How U.S. Workers Rebuilt an Industry
In June 2009, the last auto plant in Detroit was idle, mausoleum-quiet and a symbol of failure. Weeds had grown three-feet tall around Chrysler's sprawling Jeep factory at the desolate crossroads of Jefferson and Conner as the company went dark during bankruptcy. Among the bills the near-dead automaker couldn't afford to pay: lawn service.
Yet on one Monday morning came the drone of lawn mowers and buzz of weed whackers -- sounds of rebirth. Chrysler was emerging from Chapter 11 and something had to be done about the eyesore the plant had become. So before reopening this important factory, a small band of bosses and workers loaded their own mowers into their cars and trucks, drove them to the plant and began to clear a path for returning employees. "You know we're bankrupt," the plant manager, Richard Owusu, exhorted the group in his charming Ghana accent, "but let's not look like we're bankrupt."
Seventeen years earlier, when Chrysler opened its Jefferson North plant, prosperity was all anyone could see. The factory had been designed to produce a single model: the new Jeep Grand Cherokee. Chrysler Corp., which a few years earlier acquired the Jeep line in its buyout of American Motors Corp., scrapped AMC's plan to produce a rough-and-ready Jeep in the tradition of the World War II runabout. Instead, it designed a refined four-wheel-drive model with an opulent interior and a powerful V-8 engine. Chairman Lee Iacocca dubbed it the Grand Cherokee, following the nomenclature he'd used to name the Dodge Grand Caravan minivan. And he indelicately boasted of the "ghetto factory" Chrysler built to manufacture it.
Reckoning to Revival: Rebuilding the U.S. Auto Industry
Ch. 1 Buckle Up: The Potholes Stay Where They Are
Ch. 2 Off-Road: The SUV's Ride From Peak to Valley
Ch. 3 Recalculating: Failed Talks and an Italian Wedding
Ch. 4 Rearview: Obstacles Closer Than They Appear
Ch. 5 Done Dealership: Collateral Damage to a War Hero
Ch. 6 Idling: Father and Son Live Through Layoffs
Ch. 7 Recall: Insourcing Workers From Detroit
Ch. 8 Trim: Moving the Assembly Line Outside
Ch. 9 High Gear: A New Jeep Every Minute
Ch. 10 Differential: The Divide Over Wages
Ch. 11 Ignition: 'Isn't That What America Is All About?'
Post-Crash Site: Five Scenes of a New Life
Privately, Iacocca fretted that Jeep dealers couldn't sell all 180,000 Grand Cherokees the factory could produce, so he ordered up a Dodge version to hedge his bets. The Dodge model never saw the light of day. "We kept stalling it and stalling it and stalling it, and he'd get madder and madder and madder," recalled Bob Lutz, president of Chrysler in those days. "And then the Grand Cherokee launched and almost immediately the plant was sold out."
The upscale Jeep ushered in the golden era of the sport-utility vehicle, catering to affluent baby boomers looking for a sense of adventure on their commute to the shopping mall and soccer sidelines. By 1995, three years after Jefferson North opened, the plant was building more than 300,000 Grand Cherokees a year and Chrysler was booking record profits. Said Lutz: "You talk about a money machine!"
The fall that followed in 2008 had been a long time coming, yet no one was prepared for its severity. High-profit SUVs like the Grand Cherokee made Chrysler, General Motors Corp. (GM) and Ford Motor Co. (F) the richest automakers on the planet, earning $72 billion from 1995 through 1999, more than the combined profits of all the other carmakers in the world, according to consultant AlixPartners LLP. That enabled car companies to award generous contracts to workers and encouraged them to pour development dollars into ever-larger, fuel-thirsty SUVs, while ceding the market for cars to Asian and European automakers.
By the turn of the century, the fallacy of that strategy began to be exposed as runaway labor costs and rising gasoline prices sapped the Detroit Three's strength and sent their combined profits plunging to $13 billion from 2000 through 2004, while Asian and European automakers made $125 billion. "You could see this train heading toward a cliff 20 years before it happened," said John Hoffecker, managing director of AlixPartners, who worked with Detroit-based GM on its reorganization. "You knew it was going to happen sometime. You just didn't know when."
The plunge came when Lehman Brothers collapsed in September 2008, taking the global economy with it. Detroit was running out of cash and would soon be begging Washington for a bailout. Though GM and Chrysler were in the worst shape, the smell of death was in the air for all three American automakers. "If you let GM and Chrysler go down," said Lutz, who by 2008 was vice chairman of GM, "Ford would have been next."
Now, after the fifth anniversary of Lehman's fall, the U.S. auto industry has come full circle, from bankruptcy to boom. The U.S. government on Dec. 9 sold its remaining shares of GM stock, which reached an all-time high this month. The next day, GM named its first female CEO, Mary Barra, daughter of a GM die maker, who rose from the factory floor to the executive suite.
Detroit's road from reckoning to revival was shorter than almost anyone imagined. The wreckage left GM and Chrysler wards of the state and forced Ford to hock the founding family's name -- the actual Ford oval -- to get lifesaving loans. From that emerged three growing companies that earned $55 billion in the past three years and are selling more vehicles than at any time since 2007.
Back in 2006, when U.S. auto sales boomed, GM, Ford and Chrysler managed to lose money on every model they sold because of their crushing costs, according to the Center for Automotive Research. "That's the big change," said Kristin Dziczek, analyst for Ann Arbor, Michigan-based CAR. "Selling fewer cars, making more money."
Those fatter profits come from leaner companies that radically restructured, reducing debts and employees, while paying their newest workers half what the veterans get. The Detroit Three also overhauled their lineups to field their best cars in a generation, which now command higher prices than formerly formidable foreign offerings. Ford's fashionable Fusion, whose looks draw comparisons to Aston Martin, has an average price of $27,444, which exceeds the Toyota Camry by $3,251, according to researcher Kelley Blue Book. "It's flipped," marveled Lutz, 81, who served as a senior executive at all three Detroit automakers over the last half-century before retiring in 2010. "All of a sudden, the Japanese are behind."
The lessons of Detroit's downfall and recovery resonate for all American industry. It's a cautionary tale on the futility of believing size equals strength. And it's the redemptive story of rediscovering the basic joys of design and ingenuity that originally inspired the industry's founding fathers. "What happened to Detroit was emblematic of what has happened to American industry generally," Lutz said. "There was always this exaggerated sense of the importance and power of American industry, whereas in fact American industry was, decade after decade, getting weaker and weaker."
Detroit's new strength is embodied in Chrysler's reborn Jefferson North Assembly Plant. The Jeep factory has gone from barely breathing to bursting at the seams. Its future was in doubt when it closed during Chrysler's 2009 bankruptcy. Since then, employment there has more than tripled to 4,500, from fewer than 1,400 when Chrysler went bankrupt, and production has more than quintupled to 325,000 models this year, from 60,584 four years ago. It spits out Jeeps 20 hours a day, seven days a week and still can't keep up with demand for the Grand Cherokee. Sales soared 21 percent for the hot model last year and are up 15 percent more this year through November.
Redesigned during the crisis into a lithe, fuel-efficient SUV, the Grand Cherokee is made only at Jefferson North, which exports it to 126 countries, including China, where a fully loaded model sells for $250,000. Analysts estimate Chrysler earns an average of $10,000 on each one, making Jefferson North possibly the single most profitable auto factory in the world. The plant's prosperity is built upon a virtuous confluence of low labor costs, high productivity and a luxurious model that can command prices north of $60,000. The success of that facility is a key reason Chrysler has had nine profitable quarters in a row and 44 consecutive monthly sales gains in the U.S., where deliveries rose 16 percent in November and are up 9 percent through this year's first 11 months.
Chrysler said it expects to make as much as $2.2 billion this year. "Any car company in the world would be happy to have that vehicle," said Scott Garberding, Chrysler's top manufacturing executive until parent Fiat SpA (F) promoted him to purchasing chief in September, "and to have that plant."
How did Jefferson North, and the Detroit Three, come back so quickly? Look closely and you find it's not about George W. Bush, Barack Obama or any CEO. It's about Richard Owusu, Jason Ryska, Tyyonna Clark and Napoleon Wright. This is their story.