Reckoning

by David Halberstam

  “Thank God all the bullshit is over,” Iacocca told a friend.

  Late in the day Henry Ford met with members of the board. The unpleasantness seemed in the past. He scarcely mentioned it. Some of the board members had never seen him so relaxed. Then near the end of the meeting he brought up the subject of compensation. “You know,” he said offhandedly, the seigneur once again, “we ought to be very generous with Lee.” Then he added, almost as an afterthought, “He was very good to this company.” That was it: Iacocca had come and toiled and fought and manipulated and risen and triumphed and then he was gone, and Henry Ford was still there. But he had been very good to the company.

  For a time Iacocca was overwhelmed by his bitterness. The firing was the final mortification. It was as if in the last few years Henry Ford had confirmed all Iacocca’s darkest suspicions, that despite his immense salary, his lavish perks, his title of president, he was the employee, the crude little Italian who worked for and had been tolerated by the Wasp owner. Later he told friends that his great mistake had been failing to get out sooner, that in the early seventies, when the relationship had soured, he should have told Henry Ford what he could do with his cars. His great mistake had been waiting until he was fifty-five and entitled to even greater retirement benefits. It was his own goddam greed that had done him in, he later admitted, which was stupid because he did not even care that much about money, he already had more than he needed.

  34. A VACANCY AT CHRYSLER

  LYNN TOWNSEND, SMART, FACILE, and abrasive, became president of Chrysler in the first place because the company was in serious trouble. He was purely a numbers man. (An early, admiring profile of him in Fortune began, “The figures talk to Lynn Townsend....”) He had had a hard childhood. As a boy he kept the books in his father’s auto repair shop. He was orphaned at fourteen and worked his way through the University of Michigan, where he was considered a truly gifted accounting student. Upon graduation he worked for a Detroit accounting firm, then went off to World War II. When he returned he joined Touche Ross, then new but eventually one of the nation’s largest accounting firms, where he was soon put to work on the Chrysler account. By 1957, Chrysler was undergoing increasing stress, and he made a lateral move to become its controller. No one, it was clear, understood the company as well as he did. In 1961, a time of crisis within the company, George Love, in effect an acting chairman and himself the head of a coal company (“I don’t know what a carburetor is and I’m too old to learn”), picked Townsend to run the company. “He is the right man because he is figure-minded,” Love said. “It used to be possible to control the company through personal contact. But when a company gets this big, you no longer know all the people. You can’t see that so-and-so is loafing. So you need a man for whom figures live. You control the company by a knowledge of figures. Townsend can spot trouble through them.” Traditionalists in Detroit were shocked by the decision to give that much power to an accountant. They were convinced it would never have happened in the days of Walter Chrysler or K. T. Keller. These were not the days of Chrysler or Keller, however; they were the days when George Romney’s earlier warnings about a monopoly industry were beginning to come true. Romney had envisioned an industry in which a rich, powerful GM set the norms in all areas, including labor settlements, putting unbearable pressure on the weaker companies. By the late fifties that had become all too true at Chrysler; it had to match the salaries of GM without being able to match its economy of scale.

  At forty-two, Townsend seemed at first the wunderkind of Detroit. A forceful and magnetic personality, he brooked no interference from anyone, whether product man or board member. Those who questioned his authority, no matter how gently, quickly regretted it, for he would lash out at them, demolishing their ideas and humiliating them in front of their peers. Because of his knowledge of the company’s finances, he arrived at the top with a sure sense of its weaknesses. He knew where to cut and where to use the company’s limited resources. He consolidated the Chrysler and Plymouth divisions, closed plants that duplicated functions, cut the white-collar staff, and decreed that Chrysler give a five-year, fifty-thousand-mile warranty on every car it sold. Together these steps stabilized the company. It was the era of the multinational corporation, so Townsend also internationalized Chrysler, buying some foreign companies outright and buying shares of others. The European companies he bought into—Rootes of England, Simca of France, Barreiros of Spain—were all dogs, he confided, but they were all that was left, so he had to deal with them or stay out of the international market. His goal was a “world car,” a base model that could be used everywhere, and he was confident that his talent could turn even those dogs around.

  At the time he took over, Chrysler could not have been shakier. By 1962 it was down to a low of 8.3 percent of the market share. The standard bad joke in Detroit at the time, journalist Nick Thimmesch wrote, went: “My wife’s divorcing me, my girlfriend is pregnant, my son has been expelled from Yale, and now I’ve just been promoted to vice-president at Chrysler.” Townsend seemed to shape it up quickly. By the end of 1963 it was up to 12.4 percent, and by 1968 it reached 18.1 percent.

  On paper what he was doing looked good; that was part of the problem. Subtly and inevitably, more energy went into what would look good on paper than what was good for the cars. He was preoccupied with what would drive the stock up; therefore, so were all the men around him. There were lots of incentives and bonuses for those who could make the numbers look good—all of them short-range in their effect. It was as if the real customers of the company were the stockholders, not those who bought cars. The preoccupation with the stock had its penalty. Chrysler gradually became caught in a vast and lethal self-deception. It happened because one of the first rules of production, that there were supposed to be real orders before cars were built, had become a sham there. Waiting for orders might slow down the numbers game. Tom Killefer, who served as treasurer at Chrysler, once said that Townsend’s policy was to “stack cars like cans of beans on a shelf.” The unordered and therefore unwanted cars, created in order to inflate Chrysler’s numbers, were trucked to what was called the “sales bank,” the code name for the inventory. It was in effect one giant Detroit parking lot. At first the Chrysler people used their own grounds; when they ran out of space they rented some from Ford. Then they used the Michigan State Fairgrounds. Then the Windsor Raceway in Canada. The sales bank, begun in the early sixties, contained some 60,000 cars by 1966. By February 1969, the number of cars produced without dealer consent had risen to 408,302. Rushed through with less and less attention to quality, the cars sat there while the sales people pushed them at the dealers, who in turn would try to palm them off on customers. The policy was destroying the company’s relationships with its dealers, who, forced to accept cars, soon learned that if they waited until the company was truly desperate, they could get cars at vast discounts. The cars that couldn’t be unloaded on the dealers were assigned to something entitled the Chrysler Financial Corporation, to give them the semblance of a home and something that could pass for an order sheet. Often they were left standing outside in the sales bank for months, even through the Detroit winter. It was ruinous to both the cars and the company’s morale.

  While the sixties were a wonderful decade for Townsend at Chrysler, a time in which he was almost universally praised, things changed for the worse in the early seventies. The company was overextended; its international commitments were beginning to drain rather than strengthen it. Townsend had always been volatile. He could be utterly charming one moment and then turn unaccountably mean. Even on his good days he was capable of behavior that fell just short of corporate cruelty. Stories circulated of Townsend grilling high Chrysler executives for hours about real or imagined flaws, letting go only to return to the subject later. The night before board meetings in New York, Townsend made a ritual of going to Christ Cella, an expensive midtown steak house, with some of his top people, including the inside directors and a few outside director
s. There they would eat a long, raucous dinner at the big table in the kitchen, a privileged location; on occasion they were joined by absolute strangers who, to their astonishment, found themselves included in intimate corporate discussions and ravaged by Townsend if they disagreed with him. The evening would continue until the restaurant closed in the early morning, whereupon they retired to the Waldorf Towers. A few hours later, at the board meeting, Townsend would be in total control, as cool and commanding a presence as ever.

  As the company’s trouble intensified, however, he became more irascible. He began to drink more. Close friends thought they understood what was the matter: Townsend realized that Chrysler’s situation was such that he had to get rid of all his international acquisitions, the foreign companies he himself had bought; in effect he had to undo his most treasured handiwork, and he could not bring himself to do it. Thus, the shadow lengthened.

  Chrysler, for all of its shakiness, had not been in debt when Townsend had taken over in 1961. By 1970, however, its debt had reached $791 million, even more than GM’s, and was growing all the time. After Perm Central went bankrupt in 1970, officials at various financial institutions, in order to avoid losses from another, similar disaster, tried to guess what the next major casualty might be and fastened on Chrysler. So Chrysler’s top executives, accompanied by their bankers from Manufacturers Hanover, flew around the country pressuring Chrysler’s other lenders for more money. That raised $180 million, but it did not solve the problem. Even in the boom days, Chrysler had been a sick company, buying time at the expense of its future health; it became particularly vulnerable when the oil embargo hit in 1974. Much of the market share gained by early imports from Germany and Japan had been at Chrysler’s expense; now that the entire industry was threatened, Chrysler was in real trouble. There were mass layoffs—not only of workers but also of engineers—accompanied by reduced investment in tools and facilities as well as research and development. A year later, in July 1975—at the suggestion, it was rumored, of the board and at the direct urging of Louis Warren, the outside counsel—Lynn Townsend resigned.

  Hal Sperlich was crushed by his firing. It had never occurred to him that Iacocca would not be able to shield him. His life had been Ford, nothing but Ford; even the defeats, he realized after he left, had been exhilarating. It seemed to him that his life was over. Colleagues who came to see him would find him depressed and alone, convinced he was a failure. “Hal,” one of them said, “you’ve been one of the two or three top men in one of the biggest companies in the world. You were Ford’s best product man. Everybody in this business knows your value. You got hit by a truck. The truck was a Ford, and the man driving it was a Ford. You’ll be successful again.” At first these pep talks had little effect. Sperlich spent several months trying to decide what to do. Friends advised him to try an adventurous new company where he would not be crushed by a resistant bureaucracy. He received good offers from substantial companies like Xerox and Bendix, but he did not want to learn how to design photocopiers or small engine parts. “I’m a car man,” he told friends. “That’s all I know.”

  Unfortunately, there were few openings for a man like him in such a restricted industry. He was finished at Ford, and GM—whose well-ordered managerial system was bursting with men his age already tired of waiting in line for promotions—was out of the question. If he had offended the bureaucracy at Ford, his friends trembled to think of what he might do at GM. Although he was offered the presidency of the DeLorean Motor Company, he was leery of DeLorean. That meant Chrysler was his only hope. Iacocca called Gil Richards, the president of Budd, one of the major supplier companies, and asked him to help Sperlich at Chrysler. (“I think Lee felt a certain amount of guilt that he had not been able to protect me,” Sperlich said later.) In November 1976, a month after his firing, he began talking with Chrysler executives. He went to work there in March 1977 as vice-president of product planning.

  Sperlich knew the company was in trouble, but he had no idea, he later remarked, that it had terminal cancer. After all, in both 1975 and 1976 it had made money. He was stunned by the decay and apathy he found. Whatever his frustrations at Ford, he had become accustomed to its comforts and resources. At Ford there were always plenty of talented people, and the plants, while perhaps not sufficiently modernized, were always in reasonably good condition. At Chrysler, morale was terrible, many of the company’s best people had already left, and the plants were in bad shape. Sperlich suspected he was the first person above the level of supervisor whom they had hired in years. Because no knowledgeable people had come in from the outside, the people there had no idea what they were doing wrong. Furthermore—and he was sure this was the worst thing about the company—Chrysler had utterly lost its sense of accountability. Early on he asked Gene Cafiero, by then the president, for the name of the person in charge of quality.

  “Everybody,” Cafiero answered.

  “But who do you, as president of the company, hold responsible when there are problems in quality?” Sperlich asked, persisting.

  There was a pause. “Nobody,” Cafiero said.

  Sperlich went back to his office and closed the door. Oh shit, he thought, we are in for it now.

  A constant sense of crisis pervaded the company. The problems were so great and the lines of division so badly blurred that it was, in Sperlich’s phrase, management by swarm. Whatever problem arose on a given day, the entire managerial staff piled on top of it as if it were a fumble. The factories were filthy, and often unheated. In many of them the windows were broken, and the wind swept through in the winter. Racial tensions ran high. Drugs were used openly in some plants. The cars themselves were boring, weak imitations of GM and Ford. Quality had become a joke. Finally, to Sperlich’s chagrin, while the finance people, as they did at Ford, had power, they had failed to create any of the protective systems that the Ford men had. The company enjoyed the burdens of the finance men, without any of their strengths.

  Chrysler, even more than Ford, was the embodiment of what had gone wrong with American heavy industry in the last twenty years. As more was required, less was put in. Always near the top of Fortune’s list of the top five hundred companies, it had appeared for some twenty years to be the prototypical successful corporate giant. But it was rotting. In good years a company like Chrysler might do well, but there would be more and more bad years, when the entire company would hang in the balance.

  Worse, the weaker it was, the better target it presented to the UAW. Although the union did not want to drive Chrysler under, it had a shrewd sense of how far to tighten the screws. A typical example of this occurred in 1964 when the UAW negotiating team, led by Walter Reuther and Doug Fraser, went to see Lynn Townsend, then president of Chrysler. Since the company was in the midst of one of its periodic comebacks, the UAW was thinking of going after it that year. Townsend’s first mistake was to condescend to both Reuther and Fraser, treating one of their junior aides as if he were the most important person there and virtually ignoring the senior UAW officers. His second was to become expansive about Chrysler’s circumstances. Never modest about his accomplishments, Townsend became even more boastful than usual. Chrysler was really coming back, he said, and he, Townsend, was personally pulling the company together.

  “Just give me nine more months,” he told them, “and we’ll have fifteen percent of the market. All we need is nine more months. The stock will take off when that happens.”

  The UAW leaders played it very cool through the rest of the meeting, their expressions never changing, but when they got outside Reuther turned to Fraser and asked, “Did you hear what I heard?”

  “Yes,” said Fraser, knowing as well as Reuther did that Townsend was a man so desperate to achieve his goals and so full of himself that they had him.

  “Let’s sleep on it,” Reuther said.

  Sleep on it they did, and the next day Reuther said, “Let’s go after Chrysler.” They went back to Townsend and told him that if he met their demands
they would spare him a strike and he could get his precious 15 percent. Townsend, realizing they had him, conceded.

  Sperlich’s first months at Chrysler were spent trying to patch some cars together for the 1980 product cycle, but he was soon involved in what was to be the most important decision in Chrysler’s future: whether or not to go for front-wheel drive in its 1981 models. No decision could have been harder. The company was acutely short of cash, and when the choice fell to John Riccardo, who had succeeded Lynn Townsend first as president and then as chairman, he was staring at the possibility of a $1 billion deficit. At the same time Chrysler, like Ford and GM, was under great pressure to meet government-mandated emissions standards. The government had prohibited any sharing of technological expertise on the question, even though the eventual beneficiaries would be the American people. While the expense would be monumental for all three companies, the ban on cooperation indirectly benefited GM and Ford by burdening their already faltering competitor.

  In essence the company had to replace its small-car line. Everyone knew that the next model had to be lighter, more compact, and more fuel-efficient. On one hand there was the H car, which used rear-wheel drive. Of the two possible models, it promised to be the heavier and less efficient, but it could use the existing power train and suspension and thus would cost only about $400 million. The cost of the front-wheel-drive model, the K car, was figured at $700 million because it required a new power train and far greater expenditures on new technology. For a company facing the genuine possibility of bankruptcy, it was an almost unbearable call, and it was John Riccardo’s responsibility to make it. Riccardo was a finance man. Like Townsend, whose protégé he had been, he had come from the accounting firm of Touche Ross, and he felt himself unprepared to make fateful, perhaps fatal, decisions for Chrysler. He was, thought Sperlich, as unready for his position as Henry Ford had been for his, with the important difference that he was not burdened by ego. The best thing about Riccardo, Sperlich decided, was that he knew what he did not know and did not pretend otherwise. Henry Ford, to Sperlich, reflected the arrogance of power, John Riccardo the modesty of power. Riccardo clearly wanted to make the right decision.