major increases. A big jump in price might trigger a panic, which would compound the difficulty of entering a new economic order. Those who were set up for change could deal with it, he suspected; those who were not were likely to come apart. Detroit, he feared, was going to have to learn its new truths the hard way.

  A few months later, on October 6, 1973, on the eve of Yom Kippur, the holiest of Jewish holy days, Egypt tried a military strike on Israel. Eventually Israel struck back and once again, for the third time since World War II, defeated the Egyptians. To the Arab world this humiliation was one more demonstration of its powerlessness. The Arabs blamed Israel’s existence on its American sponsorship. Thwarted both militarily and politically, the Arabs now turned at last to their real strength, their economic leverage. They began an oil embargo on the West. Before it was over, the price of oil had rocketed from $3 a barrel to $12 a barrel. The United States, long accustomed to cheap energy, was completely unprepared to respond to the Arab move. Unwilling to increase the taxes on gasoline and oil and thus at least partially stabilize the price of energy, it had in effect permitted the Arabs to place a tax not just on the American oil consumer but on the entire country. The effects on the American economy at every level were dramatic. The era of the cheap energy upon which so much of America’s dynamism and its broad middle-class prosperity was premised was beginning to end. A new era with profound implications for the industrial core of America, the great Middle Atlantic and Midwestern foundry of the nation, had arrived. Occasionally in later years Charley Maxwell would run into Tom Killefer, who by then had left Chrysler to become the chairman of the United States Trust Company, and when he did, Killefer would shake his head and say, “You—you’re the one man I hate to see. God, I still remember that warning.”

  At almost the same time that Charley Maxwell went to Detroit, a man named David E. Davis, Jr., was also given a special mission. Davis—David E., as he was more commonly known in Detroit—was a prominent and ubiquitous figure in the city. He was a certified car nut, and far more than most senior auto executives, who lived for their careers, he lived for cars. He loved them, he was always to be found tinkering with them, or racing them, or hanging around the men who designed them. In a previous Detroit incarnation he had been the editor of Car and Driver, a magazine by and for car nuts.

  Davis was a close friend of Tom Adams, a major Detroit shaker who headed the local office of Campbell-Ewald, a New York advertising agency that handled the GM account. Campbell-Ewald had hired Davis not so much because it needed his advertising expertise but, it was widely believed, because it was doing a subtle favor for GM, finding a place for a talented car man whose instincts were clearly first-rate but whose style was too outrageous for that most conservative of American business institutions, General Motors. Thus though his salary was laundered through Campbell-Ewald, Davis in effect worked for GM. At the agency, his manner, his clothes, his beard, his passion for the truth would not offend his superiors, and their manners and dress would not offend him. For as far as Davis was concerned, the GM executives all wore the same suit, spoke the same language, lived in the same Detroit suburb, even, he believed, drank the same wine, which, he was convinced, was Blue Nun. (Davis claimed that GM tours of Europe—rewards for executives who had surpassed their quotas—were carefully arranged so that all the inns along the way would be sure to serve thick steaks and Blue Nun.)

  Tom Adams of Campbell-Ewald was glad to take Davis in. Adams knew that if his agency was to serve its huge client well, it would not only have to show GM’s products to the world, through advertising, but keep the cloistered executives of the gigantic corporation in some kind of touch with that world. Between GM and the world a man like Davis was a good bridge.

  Adams himself had played the role of bridge before, not always with complete success. During the late sixties, when John DeLorean was the enfant terrible of GM—at once a very able car man and a violator of all unwritten codes for GM executives, in dress, length of hair, and youthfulness of female companions—Adams had found himself constantly mediating between DeLorean and his older, more traditional superiors. Once in those years, in the middle of a high-level Campbell-Ewald meeting, Adams had been obliged to take an urgent phone call. A few minutes later he returned to the meeting.

  “I will never,” he said, shaking his head, “be able to explain to my grandchildren the business I have been in all my life.”

  “What happened, Tom?” one of his colleagues asked.

  “Well,” he replied, “that was Roger Kyes, the head of General Motors, the largest corporation in the world, and he asked me if I was a good friend of John DeLorean’s. I said yes, I was. Then he asked me if I had any influence with John. I said that was a completely different matter, but what could I do for them? Roger said that he and the top executives of GM were all concerned about the way John dressed. Very concerned.

  “I told Roger I thought John dressed very nicely. ‘No,’ he said, ‘we’re all very upset with the boots he’s wearing—you know, John has started wearing very high, very fancy boots.’ They wondered if I might talk him back into wearing regular shoes of a normal height and style.”

  Thus it was not surprising to Tom Adams that Pete Estes, one of the top executives of General Motors, wanting to keep David E. Davis around but not in his hair, had placed him under Adams’s wing at Campbell-Ewald.

  In the spring of 1973, Estes, who was soon to become GM’s president, had called Davis in and asked him to undertake an important assignment for General Motors. Davis’s mission was to go to Europe and take a look at the new front-wheel-drive cars that were just coming out there and to check on their suitability for the American market, a market, which because it was composed of larger sized cars, had always favored rear-wheel drive. Volkswagen had just brought out the Rabbit, and the Rabbit and comparable European front-wheel-drive cars were generating excitement as no small cars had done in years. The excitement was not just among customers but among auto professionals, who saw in these cars a significant break from the past. They not only used less fuel but, because they had front-wheel drive, which saved weight, they achieved it without sacrificing performance. By contrast, when Detroit had brought out small cars in the past, they had been merely sawed-off versions of the industry’s larger cars. What they gained in economy they always lost in performance.

  Estes told Davis he wanted him to see how good these cars really were, and above all to find out whether front-wheel drive was the kind of product innovation that GM might be able to charge extra for as an option. “Our people are telling us that it’s going to be very expensive—a whole new engine, a whole new power train,” Estes said. “They think it will cost us about eighty-five or ninety dollars a car. So if we put it on our small cars, will we be able to charge extra and make it work?” The question struck Davis as precisely the wrong one, but at the same time typical of what he had come to expect in the new Detroit, where car people and their standards
no longer dominated the industry. The proper question, Davis believed, was not whether this could be a new option for which a little extra could be charged. On an innovation of this magnitude, the right questions were whether it worked, whether it was as good as everyone said, and, if so, how quickly it could be introduced. Davis believed that in the old Detroit, the Detroit of car men, no one would have asked what it might cost as an option but simply whether it made the car better. If the answer was yes, the manufacturers would have gone ahead and done it.

  To Davis the old auto executives were men who had little financial sophistication but trusted their almost primal instincts. The new Detroit, he thought, was more cautious, a place of people who had made their way up by taking as few risks as possible and never letting their eyes waver from the bottom line. Innovation cost money and entailed risk, and they had little stomach for it. The three main Detroit companies believed that they were fiercely competitive with each other, and in a sense, he thought, they were, though mostly on trivial matters. The more important the issue, the less they competed and the longer they waited for someone else to take the first step, lest it be a mistake. It was, in the words of another Detroit journalist, Pat Wright, “a shared monopoly.” Davis agreed; he did not see them as they saw themselves, three intense rivals flying the banner of free enterprise and fighting against one another at every level of operation. He saw them as one big company with three divisions, in which everyone played it safe and no division tried something new unless it was reasonably sure that the other two were going to try it as well. In the new Detroit, it was mainly the engineers who still cared about innovation and whose principal pleasure came from changing and improving and probing into the future; and the engineers, he had seen, were almost completely stymied by the power of the financial people, and were frustrated and angry. The auto industry was static. Its member corporations changed hemlines every year to give the illusion of change, but in truth they were more concerned with preserving their positions than with improving their products.

  Davis undertook the assignment from Pete Estes with a certain ambivalence. He liked the idea of scouting the new European models, but he doubted that Detroit would commit itself to genuinely new small cars. Its heart had always belonged to big cars. The cars he found in Europe were an auto enthusiast’s dream. By having the engine drive the front wheels instead of the back, the designers had eliminated the drive shaft that had always run through the rest of the car, creating weight and a hump in the floor. Without the drive shaft the car, though smaller, could be roomier. It was also lighter. Because it was smaller and lighter, the engine could be smaller, and the cars demanded less gas. They cost less and demanded less fuel than anything comparable which Detroit had yet produced. Davis was immediately converted, not just because the cars were more fuel-efficient, though that was important, but also because they responded better to the driver’s touch. Driving them provided something that had long been missing in the small-car range in America—fun.

  A few weeks later. Davis was back in Detroit reporting to Estes, telling him everything he had learned. They were better cars, he said, better engineered and better built than those Detroit was making. Front-wheel drive, he declared, was a breakthrough of immense significance. It was not a question that could be debated anymore, because it had already happened. It was the state of the art. It was the way all cars would be built in the future, not just small ones. There was, he emphasized, no turning back. The European market was extremely competitive, and thus the cars were likely to get better and better. Eventually Detroit would have to respond.

  Davis tried to be dispassionate in his report, but it was difficult, because he felt such enthusiasm for what he had just seen. Pete Estes listened to him patiently, but when Davis was finished, he shook his head. “When I was at Oldsmobile,” he said, “there was something I learned that I’ve never forgotten. There was an old guy there who was an engineer, and he had been at GM a long time, and he gave me some advice. He told me, whatever you do, don’t let GM do it first.”

  That was it, Davis thought later—the Detroit line, the symbol of the protected industry. Don’t let GM do it first, let the other guy make the early, expensive mistakes. Right then, he was sure, at Ford and Chrysler there were people who were also deciding not to do it first because somehow someone else should do it first. It was, he thought, management by default. He knew there were businesses in America, typically smaller ones in various fields of technology and medical science, that were authentically competitive. There, companies lived on the edge, their survival depending on innovation and technological advantage. But in the auto industry, as in most big industries, it was not like that. It was a protected world, the shares of the market already apportioned, GM big, Ford moderate, Chrysler small, with the government watching to see that GM did not put either of the others out of business. It was not a vibrant industry anymore, he thought, because the top people were no longer doing things simply because they were the right thing. Those who had the most power had the least passion.

  He told Pete Estes that he believed he was making a major mistake, and that eventually the customers would let him know. Privately he felt even more strongly about it. Someday, and probably soon, Detroit was going to pay for this attitude. As it turned out, David E. Davis was right. The American auto industry was completely unready when the oil embargo hit, its products suddenly very wrong for the marketplace. The manufacturers had squandered a decade in which they could have created cars suited to the new nature of the industrialized world.

  That was the first oil shock. Some six years later, in 1979, just as the American auto industry was beginning to recover from the trauma of the first one and its customers were becoming accustomed to the higher gas prices and beginning to return to big cars, there was a second shock. This one resulted from the disintegration of the government of the Shah of Iran.

  If there had been a keystone of American economic policy in the Middle East, it had been support of the Shah. The Shah, in fact, had been installed by the Americans, after a CIA coup in 1953 had overthrown the leftist prime minister, Mohammed Mossadegh. “I owe my throne,” the Shah later told Kermit Roosevelt of the CIA, who organized the coup, “to God, my people, my army—and to you!” For almost twenty years a series of American administrations had kept the Shah on a relatively short leash, but in 1972 Richard Nixon and Henry Kissinger had changed the policy and given the Shah a virtual carte blanche to the American armory. This was done not so much because anyone in the national security complex believed that Iran needed advanced weapons, but more as a means of flattering and appeasing a leader whose ambition for world position manifested itself, among other ways, in a voracious appetite for the newest of the Pentagon’s toys. In the four years after Nixon and Kissinger had visited him, the Shah had ordered $9 billion worth of America’s most sophisticated military equipment. To some high Washington officials that leap in Iran’s military capacity signaled mounting problems for both Iran and the United States.

  The relationship between the Shah and his principal allies, the Americans, had never been an easy one. Because the Americans had helped create him, the Shah had to go to lengths to prove that he was not a puppet; that particular challenge, to show he was his own man, seemed to fire his megalomania. The Americans had constantly pressured him to modernize and liberalize his regime, but he always seemed to disappoint them, as they disappointed him by finding too many flaws in his rule. The modernization of any Islamic country was a difficult task under the best of circumstances, but for someone who owed his original legitimacy to Westerners, it was an almost impossible one. To many Islamic fundamentalists, the Shah’s ties with America, his relentless buying of arms, his modernization of many traditional aspects of Iranian life meant too much and too rapid change. “Westoxification,” the Ayatollah Khomeini called it—intoxication with all things Western. On the other hand, some middle-class, educated Iranians who had found their way into the Tudeh, the Iranian Communist party, fel
t the Shah was changing too little too slowly. Increasingly it seemed as if he could please fewer and fewer of his subjects.

  When protest began against the Shah in 1978, he seemed likely to ride it out as he had ridden out earlier periods of unrest. But it soon became clear that this time it was more serious. The true base of the protest was Islamic religious leaders, rather than radical leftists, and therefore it was harder to crush. For it was one thing to send the security police or the army against Communists; it was quite another to challenge the power of the mullahs, or holy men. That was a popularity contest of a different sort, one the Shah might well not win, for in a conflict like that there were no guarantees of the loyalty of his troops. If he moved against the mullahs, he might momentarily slow them down but create powerful martyrs. “To step on a Persian carpet or a mullah,” went an old Iranian proverb, “increases its value.” The Shah had plainly underestimated the strength of the resistance to his reforms among his own people; there had been little protest against him earlier in the seventies simply because the country, bulging with oil revenues, had been distracted by its immense new prosperity.

  Week after week as the protests grew, the Shah seemed immobilized, unable to act, wary, he said, of constantly shedding the blood of his own people in order to hold power. The weeks turned into months. In the end what was negotiated was the terms of his departure. He had spent billions in buying America’s most modern weapons, and in the end they had done him no good; not a bullet had been fired on his behalf, and his administration had collapsed of its own weight and grandiosity. On January 16, 1979, the Shah left Teheran.

  2. AMAYA SURVEYS THE OIL AGE

  ONE JAPANESE CIVIL SERVANT watched the fall of the Shah of Iran with considerable misgivings. Naohiro Amaya, slim, graying, scholarly, a senior bureaucrat in a nation in which bureaucrats wield exceptional power and influence, had to a large degree foreseen the events now unfolding, and he thought that their consequences were likely to be profound for the United States, and thus for Japan as well. Thinking about the future was Amaya’s particular responsibility. His job was to make sure that Japan, a most vulnerable nation, was not surprised by catastrophic events outside its control. This duty had made him an expert on world energy, and as such he had realized by the late sixties that his country was becoming far too dependent upon oil. The Japanese economy was like a miniaturized version of the United States economy. Like the Americans, the Japanese had shifted from coal to oil as their prime source of energy, leaving Japan exceedingly exposed, since it produced no oil of its own. Japan was highly industrialized, and at the core of its postwar economy were the traditional smokestack industries, steel and shipbuilding, auto and petrochemicals. All of them were heavily dependent upon oil, every drop of which had to be imported.