Ask Rick Wagoner about Oldsmobile, and he’d be likely to cringe. Early in his tenure as CEO, the now-ousted General Motors executive had to pull the plug on the ailing century-old brand, a move that cost GM billions of dollars and doomed hundreds of dealers.
Last year, Wagoner told a close confidant he didn’t want to close off more of the auto maker’s troubled brands because of how difficult it had been, personally, to shut down Oldsmobile. “Never again,” he said.
It was a decision that contributed to the end of his reign as GM chairman—and potentially doomed the troubled auto maker.
“History,” automotive pioneer Henry Ford liked to say, “is bunk.” An odd sentiment, it turns out, for nowhere does history have a tendency to repeat itself more often than in the auto industry. And those who ignore its lessons should beware.
Have the domestic auto makers learned nothing from their years of seemingly constant reorganization?
On Monday, President Barack Obama rejected the requests of General Motors Corp. and Chrysler LLC for billions of dollars in government loans, on top of the money they received last December, during the waning days of the Bush administration. The White House automotive task force, the president explained, decided the viability plans submitted by the two auto makers simply wouldn’t work. GM, Obama announced, would get 60 days to restructure or face the probability of bankruptcy. Chrysler, meanwhile, would have just 30 days to complete a proposed alliance with Italy's Fiat SpA or face a similar fate.
It’s the biggest Big Three shakeup—aside from Ford Motor Co., which, at least for now, is not seeking a federal bailout—since the last big Mideast oil shock, in 1979. It was nearly three decades ago that Lee Iacocca first called the automotive press corps to Chrysler’s crumbling headquarters, in the Detroit enclave of Highland Park, to admit his company was failing fast. It would take huge concessions on the part of workers, bankers, bondholders, dealers, along with a massive government bailout, “or the pieces of the mosaic would fall off the wall,” he somberly explained.
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It took all of Iacocca’s persuasive powers—he was arguably the auto maker’s best pitchman ever—to win over Washington and the other stakeholders, but the aid Chrysler won helped it turn the corner and was eventually repaid with a 30 percent bonus for American taxpayers. By the mid-1980s, Chrysler was being hailed as one of the biggest turnaround stories in American business history. By the end of that decade, history forgotten, it was once again nearing collapse.
While GM weathered the oil shocks in reasonably good health, the auto maker’s top management recognized there were big changes afoot. And its new CEO, the squeaky-voiced Roger Smith, relished emptying its vast treasury on what proved a fool’s mission to modernize, spending an estimated $40 billion on new products and the factories to build them. A massive 1986 reorganization, designed to streamline the company into a leaner, more modern enterprise, had the opposite effect. GM was virtually paralyzed for the next two years, as its work force simply tried to figure out how the new organization operated.
By the end of the decade, as Smith readied to retire, he glumly conceded, in an interview with this reporter, that “I never really understood people” and the impact his changes would have. In the years that have followed, it seems, GM has been undergoing an almost constant stream of reorganizations and restructurings, first to reverse Smith’s moves, then to head off a 1992 brush with bankruptcy that was only averted when the bond-rating agencies opted not to downgrade the maker’s debt ratings.
Chrysler nearly escaped its Sisyphean fate, with a hastily arranged “merger of equals” a decade ago, to Daimler-Benz. But it didn’t take long for the Germans to recognize patterns repeating and cast the American operation’s fate back to the winds. After a brief honeymoon, new owner Cerberus Capital Management was caught up in the endless cycle, but in this case, with only the bust, not the boom.
Ironically, even the desperate out that Cerberus must now seek is a case of history repeating itself. Almost precisely 20 years ago, Chrysler quietly negotiated a merger with Fiat, a proposed deal that came within hours of being finalized. It was scuttled, at the 11th hour—or 11:59, in fact—by the auto maker’s then president, Bob Lutz, coincidentally now the retiring vice chairman and product chief at General Motors.
Have the domestic auto makers learned nothing from their years of seemingly constant reorganization?
In his speech Monday, the president noted that this wasn’t the only crucial decision Detroit’s leaders had postponed. “Year after year, decade after decade, we have seen problems papered over and tough choices kicked down the road,” said a clearly frustrated Obama. But he also acknowledged Washington’s role in the imminent collapse of the American auto industry. Government leaders have embraced Detroit in the good years but long ignored the costs it piled on, such as health care, which has been offloaded to the nation’s businesses. It’s estimated that paying for current and retiree medical care adds about $2,000 to the cost of each GM vehicle.
Unions, too, have ignored the tales told in the automotive history books. But it seems few have really paid attention to the lessons of the past 30 years.
The question now is whether GM and Chrysler—and for that matter, Washington, the United Auto Workers, and all the other stakeholders—can complete a crash course in the brief window left open by Obama. GM, in particular, has a list of steps it must take to satisfy the automotive task force. Chrysler must woo an increasingly cautious suitor, in the form of Fiat, and then persuade Washington to provide the transition funds necessary to complete its latest marriage. Neither scenario is very promising, but time is running out and the pieces of the mosaic are about to fall off the wall.
Paul A. Eisenstein is a veteran journalist who has won numerous awards for his work during 30 years covering the automotive industry. He is founder and editor of TheDetroitBureau.com, an online magazine serving as the voice of the auto industry. His work also appears in a variety of print, online and broadcast outlets that include: The Economist, Agence France Presse, NPR, Motor Trend, Cigar Aficionado, Japan's Diamond Weekly, Germany's Auto Motor und Sport , and many others.