Ed Wallace

In business the first story is often wrong

By Ed Wallace

If there’s one thing you can count on, it’s that whatever you read first about the next big thing that will revolutionize the auto industry is likely never going to happen. In fact, history shows the more likely outcome will be the exact opposite.

Doubt that? Let’s look at the history of Chrysler over the past 50 years. Starting in the late Sixties you would notice that their products, particularly the Muscle Cars, were fairly well thought of by Boomers coming of age. Baby Boomers would comprise our short automotive history’s greatest car-buying generation.

Shortly thereafer GM and Ford decided to build a new generation of compact cars that would appeal to the anti-Muscle Car buyer. The Big Two would give us the Vega and Pinto, but Chrysler went another direction, aligning itself with Japan’s Mitsubishi and importing its products, rebadged as Dodge Colts and so on. At first, given the Colt’s lack of sales, it seemed a truly poor business decision.

Of course, the other car companies would also create Japanese alliances, but Chrysler’s became so critically ingrained that Mitsubishi may be the sole reason Chrysler exists today. After all, the First Energy Crisis nearly killed Chrysler; and the second one nearly killed Ford and Chrysler. But, as the Pontiac Turbo Trans Am (and Burt Reynolds’ career) became camp automotive clichés of the late Seventies, it would be the Chrysler minivan that became the must-have family hauler in the Eighties — and that could have never happened without Mitsubishi’s engine and transmission contributions.

Yet Mitsubishi was not what the public or the business media saw as the big automotive story back then. No, it was the genius of Lee Iacocca, banished from Ford to Chrysler. America’s “real car guy,” Iacocca had foreseen the rise of the Boomers in the Sixties and created the Mustang just for them, then the front-wheel-drive K-cars at Chrysler, and finally that iconic minivan. For the record, the Mustang was just Ford’s response to the Chevy Monza’s success with the young adult market; Hal Sperlich, having left Ford before Iacocca, actually designed both the K-cars and the Chrysler minivan.

Still, the Chrysler minivan with Mitsubishi underpinnings was such a huge hit that it not only saved the company, it allowed Chrysler to pay off its government guaranteed loans seven years early. And Chrysler still had so much money left that Iacocca bought Gulfstream Aerospace and tried to turn Chrysler into a high-tech holding company, meanwhile rallying the nation to rebuild the Statue of Liberty. A large segment of the public hoped he’d become our next president.

Three years later Iacocca bought American Motors for its Jeep division. Then in short order, all of his other outside bets started falling apart, and Chrysler was again struggling.

But now Bob Lutz too had moved from Ford to Chrysler, and quickly his design group would launch their cab-forward sedans and the Neon, remake the Dodge Ram truck, and so on. However, though Iacocca was now “being promoted” out the door to full retirement, he refused to let Lutz take over; instead he brought in Bob Eaton from GM. Chrysler then performed better for most the Nineties than it had a decade earlier, under Iacocca.

In the mid-Nineties Mercedes-Benz came calling, wanting to do some kind of joint venture with Chrysler overseas and suggesting India as a perfect location. So a group of Germans and Chrysler executives headed there in their corporate jet, the Daimler execs selling Chrysler execs on the brilliance of the future car market in India all the way. Traveling across India, the Chrysler people never had a clue why the Germans thought so highly of new car sales’ prospects there. In fact, when that business trip ended, one Chrysler executive suggested that if anyone mentioned India as a great future car market again, they should simply “fly over the country” first; and if they saw one improved road anywhere, only then they should land and talk automobiles.

Even so, just a couple of years after that fiasco, Daimler Benz came back. Now they wanted to purchase all of Chrysler Corporation: “a merger of equals” is how they presented it. (This was actually a response to a hostile attempt to takeover Chrysler by outside shareholders) Well, the business media couldn’t get enough of that story, the concept’s genius, or how everyone had apparently overlooked Chrysler’s greatness — obviously why Daimler wanted the company. Then Daimler bought Mitsubishi in Japan and a 10 percent share of Hyundai; and now the business media was going crazy with all the possibilities, including Daimler’s becoming the most powerful worldwide automaker ever.

Well, it didn’t end up that way.

Game of Moans

Hyundai told Daimler to take a hike. Within a few years, and having driven Mitsubishi into the ground, Daimler simply walked on Japan. Dieter Zetsche, then running Chrysler, would talk of how Mercedes was working hard to bring Chrysler up to German quality standards. FactCheck: At the time Chrysler cars had far fewer mechanical problems than their expensive German cousins.

But Zetsche wasn’t interested in making the Chrysler joint venture work; he had his eyes on the big prize, running Daimler Chrysler back in Germany. Only for that to happen, Chrysler had to go. And go it did, to Cerberus Capital Management. Now the media got excited because “outside eyes” — Bob Nardelli’s — would “remake the auto industry of the future and not be held back by Detroit’s myopic mindset.” After all, Nardelli had been one of Jack Welch’s whiz kids from GE’s glory days, so his stewardship of Chrysler became a can’t-miss opportunity.

Only it did miss.

To be fair, Nardelli did keep some critical projects moving forward at Chrysler, but his parent firm, wanting to show everyone how people in Detroit weren’t as smart was these Wall Street geniuses, also purchased half of General Motors Acceptance Corporation, or GMAC. Only GMAC had become a unstable subprime mortgage lender of some size. And Cerberus Capital Management’s entrance into the auto industry came on the cusp of the Financial Meltdown of 2008.

Guess what happened next? The world’s financial system collapses; Cerberus walks on Chrysler; GMAC folds; and GM and Chrysler go into bankruptcy. Oops.

Now, the Obama Administration was thinking that if Chrysler went away, that could strengthen GM and Ford. Then, like Clint Eastwood in a bad spaghetti Western from the Sixties, in walks Sergio Marchionne, fresh from stabilizing Fiat for the first time in decades. And Sergio wants Chrysler — he just doesn’t want to have to pay anything for it. Ultimately, the administration allowed that to happen, simply because the automotive sales volumes and employment were needed for the country to recover. And a full recovery of the auto parts suppliers would be easier with Chrysler alive than dead.

So, over the long haul, this history looks like this: Lee Iacocca was a genius at Chrysler until suddenly he wasn’t. Purchasing AMC just to get his hands on Jeep was Iacocca’s best long-term move, although few believed that at the time. Everyone thought Daimler was the best thing to happen to Chrysler ever, but the opposite turned out to be true. Then came Wall Street and the former GE hotdog, Bob Nardelli, and that was likely worse than the Mercedes Era. Come to think of it, the whole GE deal and what Jack Welch created isn’t looking too great at the moment, either.

Allergic to Stability

And Fiat’s getting Chrysler was the deal that everyone laughed about. The funny thing is that, over the decade since the Financial Meltdown, the one automotive CEO that gets the most media coverage and the most positive press, at least until recently, is Elon Musk of Tesla. And his company has done nothing but lose money for the past 15 years.

Yet the second most written about CEO is Mary Barra of GM. But she is running a company that was already put through bankruptcy, reorganized by Fritz Henderson and, thanks to Bob Lutz, with the best line-up of vehicles in its history. Oh, and with carry-forward federal corporate tax credits that have allowed GM to make huge profits, with virtually zero federal corporate tax liabilities, for years. Unlike Fiat and Chrysler, GM was already fixed when Ms. Barra took over.

For his part, Marchionne not only fixed Chrysler, he delivered some of its most stable financial performances of the past 40 years — discounting only 1995 to 1998, when Chrysler made more money per car built than any other automaker.

But just last weekend we heard that, following shoulder surgery, Sergio Marchionne’s health had taken a sudden turn for the worse. His condition was deemed non-recoverable and a new CEO announced for Fiat Chrysler. Already some in the European business media have snarked about how Marchionne, while a wonderful turnaround artist for both Fiat and Chrysler, was a force of nature and not easy to deal with. As if that wasn’t true of Carlos Ghosn of Renault-Nissan, Henry Ford, Ferdinand Piech of VW, Soichiro Honda and so on. It seems it has often taken a fanatic just shy of being institutionalized to move the behemoths that car companies are into the next stage of their evolution.

It’s a tragedy for Sergio Marchionne, collapsing from bad health, then passing away this week, just feet from crossing the finish line first — in a race that everyone doubted he was capable of running at all. But give him his due: He delivered real stability to Chrysler.

Then again, real stability never seems to last in the auto industry.

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: edwallace570@gmail.com

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