Reckoning

by David Halberstam

  What finally jarred Maryann Keller into testifying, however, was a Department of Commerce report that said that by 1988 the Japanese would be able to produce nearly 800,000 cars in America and would have 44 percent of the market. Between cars imported and cars manufactured in America by the Japanese, that would eventually mean that American companies would sell 1.5 million fewer cars a year. Detroit by 1988 might be selling only 6.3 million cars—well down from industry hopes, which were closer to 8 or 9 million as low figures. The earnings for the entire industry would be significantly down. Factories would have to be closed, more workers laid off. A decline like that would roll through the entire American economy. So somewhat reluctantly, as if going against her own beliefs, Maryann Keller told Congress she favored a limited protection which might give the American industry time to become competitive. She proposed a three-tier system: a free market on all cars under $6500, a free market for anything above $20,000, and a 25 percent tariff on all imports between $6500 and $20,000—that or a 65 percent American-content law. The Japanese, she noted, were so good that they would be able to overcome the disadvantage of a 25 percent tariff in six or seven years. That meant the pressure on the American industry to become competitive would be extreme. Her testimony, coming from someone so innately critical of the sins of the industry, someone so naturally committed to a free market, was perhaps the most damning forecast of all.

  54. THE PAST BECOMES THE FUTURE

  J. EDWARD LUNDY HAD retired as the chief financial officer of the Ford Motor Company in June 1979. He remained not just active but powerful, however. He was the vice-chairman of the finance committee of the board—the chairman was Henry Ford himself—and he continued to wield influence through his network of bright young men, some of them not so young anymore, who had advanced into key positions throughout the company. His life, as befit a man with so many friendships, was uncommonly rich. It was the carefully arranged life of a nineteenth-century man who fended off the pressure and crudeness of the late twentieth century so that he could do the things he wanted to do. As a company executive he had loathed trips to Europe; now he enjoyed traveling to Europe with his friend Arjay Miller and Miller’s family, visiting the better restaurants and vineyards. He had also become more deeply involved in private philanthropy. Beyond his very generous support of St. Joseph’s Catholic Church in Dearborn, he had given a great deal of money, over forty years, to a long list of people in need, especially to the wives and children of Ford men who had died when they were young. As in all other things, he was meticulous in this giving; if a recipient passed on and there was no more need of support, there were legal arrangements whereby the money would go to a residual beneficiary such as the Henry Ford Hospital. His social life, which was conducted primarily among Ford finance people whose careers he had encouraged and who had in time become part of his extended family, was at once busy and skillfully controlled. There was an unwritten protocol for those who were part of that family by which they understood how often to invite him over for dinner, for while it was important for them to maintain the friendship, it was also important not to seem to be pushing it, not to look as if they were exploiting the relationship. In May 1985, at the age of seventy, after twenty years on the board of directors, Ed Lundy retired from that body as well, and for the first time in forty years had no official connection to the Ford Motor Company.

  His imprint, nevertheless, was everywhere upon the company, studded as it was with his progeny, all of them obsessed with the bottom line. Red Poling, a Lundy man, was now president of Ford, and Allan Gilmour, a special favorite of Lundy’s, had become chief financial officer. Once again, in fact, the company was seriously divided between the product people and the finance people, in a way that resembled the small-car/big-car struggles of the 1970s. This time the issue was even graver: whether or not Ford would turn over production of all its compact and subcompact lines to Mazda. The Japanization of the small-car line, according to Ford insiders, was Red Poling’s pet project. It was simply too hard to make money producing small cars in America, he argued, what with the competition from the Japanese and the Koreans. He had become preoccupied by how much money the company might save if cut loose from so draining a part of the business. If Ford took that step, no less than two and perhaps as many as four more factories would be closed.

  Holding the line against Poling, at least for the moment, was Don Petersen, the chairman. He and his people argued that it would be a tragedy to vacate the battlefield without more of a fight. Ford, they objected, was in the business of making cars, not just marketing them. Besides, said Petersen, the step would make Ford alarmingly dependent upon Mazda. Who knew what the future was for Mazda and the Japanese? Would Mazda be as good a car company in 1990 as in 1986? Look at what had happened in the last year, with the yen rising so quickly against the dollar. That rise had profoundly affected Japanese competitiveness in America, they pointed out. Through the spring of 1986 the battle raged. It lacked the personal animus of the Iacocca-Sperlich-Ford struggles of the 1970s, but in terms of the future of American industry, and of America, it was every bit as important.

  Even as the combatants at Ford hammered away at each other, Lee Iacocca scored a major coup against his former company. In June 1986 he announced that he had hired away Bob Lutz, who for a number of years had been considered the rising star in the Ford firmament. Flamboyant, cocky, with a touch of the jet jockey to him, Lutz had been credited with much of the success of Ford of Europe, which had helped rescue Ford North America during those long, hard years of the early eighties. Lutz was the car guy personified. But his style, his magnetic effect upon both subordinates and the auto press, had kindled memories of a young Iacocca, and it was not just Philip Caldwell who was unamused by Lutz’s growing cult of personality but Henry Ford himself, who did not like the idea of another Iacocca-like figure within his company. Henry Ford had become more and more hostile to Lutz and had said at one meeting when Lutz arrived a few minutes late, “Well, here comes our movie star.” In desperation Lutz pleaded with his friends in journalism to stop writing about him. Even that had not helped, and Lutz’s career had been put on a slower track. Snatched away by Iacocca, Lutz was placed in charge of Chrysler’s international operations and the company’s truck lines. He was a vice-president and Sperlich was president of Chrysler auto, but those knowledgeable about Detroit politics noted that Lutz reported to Jerry Greenwald, not Sperlich. Sperlich was said to be stunned, then wounded, by this move by Iacocca, the man whom he had followed and believed in more than anyone else over the last thirty years.

  In March 1986, Katsuji Kawamata, former chairman of Nissan, suffered an aneurysm and was rushed to the hospital in critical condition. A week later, at the age of eighty-one, he died. The Japanese press hailed him as one of the founding fathers of the modern Japanese auto industry. There were to be two funeral services, one a relatively private ceremony for family and close friends, the other larger and more public. The funerals posed something of a problem for those in charge. The question was what to do about Ichiro Shioji, Kawamata’s closest professional associate, the true source of his power. Shioji might have been expected to attend and perhaps to speak at the second ceremony. But that was not to be. Shioji had recently fallen from grace, and the management people did not want him there. Ishihara, Nissan’s chairman, let him know through proxies that if he attended he would be hounded by photographers from his journalistic nemeses, Focus and Friday. Shioji took the warning seriously and stayed away, choosing to attend Kawamata’s cremation instead. He was somewhat amused by the fact that the speakers at the second ceremony—Nakayama of the Industrial Bank, Inayama of the Keidanren, and Ishihara of Nissan—were all men who had in one way or another been rivals of the deceased and on occasion had done all they could to thwart his will. Since his fall, Shioji had been trying to figure out what to do with the rest of his life. He was considering setting up a travel agency that would specialize in serving the unions, but friends warned him that
Ishihara might block him there too. He was also planning to become an international consultant on union affairs. He was well off; money was not a problem. Getting his yacht out on the water was now the problem. His crew, after all, had been made up entirely of Nissan employees, and they could no longer sail with him. He told friends he hoped they would come sailing with him in a few months, when he had recruited a new, non-Nissan crew.

  In the late winter and early spring of 1986, serious tremors ran through the Japanese economy. The nation went through an immense crisis as the yen, which for most of the postwar period had been deliberately floated as softly as possible (among other reasons to spur exports and discourage imports destined for Japan’s consumer economy), suddenly strengthened against the dollar. That process did not begin by chance; in the fall of 1985 there had been a decision by Japan’s Western trading partners to try to weaken their currencies against the yen and thus bring some measure of fairer trade into play. That move had been somewhat successful, and by November the dollar, which had been worth about 230 yen, had fallen to 200 yen. The Americans probably wanted it to fall a little more but were pleased to hit the 200 mark. At just the moment when the two currencies were leveling out, however, the Saudis began to manipulate their oil production, and the price of oil fell dramatically.

  The impact on the Japanese economy was phenomenal. Because the Japanese, of all the major industrial powers, were the most dependent upon imported oil, they were the greatest beneficiaries of the drop in price. As a result, the yen was strengthened even more. In 1979 the fall of the Shah had weakened the yen and thereby reduced the cost of Japan’s auto exports, boosting sales; now the reverse had taken place. The Japanese currency had become stronger—the dollar now bought only 160 yen—which abruptly made exporting that much more difficult. That struck terror into the hearts of many Japanese industrialists. Japan had manipulated its currency with great skill for some thirty years; now the strength of its currency was proving a burden. “Don’t you Americans realize what this will do to your economy?” one Japanese friend asked auto industry analyst Maryann Keller. “It’s going to ruin your standard of living.” Prime Minister Nakasone, nervous about the strengthened yen, intended to make it a major issue at the May 1986 Tokyo summit, but that conference was dominated by the issue of terrorism, and the issue of the yen was largely neglected by Western representatives, who were hardly sympathetic to the economic plight of the Japanese in the first place.

  Things therefore became much harder for all Japanese exporters. Auto companies had to raise their prices again and again as the yen fell. No longer were Japanese cars, in addition to their other virtues, the cheapest on the market. The Japanese now had to stress other advantages, most notably quality and styling. American and German manufacturers reacted in different ways to the Japanese crisis. “Watch,” Keith Crain of Automotive News told a friend. “GM will now put its prices up.” Shortly thereafter, GM did announce a 2.9 percent price increase; Ford and Chrysler wisely held back. Volkswagen ran a commercial in which bewildered Japanese businessmen had to admit they faced a terrible price problem. The pressure this put on the Japanese companies to save elsewhere was immense. The senior executives of Nissan all took pay cuts. Throughout Japan factories commenced what were in effect speedups, as if to make up for the hardening yen. But all of this, in the view of many analysts who had long observed Japan, was temporary. It was a momentary obstacle in their way, and the Japanese would surely treat it as they had others: They would work harder than ever. They would streamline their system even more and press for every tiny gain. Suppliers and workers would be squeezed, banks would ease their terms, new processes of manufacturing would be implemented, and other adjustments would be made, and in time they would compensate for their losses and come back tougher and more determined than ever.

  If there was any one fact that could destroy doubts that the Japanese challenge remained as formidable as before, it was that, in the first quarter of 1986, the trade imbalance between Japan and the United States reached $60 billion. Concealed within that staggering and portentous statistic was still another awesome fact: The Japanese were steadily moving away from the earlier, more primitive forms of their challenge, and not just from steel and auto into high-technology goods; they were reaping the benefits of their Calvinist era of hard work and diligent saving. By 1985, thanks to all those years of extraordinary sacrifice, the Japanese had accrued great amounts of capital. Now, very quietly, they were becoming new, powerful world financiers.

  In America, despite the seeming resurgence of its economy in 1985 with the decline in the price of oil, there was the unsettling sense that a crisis existed and had not been faced. Jobs were being lost, the industrial core was weakening, and no real attempt was being made to do something about it. America, after all, had been so rich and successful in the postwar years that it could put much of its public energies into the political rather than the economic definition of the nation. In 1984, in the most recent presidential campaign, there had been more talk about school prayer than about the Japanese challenge. Even under a conservative administration pledged to major fiscal reform, the national debt mounted. America, facing competition from hungrier, more disciplined Asian nations, seemed unable to discipline itself. Everyone in America, it appeared, believed in sacrifice, so long as it was sacrifice by someone else. The budget director of the Reagan administration, frustrated by his President’s appeasement of special-interest groups, left the government to write a book describing his defeats. It seemed symbolic of the new triumph of personal well-being over public virtue that he was given an advance by his publisher of $2.5 million for chronicling the decline of the latter. At a commencement address at Duke University, Lee Iacocca suggested to the assembled graduates that they try to do a better job of balancing the books than his generation had done, since they were being left with a two-trillion-dollar deficit. “We’ve been using your credit card,” he said, “and you didn’t even know it.”

  These attitudes contrasted sharply with those of Japan, a carefully focused nation concerned first and foremost with economic rather than political success. America had taken its economic success largely for granted. There was no small amount of irony in the fierce American arms race with the Soviet Union, which so seriously drained the American economy, both by adding debt to it and by taking many of the nation’s most talented scientists out of the consumer economy. In a competition like that, the Soviets, with their crude, sluggish state economy, had something of an advantage; after all, their domestic economy did not work, and the only thing that did work was the defense sector—they could make missiles but not cars. By competing all-out in arms, the Americans were taking on the Soviets at what the latter did best, weakening an otherwise very sound and dynamic economy in the process and, of course, making the way much easier for the Japanese, who were under the American military umbrella. Those were Toyotas, Hondas, and Datsuns driving down the American highways, not Moskvas, and that was East Asia that America was losing jobs to, not Eastern Europe.

  Some Americans talked knowledgeably about the new economic era as being one of a service economy, rather than an industrial one. But there were clearly two kinds of service jobs—high service ones for privileged Americans with good educations, whose careers reflected a considerable degree of choice, and low service. Low service was for those without much education in a society that increasingly was delineated by access to education. Those in the lower service economy had little leverage in terms of their career decisions, and their salaries, when adjusted for inflation, were barely comparable to those of the pre-New Deal period. As the blue-collar sector of the economy declined, there was danger of the nation’s becoming more sharply divided along class lines, with a diminishing middle class and a chasm between the educated few and the unlettered many. That obviously had long-term implications; for one thing, it seemed likely to undermine the social harmony that Americans had enjoyed in much of this century. There was also some question, still to be
answered, as to whether a strong service economy could stand on its own, for many analysts believed that a society was at its healthiest when the service economy was ancillary to a vibrant core economy, not an end in itself. In some ways, as America faced the future and prepared to find its place in the new and uncertain international economy, it was, contrasted to other leading Western industrial nations, still remarkably blessed. It was rich in land, and its agriculture was productive, modern, and bountiful. It had more mineral resources than any potential industrial competitor. Its venture capital system was probably the most vital in the world. If the hostile mergers reflected, in Harold Wilson’s phrase, “the unacceptable face of capitalism,” then the world of the start-up companies, of talented men and women willing to leave secure jobs with larger corporations to bet on themselves, was the most exciting and most promising face. Its higher educational system was probably the finest in the world, although even here there were disturbing signs, for approximately half the engineers being trained in America’s graduate schools were foreigners; in effect, states like Michigan and California were subsidizing the challenge to the United States from Japan and Korea and other striving nations.