Chapter OneDIJ@ VU ALL OVER AGAIN
A FUNNY THING HAPPENED TO CHRYSLER IN THE EARLY 1990s. THE COMPANY that, just a decade before, had been saved with the aid of historic-and very controversial-federal loan guarantees, was in deep trouble again.
How did this happen?
It would be easy, I suppose, to paint the reasons in stark black and white, complete with stock villains from Central Casting-as writers of books and articles are so often wont to do. But I hate it when writers do that, when they oversimplify the reality of what was really an incredibly complex business situation. The truth of Chrysler's situation was more shades of gray than black and white-and since this is my book (and since I believe that the ultimate key to success in business is truly understanding complex situations by using more of your gray matter), I'm going to give it to you straight (or at least as straight as my admittedly skewed personality will allow!).
Some of the seeds of Chrysler's second unraveling were, undoubtedly, sown in the headiness of the company's remarkable comeback from the brink in Turnaround #1. And I, for one, can almost understand why. In 1979, even the pro-business Wall Street Journal had told Chrysler to "die with dignity." But the plucky band of survivors at Detroit's number three automaker, led by Lee Iacocca and his rough-and-tumble gang of refugees (and castoffs) from the buttoned-down Ford Motor Company, would have none of it. Sure, they'd bent the rules of free enterprise a bit in wrangling $1.2 billion in loan guarantees out of the Carter administration (something that I myself, from my perch at Ford at the time, had a tough time sympathizing with), but the company had also gone through hell and back in terms of coughing up additional billions in pay cuts and concessions-not to mention having to go to the mat to wrestle concessions from its bankers, suppliers, and dealers. All in all, Chrysler in the early '80s was like a heart-attack victim that had undergone an emergency transplant right by the side of the road for all to see-and had survived! And if nothing else, you had to give them credit for their sheer spunk.
This was, after all, the company that, in the midst of all its travail, brought to market the cheap, fuel-efficient "K-car"-badged the Dodge Aries and Plymouth Reliant-laughable underachievers by today's standards, but exactly the right cars for those recessionary, post-oil-embargo, stagflation times. The K-cars were America's first front-wheel-drive, transverse-engine, six-passenger cars, and they sold like hotcakes. Even more important, they served as the basis for a true automotive sensation-the minivan. Introduced in the fall of 1983, the Dodge Caravan and Plymouth Voyager (and later the Chrysler Town & Country) not only created an all-new segment in the American auto market (arguably the first all-new segment since the Ford Mustang defined the "pony car" segment in the '60s), but they became a cash cow of almost unbelievable proportions. In 1984, Chrysler earned a then-record $2.4 billion-adding another $3 billion in earnings over the next two years.
It was at that point in time, 1986, that one Robert A. Lutz, age 54, decided to jump ship at Ford and cast his fortunes with the swash-buckling crew at Chrysler.
Why, exactly, did I go to Chrysler? One reason, quite honestly, was that it had become obvious to me that I had risen about as high as I would go at Ford. After stints earlier in my career with General Motors (mostly in Europe) and with BMW in Munich, and after serving as chairman of Ford of Europe (a huge company in its own right), I had risen to executive vice president of all of Ford's international operations and been elected to Ford's board of directors. For a while, there was even speculation in the press that I was a dark-horse candidate to succeed Phil Caldwell as chairman of Ford. Throughout my career, I guess I was what you'd call, in today's parlance, a "change agent," and that active, sometimes exacting temperament had certainly served me well. However, change agents, by definition, stir things up-and it's one of the ironies of modern business that while companies all say they want positive change, they very often get uneasy about anybody in the organization feeling "uncomfortable" (which of course is how change often makes people feel).
And so it was for me at Ford. Don't get me wrong: I didn't leave Ford "one step ahead of the sheriff"; I could have finished out my career there. But a gnawing feeling had descended upon me-a feeling that I'd started running in place.
Meanwhile, there was a lot about Chrysler that I found very appealing. Chrysler was seen in those days as sort of the last refuge of automotive malcontents, and I guess I pretty much fit that description. In fact, throughout my life, I've never really fit into the standard mold too well.
For starters, unlike what seemed to be true of virtually all American automobile executives at the time, I was not born in that small, bucolic town in the Midwest called "Humble Origins." Quite the contrary. I was born in cosmopolitan Zurich, Switzerland, into the family of one of those Swiss bankers you hear so much about, and I grew up sort of a "mid-Atlanticer," as my father's bank, Credit Suisse, kept transferring him back and forth between Zurich and Wall Street. In fact, by the time I was eight years old, I'd crossed the Atlantic five times and, by age 11, held both Swiss and U.S. citizenship.
It was certainly a privileged life, but it also contained a lot of upheaval for me, as I was regularly held back a grade whenever I returned to school in Europe following a stint in the United States. Even though the U.S. public school system in those days was absolutely stellar compared with today, and even though I always had a rigorous course load that included Latin, literature, higher mathematics, and all of the other subjects of a traditional liberal education, invariably I'd be hopelessly behind my Swiss counterparts. ("Okay, Bobby, we see here you've had a little Latin; would you now please conjugate these verbs for us?")
Plus, as is so often the case, privilege in my young life (combined with all these upheavals and setbacks) had a way of leading to a certain amount of restlessness and even outright rebellion. The worst example of this is when my family finally settled down for good in the Zurich area following World War II, and I managed to get myself booted out of high school. Official reason: "Academic and disciplinary problems." Translation: At the same time I was showing little interest in my assigned studies, I was showing a little too much interest in the daughter of the biggest industrialist in town.
Luckily for me, six months of manual labor in a leather warehouse taught me that maybe buckling down in school wasn't such a bad idea after all. But my father, in his infinite wisdom, wasn't going to let me off with just that. In exchange for his promise to fund one more chance for me at education (at a public school in French-speaking Lausanne, Switzerland, where I eventually picked up that language in addition to my German and English), he made me promise to return to the United States immediately upon graduation and enlist in the U.S. Marine Corps. (Why the Marines? Well, I think at least part of it had to do with the fact that during one of his stints in New York my father had gotten to know a very impressive former Marine colonel, and, in addition to being a great guy, the colonel used to walk around the office on his hands-and I think maybe my father thought that all Marines walked on their hands, and that any breed of people who can do that must be pretty neat!)
At the time, I thought my father's deal might be a Faustian pact-especially since the Korean War was in full swing at the time, and the survival rate of enlisted Marines in Korea was none too high! Instead, it turned out to be a godsend: After graduating from high school (at, yes, the ripe old age of 22-I was so old the other kids had taken to calling me "Dad"), I went through boot camp at Parris Island, South Carolina, and acquired a sense of discipline (including self-discipline) to temper my heretofore unbridled bent.
I was also, eventually, able to fulfill one of my (and probably just about every other boy's) lifelong dreams: to become a fighter pilot. Because I didn't have a college degree and wasn't an officer, I entered the Naval Aviation Cadet Program (NAVCAD), which was then open to promising enlisted men from either the Navy or the Marine Corps (and even civilians). As events would have it, the Korean War ended before I got my wings; however, I did serve in Korea for a time as the Air Liaison Officer of the 2nd Battalion, 3rd Marines, based on Okinawa. All told, I served five years as an active-duty Marine aviator from 1954 to 1959 and received my commission as an officer.
I loved the Corps, and I loved what it did for me in turning around my life. In fact, I loved it so much I intended to make it my career. But to advance as an officer, I would have to get that college degree. So, following my tour in the Far East, I returned to the site of one of my earlier assignments (northern California) to become a Reserve aviator, flying out of the Alameda Naval Air Station, and to finally pursue a degree at the University of California at Berkeley.
But at Berkeley, a funny thing happened to me: While pursuing my degree, I became just totally fascinated with the world of business, particularly the whole bundle of human psychological constructs involved in marketing; and I started to think seriously about combining my second burning passion in life-cars-with a career in business. So, after obtaining my bachelor's degree (at age 29), I went on to get an MBA at Berkeley, and soon thereafter got into the auto industry with a series of marketing and, later, management jobs at General Motors, BMW, and Ford.
When I finally landed at Chrysler, two decades and three car companies later, I found a place where (at the top of the company, at least) a nonconformist like me seemed to fit right in. Moreover, I saw Chrysler's smaller size (at least in comparison with Ford and General Motors) to be a tremendous potential advantage for the company. In the Marine Corps, and later, when I oversaw the disparate departments that would someday be the motorcycle division at BMW, I'd seen the power of small, dynamic organizations firsthand-organizations that through vision, wile, and, yes, just plain guts were able not only to overcome their size and resource deficiencies, but to turn them into advantages. And I was anxious to work again in an organization that wasn't too large (or to be more exact, too lethargic) to get out of its own way.
There was one other thing, however, that I quickly discovered on joining Chrysler: that the company, despite its bold demeanor and strong profits, was basically following a defeatist strategy in its core car and truck business.
Some of the rationale for this strategy was perfectly understandable. From time immemorial, the auto industry has been one of the most cyclical industries anywhere in the business world-"Every time the American economy catches cold, Detroit gets pneumonia," goes the old adage. And a lot of people, including the money managers on Wall Street, had long pressured us to try to minimize this cyclicality by diversifying our risk-or else pay hell for it in stock prices, credit ratings, even our jobs. Now, though, there was an additional dynamic: Japanese competition. To be more exact, the challenge was Washington's growing reluctance to do anything about the plainly unfair advantages that Japanese automakers then enjoyed over their American counterparts.
It was Washington, to begin with, that in the 1970s had saddled Detroit with a stringent array of fuel-economy regulations to combat an "energy shortage" that, in reality, turned out to be a mirage. (Case in point: A gallon of gasoline in the United States today costs less than a gallon of bottled water!) And in this respect, Chrysler's smaller size was not an advantage, because in not having the resources to place two bets at once (one on fuel-sipping four-cylinder cars and a hedge on larger cars and V-6 and V-8 engines, as GM and Ford had done), the company found itself with its chips stacked on the wrong color when the energy crisis turned out to be a false alarm. As a result, the company also found itself-to a greater degree than GM or Ford-right in the teeth of the full-fledged Japanese onslaught of the mid- to late '80s.
Meanwhile, on another front, in the recession of the early '80s-which was really a depression for autos-Japanese automakers, under pressure from Washington, had agreed to "voluntarily" limit the number of cars they imported into the United States to 1.68 million per year. This was called the Voluntary Restraint Agreement, or VRA-and it made sense because Japan's own auto market was (and is) locked up tighter than a drum to foreign competition. For example, in the year the VRA was enacted the Big Three American automakers sold a grand total of 4,219 vehicles in Japan, and by 1997 that number had climbed to just 25,000 vehicles.
In 1985, however, Washington decided to let the Japanese lift the VRA (in essence, to eliminate it). On the face of it, this seemed like a sensible decision-after all, the Big Three were all making money once again. However, with foreign nameplates already taking more than a quarter of the U.S. market that year (and now threatening to take a lot more), and with autos accounting for more than half of the nation's all-time record $130 billion trade deficit, it wasn't inconceivable to consider the future for American auto producers, especially those whose products competed so directly against the Japanese, a little bleak.
Moreover, there were a few other Japanese-related factors at work as
well: The original imposition of the VRA had given the Japanese an
incentive both to sell a higher mix of upscale cars in the United States
(just as gasoline prices were falling) and to build what turned out to be
a bevy of "transplant" assembly plants in the United States (just as the
yen had finally strengthened against the dollar)-proving, much to
Detroit's chagrin, the old saw, "Be careful what you ask for, because
you just might get it!" Adding insult to injury, as the yen rose from its
previous absurdly weak (read rigged) levels, the Japanese complemented
their growing U.S.