The Potholes Stay Where They Are
On a brisk January day in 1992, Chrysler's then-President Bob Lutz slid into the driver's seat of the first Jeep Grand Cherokee to roll off the assembly line at the new Jefferson North factory. Riding shotgun was Detroit's colorful and cantankerous mayor, Coleman A. Young. They were on their way to make a showstopping introduction at the Detroit auto show, but it would not be a smooth ride. As they turned onto potholed Jefferson Avenue, Lutz said: "You know, some of these streets really need attention, your honor." Young laughed and said, "What, you don't like them potholes?" As Lutz struck another road divot, he responded, "Who would?" Young laughed again, Lutz recalled, and said, "Well, you better learn to love 'em, because they're staying right where they are."
Chrysler had hit a few potholes itself on the way to this triumphant moment. After a controversial government bailout in 1980, Chrysler was the feel-good corporate turnaround of the decade. Lee Iacocca, now 89, became a folk hero by paying off those U.S.-backed loans early and for his brash TV commercials pitching Chrysler's K-cars and minivans. "If you can find a better car," Iacocca would bark, "buy it." Then its $1.52 billion acquisition of American Motors in 1987 almost bankrupted the company because that big purchase came before the stock market crashed. By 1991, the U.S. economy had tumbled into recession, Chrysler's operating losses reached almost $2 billion and the company ran so low on cash it had to sell a special issue of stock at the meager price of $10 a share to keep the lights on.
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
For Iacocca, the Grand Cherokee had been the secret prize inside AMC. Already under development then, Iacocca could see the Grand Cherokee's potential to be a huge moneymaker and turn around Chrysler's fading fortunes. AMC had designed it to be a replacement for the small and boxy Jeep Cherokee, which was still selling well. Chrysler changed course and decided to keep building the old Cherokee and make the new Grand Cherokee more luxurious and high-priced to take on Ford's (F) hot-selling new Explorer SUV. Instead of equipping the Grand Cherokee with a sensible six-cylinder engine as AMC intended, Chrysler found a way to stuff a brawny V-8 under the hood. With gasoline selling for little more than $1 a gallon, all that power "made the thing unbelievably desirable," Lutz said.
The record profits that followed made Detroit drunk and dependent on big gas guzzlers. "SUVs, in particular, and pickup trucks became the golden goose egg for the automotive industry in the U.S.," said Hoffecker of AlixPartners. "There was lots of money to be made, but the challenge you could see underneath the water was that the money was being made on a very small set of products."
While Detroit was distracted by the SUV craze it created, Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. expanded their North American manufacturing footprint to produce a parade of high-quality cars. The new Japanese plants paid workers less than the Detroit Three and had the benefit of mostly young employees, who had lower health-care costs and smaller retirement expenses. That created a yawning cost gap between the American and Asian producers, giving the Japanese a $2,500 per car cost advantage.
With Detroit diverting development dollars into ever-larger SUVs and opulent pickups such as the $50,000 Lincoln Blackwood, domestic car offerings withered. The finance staffs at the Detroit Three took a dim view of wasting money designing cars consumers didn't want to buy. The Ford Taurus, the best-selling car in the U.S. in the early '90s, last topped the charts in 1995. No Detroit car has ranked No. 1 since.
"That's when you saw the rise of the bean counters," Lutz said. "They quite naturally adopted the philosophy of, look, the Japanese produce way cheaper than we do. The only way to offset that is ever more radical cost reduction."
That led to some of the worst cars Detroit ever produced. "There was a lack of exterior ornamentation, non-glossy paint jobs, poor fit and finish, depressing interiors, cheap cloth," Lutz said. "People would legitimately say, `Hey, I look at Japanese and European cars and they're beautifully done. I open the door to an American car and it's all crap. Why should I buy it?"'
Yet as long as gas prices remained low and SUV sales remained high, Detroit didn't worry about its festering car problem. When BusinessWeek magazine wrote a 1997 cover story on Detroit's shrinking share of the car market and growing dependence on SUVs, GM (GM) Chairman Jack Smith told the authors: "That's the worst story I've read all year."
By 1994, two years after the first model rolled off the line, Chrysler was adding a third shift of workers at Jefferson North so the plant could build Jeeps around the clock. Mark Harrington, fresh out of high school and working as a cook at a cafeteria-style restaurant, got a call from his father, who worked at Jefferson North. Management had asked workers to make referrals on new hires. Did Mark want in?
"My dad had two cars and a house and, to me, he was making a good living," said Harrington, 37. "When he asked, I said, `Do I want a job making the same money as you? Hell, yeah!"'
Similar enthusiasm greeted Lutz and Coleman Young as they drove that fire-engine red Grand Cherokee up Jefferson Avenue in 1992. To pass the time between potholes, they swapped war stories. Young, the gray and aging mayor who died five years later, had been one of the famous Tuskegee Airmen in World War II and Lutz, Hollywood handsome with a square jaw and silver shock of hair, had been a Marine fighter pilot in Europe during the Cold War. For fun on weekends, Lutz still flew a Czech-built Aero Vodochody L-39 Albatros fighter jet over the skies of Detroit.
Finally, they reached the front steps of Cobo Hall, where a crowd of journalists and gawkers at the Detroit auto show awaited them. Lutz engaged the four-wheel drive, dropped into low gear and left the road to begin the climb up the stairway to the entrance. "Pretty soon we're at a 45-degree angle and looking at the sky," recalled Lutz, who compared the sensation to taking off in his fighter jet. "As we're basically laying on our backs, going lump, lump, lump, one step at a time, hizzoner shouts, `Ho-ly s--t!"' A moment later, on cue, they smashed through a glass wall into the hall and Chrysler's hot new Jeep had taken wing.