The mood was somber, yet there was a sense of electricity surging through the room as the CEO strode up to the microphone. The situation was desperate, he quickly acknowledged, and without everyone’s cooperation – workers, bankers, investors and even the federal government – he warned, “then the pieces of the mosaic fall off the wall.”
That eloquent turn of phrase just might have come from Barack Obama, this morning, as he explained his decision to delay any additional assistance to General Motors and Chrysler. Perhaps it could have been the words of Rick Wagoner, the newly-ousted GM CEO, or Chrysler’s chief executive, Bob Nardelli, when they glumly admitted the need for a government bailout to save their companies, last autumn.
In fact, the speaker was Lee Iacocca, the legendary Chrysler chairman, when he announced plans to seek his own federal bailout, nearly 30 years ago.
That news conference was one of the very first events I covered as a rookie on the Detroit beat, and I can still recall the shock his words generated in the cramped and overheated news room at Chrysler’s old headquarters, the K.T. Keller Building, in Highland Park, Michigan. It was long before cell phones and Blackberrys, yet before the blunt-talking executive had even finished his presentation, those words were echoing across the world.
Anyone who thinks the battle for federal aid has been tough, this time around, should check the archives to see what Iacocca and the rest of Chrysler’s stakeholders went through those many decades ago. A thorough bit of research will also reveal just how strongly the automaker emerged from that particular brush with bankruptcy. And, by the time the last check was written to cover the loans Chrysler got, it had also presented U.S. taxpayers with a nearly 40% return on their investment.
That’s the good news. But the flipside of the story is that it didn’t take all that long before Chrysler once again was in trouble. By the end of the 1980s, it was sinking rapidly towards insolvency, a collapse this time forestalled by the arrival of the so-called LH cars, a line-up of strikingly different mid-size sedans, such as the Dodge Intrepid.
Since then, Chrysler’s fortunes have continued to rise and fall like a sine wave. But it isn’t alone. The 1979 crisis, at the smallest of the domestic makers, was triggered by the second Mideast oil crisis. That energy shock hit all the domestics hard, including Ford and General Motors. There were layoffs, plant closings, and a wholesale shift in product line-ups. By the time the industry hit its mid-1980s peak, it seemed not only like the makers had dodged the bullet, but that they had truly learned their lessons and were poised to “push the Japanese back into the sea,” as one-time Ford CEO Harold “Red” Polling once proclaimed.
Well aware that things weren’t as good as they looked, GM CEO Roger B. Smith was determined to shake things up. In 1986, he surprised the industry with a massive reorganization, crafted by the consultants McKinsey & Co. It did away with many of the company’s traditional chimneys – essentially autonomous operations, such as Fisher Body. It was backed by one of the most expensive factory building sprees in history, as well as a supposed cost-cutting effort that Smith claimed was shaving billions in top-line costs every quarter.
But while the short, squeaky-voiced CEO confidently predicted GM would again be firmly positioned as king-of-the-hill, quite the opposite happened. As his tenure ran down, GM started hemorrhaging as much as six points of market share a year. And the bottom line was turning bloody red. It took little more than Iraq’s invasion of Kuwait to reveal the true picture. With Smith’s successor, Bob Stempel unwilling and unable to embrace radical change, GM came as close to bankruptcy as it had been at any time since the days of founder Billy Durant.
How close? A long-time friend and PR executive was assigned to watch the fax machine where the company was expecting to receive a decision on its debt rating. Had it been downgraded, it would’ve immediately forced a Chapter 11 filing.
Smith’s reorganization failed for all sorts of reasons, including, as he admitted to me upon his retirement, the fact that, “I didn’t understand people,” and didn’t factor in the way the men and women of General Motors would react. In fact, they sat, dazed and confused, during the first year or two after the big change, and then spent a tremendous amount of time trying to rebuild the internal networks and fiefdoms that Smith had tried to banish.
He and the executives that followed — both at GM and its cross-town rivals – also didn’t understand how the world had changed. They closed their eyes to the enemy. They ignored their own data. They didn’t listen to consumers. They stonewalled government regulators. But they did keep reorganizing while Japanese makers kept improving and expanding their product lines.
Anyone who followed GM through the latter 1980s and well into the next decade would’ve had a tough time counting all the supposed reorganizations the company came up with. They reorganized the McKinsey reorganization and then, three months later, changed things again. And they issued rosy forecasts about the future that were quickly superseded by sales reality.
The situation really wasn’t all that much different at Ford and Chrysler; though they announced formal reorganizations a bit less frequently, they were constantly going through upheaval. And, as with GM, the results were marginal, at best.
I don’t want to ignore some of improvements that have followed these shake-ups. Particularly in recent years, we’ve seen some tremendous strides. President Obama, in his Monday morning speech, noted that GM captured North American Car of the Year honors, in 2008 – with the redesigned Chevy Malibu – and that its Buick division recently tied for first in long-term reliability – here in the J.D. Power Vehicle Dependability Study. He could’ve added that Chrysler tied Toyota, last year, in the annual Harbour Report, a much-watched measure of factory floor efficiency.
Yet, despite such kudos, GM and Chrysler are dangling dangerously close to the precipice again. They’ve had decades of restructuring, so it’s hard to imagine how they will get things right this time – GM in 60 days, Chrysler in just 30. But the opportunities have just about run out, and if they can’t pull it off this time, as Iacocca might once again say, the pieces of the mosaic really will fall off the wall.
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