Reckoning

by David Halberstam

  But Ford was not alone in this. The average gas mileage for the American motor industry on the eve of the Yom Kippur War was a dreadful thirteen miles a gallon. Nor was the government being very much help. It had finally pressured Detroit into trying to reduce fuel emissions, and Detroit’s engineers were working on it, attempting to figure out how to cut down the pollution that their cars were pumping into America’s air and lungs. It was something the industry should have done voluntarily twenty years earlier; now it was doing it under threat of regulation. It meant that much of the technological resource and talent of the city was being poured into meeting emissions tests rather than making the cars more economical. Then the government decided that it wanted fuel efficiency too, and set high standards for the auto makers to meet. But what the government had done was to provide the industry only half a policy; it demanded fuel efficiency but, despite the volatility of the oil-producing world, it never moved to stabilize the price of gas at the pump. A quick, firm decision to tax gas seriously at the pump might have signaled to Americans that the wasteful old era was over and that America would now have to be economical with fuel, like Europe. It would have instructed American consumers on what the future price of energy would be, and it would have shown them that what they preferred in a new car was not as important as what they could afford. It might also have provided a warning to the Arab nations, denying them the ability to raise the price of oil at will. But that tax was never forthcoming. America at that critical moment was immobilized. Its political mechanism was unwilling to pass on basic truths to its constituents. So instead of the U.S. government taxing the consumer, and stabilizing both the auto industry and the dollar, America in effect allowed the Arab nations to tax it.

  Soon the nation was hit by a powerful inflation, and the cost of all the most basic items—housing, food, transportation, health—shot up. At the same time the government finally came up with specifications for long-term future conservation measures. In December 1975, some two years after the Yom Kippur oil shock, Washington announced its standards: It mandated an eighteen-mile-a-gallon fleet average—that is, the average for all the cars a company manufactured—for 1978 (the 1978 cars were being designed in 1975) and a twenty-mile-a-gallon average for 1980. It was a far-reaching decision: It committed the companies without necessarily convincing the customers. It meant that the companies would have to redesign their cars under terrible deadline pressure and suffer greatly inflated new costs. One think tank in Cambridge, Massachusetts, estimated that to meet the new standards the companies would have to spend some $60 to $80 billion—virtually all their capital assets. This placed an ominous burden on the industry, and, even more ominous, the burden fell on the companies in inverse proportion to their strength. Because of it, said Maryann Keller, one of the smartest of the auto analysts, “The rich will be richer, and the poor will be poorer.” Indeed, that was what happened: American Motors simply opted for engines made by other companies; Chrysler, already in serious financial condition after years of being mismanaged by financial experts, edged toward bankruptcy; and even mighty Ford underwent trauma so severe that by the end of the decade there was a question of whether it would survive or not, at least as it had been constituted in the past.

  It was all too apparent that Ford, like the others, would have to reduce the size of most of its cars and make its entire line more fuel-efficient. The question of how it would downsize dominated the company for two years, starting in 1974. It was a time of total confusion. The price of gas, after the early panic, had seemed to stabilize, and no one knew what effect that would have on the consumer’s desire for smaller cars. Detroit seemed to have no idea of what the consumer wanted. Indeed, did the consumer know what he wanted? But Ford had to make a decision, and it was likely to be the most expensive decision in the company’s history. The cost of downsizing, particularly if Ford went to a brand-new line—that is, a new body, new engine, and new transaxle—might be as much as $3 billion. It was in effect the biggest bet on the roll of the market that anyone in the company had ever had to make. It was a figure so large that, as one executive said, either way it was like betting the company.

  In the past, the men in the auto business had guessed wrong from time to time, and the consequences had not been that serious. The numbers had always been so much smaller. Even in 1957, when Ford, in its most famous attempt to imitate General Motors, had brought out the ill-fated Edsel, the loss had been more one of pride than of resource. The Edsel had lost some $250 million, but, far worse, it had embarrassed the company enormously. Indeed the word “Edsel”—and that was most painful for the young Henry Ford, for it was his father’s name—had become a synonym for clinker. Ernie Breech, who was then the head of the company, had privately blamed his old friend Lewis Crusoe for the Edsel decision, and their friendship had never been the same afterward. Others thought Breech was being unfair. “We all slept with the stenographer,” Del Harder said later. But the Edsel fiasco had taken place in another time, when it was much easier to do business. Now a wrong decision had far graver implications. Retooling an entire line was far more expensive, borrowing money was harder, and the competition was more severe.

  The debate took place when the Ford-Iacocca factionalism was at its height. Pushing for a small, completely new car, an American version of the Fiesta, were Iacocca and Sperlich. Sperlich was absolutely obsessed with the idea of doing a small, state-of-the-art car just as he had done in Europe. It would have all the benefits of the Fiesta, but to accommodate larger American bodies it would have a little more leg room inside. “A blown Fiesta,” Iacocca called it. Sperlich was convinced that if Ford did not make a state-of-the-art small car, someone else would. He had easily persuaded Iacocca. However, whatever his skills as a car man, Sperlich was almost uniquely ill prepared for the immensely complicated bureaucratic game that was about to be played. He was an endangered species who was too innocent to know he was an endangered species.

  Iacocca’s motives were somewhat different, those close to him believed. Sperlich was his product man, and there was the instinct to go with his best man. He knew that you had to listen to your talent, not perhaps on every issue but certainly on something that mattered as much as this. To do otherwise would be to say that he had made a mistake and chosen the wrong people in the first place. Of Sperlich’s talent he was sure; he felt he knew the market better than Sperlich, but he had no doubts about Sperlich’s ability first to see and then to create a car. But in his heart, pressure from the government or no, Iacocca was still a big-car man. He liked his cars large, with lots of options. He had just learned how to make Lincoln more competitive with Cadillac. Now here was Sperlich, demanding a car that would be exceptionally expensive to tool up and that, worst of all, was small.

  He knew the financial people would tear Sperlich’s car apart. But he also felt he could justify the car on two grounds: first, that Ford at this critical moment simply had to bring out the best small cars possible; and second, and perhaps more important, the government was mandating a fleet average. That meant that Detroit could no longer simply sell what it wanted to sell but had to sell a mix. If Ford produced a very good small car with good gas mileage, that would bring up the average mileage for the company and permit the company to sell that many more bigger, heavier, more profitable cars. Each Fiesta might allow them to sell one more Lincoln. Lee Iacocca liked the Fiesta, one of his closest aides quipped, because he was a big-car man.

  Allied against them in this struggle were Henry Ford and Ed Lundy and his finance people. Henry Ford opposed the new front-wheel drive for a variety of reasons. He was a product of his age. He did not like small cars himself and thought Americans did not like them. Worse, this was an unexplored future. It might cost a great deal of money, and even if the cars succeeded, even if they were good and they sold, they might not really make the company very much money.

  He was also an increasingly conservative man. He had been at the company thirty years now, he was tired, and his
health was bad. In 1976 he started suffering chest pains that were the first sign of a serious heart condition, angina pectoris. He saw several doctors and they all seemed to recommend bypass operations. But although bypass operations were relatively commonplace, Henry Ford wanted nothing to do with one. One of his friends said that it was a very simple operation these days. “Yeah, but every once in a while they lose one,” Ford answered, “and I don’t want it to be me.” Because of his health he was extremely worried about the future of the company and about keeping it in family hands. That made him more cautious about spending and more contentious when asked to. It was an odd transformation, John Bugas, his longtime friend and ally, thought: When Henry first came to the company, it was teetering on the edge of collapse. What there was of it was virtually beyond preserving; in a sense it had had to be completely re-created. In those days Henry Ford had been filled with hope and ambition and enthusiasm. Everything was possible. Nothing daunted him. Now he was older and weary, feeling more mortal and vulnerable, and plagued by doubt and pessimism. For the first time in Bugas’s memory Henry Ford was making references to the fact that it was his money they were spending, coming right out of the family’s pocket. Optimism had been replaced by extreme wariness. All of this worked against a car that if successful might not make very much money.

  The other thing that worked against it was Iacocca’s sponsorship. The animosity was now so intense that if Iacocca had been for bigger cars, some Ford executives thought, then Henry might have come out for small and front-wheel drive. It made him more susceptible than ever to the arguments of the finance people. They were extremely negative about so expensive a venture. Nowhere in their calculations was there ever any provision for the profound change that was taking place in the price of energy and what that change might do to the market. They simply refused to project. Faced with crisis, they became more conservative than ever, less willing to take a risk. Years later some of their opponents on the product side took a certain modest pleasure in gloating over finance’s failure to predict that the market might change and that the sources of Arab oil were unstable. To many of them it was proof that the finance people were, as these opponents had always claimed, small-bore bureaucrats without vision, who had poured all their skill into controlling the company by the most trivial numbers. The smaller the issue, the more skillful they were. Now, the critics claimed, the oil shock showed that the larger the issue, the more immobilized they were. The comparison with bureaucratic army officers who are brilliant in the gamesmanship of the peacetime army was now especially apt, for Ford was now at war and they were no help. “The vaunted Ford finance department,” said Don Lennox, “completely blew the most important call of the modern era.”

  33. BIG CARS AGAIN

  IN THE TWO-YEAR STRUGGLE over downsizing, Sperlich started as a proponent and became an angry, impassioned prophet. He was so convinced of the lightness of his arguments and so contemptuous of his opponents that month by month his tolerance diminished and his disdain became more visible. He was surrounded by men whom he had crossed in Europe, when his protector, Iacocca, had been more powerful. His own power was on the wane because Iacocca’s power was on the wane. That did not matter to Sperlich. What did matter was that Iacocca had told him to make it happen. “I was,” he recalled, “a good German son of good German parents, and I had been brought up to obey and never disagree with my superior, and Lee was my superior.” That in itself was an important insight: Iacocca, not Ford, was his boss.

  The car under debate, beginning in late 1974, would come out in 1978 or 1979. Sperlich was certain that by then the American market would change and that people were going to want small cars. In this belief he stood against a sizable portion of Ford’s inner executive corps. Henry Ford himself made it clear from the outset that he did not want a small new front-wheel-drive car; he did not think the market would change that much. What he wanted to do was take an existing middle-level Ford car, strip it down, and make it lighter. That car was known in the debate as the Panther, and it was Henry’s favorite. Sperlich thought it a bastardized car, and he felt both anger and sadness as he dealt with Ford and his forces. In Sperlich’s view, Ford was an almost paralyzed man, a man who had lost all sense of what was right or wrong for his own business. To Sperlich the Panther was simply more of the same, a very expensive lightening of the same old vehicle. It was a half-assed car, he thought, one more belated shot at a market that was dying. It would be costly, and it would not be a very good car. It was the kind of downsizing that had traditionally been done in Detroit when there was a need for a smaller car, and it had invariably produced mediocrities.

  Those months for him were a nightmare—of hearing objections to his proposals, of going back to the drawing board and working the problems out, and then of finding that it made no difference, that the reason stated was not the one cited but another one, never before mentioned. Getting rid of the first obstacle, he would simply uncover a new and more complicated one. If he heard the phrase “small cars mean small profits” once during that struggle, he heard it, he was sure, one hundred times. If he heard talk once about what the Street would think, and about the triple-A rating, he heard it two hundred times. Often he thought he was in the wrong place: He was there talking about cars, and they were there talking about some other activity, perhaps banking. They kept telling him about the lack of profitability per car, and he kept saying that profitability on a car was not the only thing, that Packard had had the highest margin of profit per car in automotive history the year it went out of business. There was a time, he would tell them, when you just had to follow the market whether it was going where you wanted or not. Sperlich used charts that showed Ford’s world share declining in recent years because Ford had not done particularly well in the compact market. What had happened in the world, he now argued, was going to happen in America, because America, like it or not, was becoming like the world.

  He was aware, as the battle progressed, that Iacocca did not have much leverage anymore. He also noticed that for the first time Henry Ford was turning down the recommendations of his line people. By then, totally engaged in the struggle, he had come to see Henry Ford as the personification of everything he hated about the business. At night Sperlich and Iacocca would talk over what had happened during the day. “What the hell can you do?” Iacocca would say. “You can’t fight the man. It’s his company.” They both were convinced that Henry’s Panther was going to be an expensive car—it was not new, but it involved enough changes to burn up perhaps $1 billion—and that, as Ford himself pointed out, would use up all the available money and preclude doing a new car like the Fiesta. What Iacocca and Sperlich wanted was to do the small Fiesta and then, to satisfy Ford, a downsizing of a medium-sized car. It would be a relatively simple downsizing, one that would leave most of the money for the small car. That modestly downsized ear was known during the debate as the Tiger.

  In late 1975, tired of hearing the arguments about how costly a new small line would be, Iacocca had an inspiration. He had been impressed with Honda’s engineering, and Honda was far ahead of Ford in front-wheel-drive technology. Quietly, without tipping off what he wanted to do, he flew to Japan to see Soichiro Honda. His agenda was secret. He had a marvelous time with the old man, the true maverick of the Japanese auto world, a man who despised the Japanese business establishment. For a high-level Japanese-American meeting, theirs was unusually warm. Honda had gotten permission for a great fireworks show, and the entire neighborhood gathered around his house. He presented Iacocca with a handsome vase, and then, as dramatically as he could, Iacocca rolled a brand-new white Mustang down from a van and presented it to Honda. Then Iacocca made his pitch: He wanted Ford to build the Fiesta, but with a Honda engine and transmission in it. Honda was delighted: He would like nothing better than this joint production with an American company, whose very name he revered. The price of the Japanese parts would be only $711. He could deliver 300,000 and do it quickly. Iacocca was even m
ore delighted; he had an instant car and an unbeatable one at that. It could be in the dealers’ showrooms in only eighteen months. He had also, he was sure, ended Henry Ford’s objections to the Fiesta. The car would be cheap, and no Ford factory need be retooled. The idea was so good, they thought, it was faultless. When Iacocca told Henry Ford about the deal, he was indignant. “No Jap engine is going under the hood of a car with my name on it,” he said. That killed the Honda idea. Even more, it proved in some final way that no matter what they came up with, no matter what the cost or how strong the arguments, they would lose. It was not just an issue, though certainly Henry Ford was anxious not to invest very much in a small car; it was personality as well. “What the fuck can you do?” Iacocca told Sperlich. “You just can’t win.” The hopelessness of the struggle, in its last few months, seemed to intensify the fury with which Sperlich fought back. He was relentless, combative, insistent. He let nothing pass unchallenged. Watching him, one friend thought, was like watching someone commit corporate suicide. He bowed to no one, not even Henry Ford II. As for Ford, he had shown little affection for Sperlich, who seemed less tweedy than the new, smoother MBAs, and lacked their panache. Now, as Sperlich argued with him regularly, almost as an equal, Ford’s distaste grew. At one point Iacocca took Sperlich aside. “Hal,” he counseled, “I know you don’t think you’re telling the chairman that he’s full of shit, but it sounds to him—because of your tone and because of what he’s accustomed to—like you’re telling him he’s full of shit.” He was sealing his doom, not just on this car but on his fate within the company. When finally in 1976 it came time for the showdown between the Tiger and the Panther, it was a struggle without a struggle. All the questions had been asked, and all the answers given. It was as if only one person in the company still thought Sperlich could win, and that was Sperlich.