During the period in which Daimler Benz was purchasing Chrysler, Bob Lutz wrote his first book, Guts: The Seven Laws of Business That Made Chrysler the World’s Hottest Car Company. In the review I penned for Car & Driver, I called his 1998 book the most important work on business since Robert Townsend’s Up the Organization came out in 1970. Word came back to me that Lutz appreciated my review, specifically because he was aware of Townsend’s work nearly 30 years earlier and was extremely happy with the comparison.
Of course, his book was wonderfully insightful; at least for those who don’t suffer fools gladly, it’s still a must read even today. The 2003 revised edition, Guts: 8 Laws of Business from One of the Most Innovative Business Leaders of Our Time, adds a wry observation stemming from five more years of experience in industry.
As Strong as Your Weakest 20 Percent
After all, who else but Bob Lutz would make one of his business principles, “The Percentage of Idiots Remains Constant”? What he’s referring to are teams. In short order Bob Lutz walks us through his elementary school days, where he looked around the room and surmised that 20 percent of his classmates either were intellectually challenged and shouldn’t be there, or were personality challenged — which in his book is as bad as a lack of mental power.
From there he observed his junior high, then the Boy Scouts, then an elite boarding school in Switzerland, the Marines and finally naval aviation school. All along the way he was hoping to get to his “idiot-free Valhalla;” but, no matter what mountains he had climbed to escape to the exceptional, the percentage of idiots remained the same. The book’s connection, of course, was tied to corporate teams and teamwork.
Now, smart people can stumble just as often as everyone else. That chapter seems fairly harsh coming from a guy who was born into a very successful banking family, yet himself got kicked out of that elite school in Switzerland and didn’t manage to graduate from high school until he was 22.
But his 1998 disappointment in the quality of management in corporations worldwide was laid bare for all to see. In Bob Lutz’s view, we had entered an era in which management promotions didn’t even cursorily bother to find the most qualified candidate; instead, individuals of no accomplishment other than knowing the latest corporate buzzwords, such as “change management” and “intuitive leadership” — often got the promotion over candidates far more qualified.
I think Lutz was far, far too harsh in his appraisal that the percentage of idiots is 20 percent. I wouldn’t put it any higher than 15.
Focus on Foolishness
When I first met Lutz in person, back in February of 2005 in the GM boardroom, he jumped up out of his chair, moved quickly to meet me, and immediately asked if I’d had a chance to drive the then-new Chevrolet Cobalt. He quickly opined that it was just like driving a little Mercedes. Dang. One of the things that I’ve always loved about Lutz is his ability to thoroughly puncture the bubble of the intolerably self-impressed during their moments of super-hyperbole; and now here was one of my automotive heroes being self-impressed and indulging in super-hyperbole in discussing the new Chevy compact car.
Fortunately for me, I had not yet reviewed that car, so I could sidestep not agreeing with Lutz about the Mercedes comparison. I didn’t even bring up the fact that I’d owned several new Mercedes in my youth, as not to drag his comparison out either. For the record, the Cobalt was nothing like a little Mercedes — but it’s fair to say is that it was light-years better than the old Chevy Cavalier.
Lutz also discussed the foolishness of listening to automotive focus groups, a subject he continues to dwell on today. His point is simple: The public really doesn’t know what they want for the next big thing until they actually see it and it’s ready to purchase. Honestly, some focus groups have asked for coffee makers in car dashboards in years gone by. But the problems of driving while making coffee with an in-dash unit would make it a moot selling point, not to mention getting hot coffee all over you, or broken glass, in the event of an accident.
Not long ago Lutz returned to that subject in a Road and Track column, in which he talked about the original two-seat Ford Thunderbird. Then focus groups said they wanted a back seat, and so Ford gave it to them. With that the little two-seater T-Bird was gone and in its place was the bloated Sixties version, with room for four and just two doors. Which caused some focus groups to ask, why don’t you add doors to the Thunderbird, so the people in back can get in and out more easily? And the next thing you know, “the public” took a fun little sports runabout and turned it into a family four-door sedan that didn’t sell very well. The four door Thunderbird was discontinued after a few model years.
Lutz once relayed the story of the focus group Chrysler put together for his Freightliner-looking Ram truck of the mid-Nineties. The negative feedback on that design was shockingly high; yet just under 20 percent of the focus groups’ members passionately thought it the most beautiful truck they’d ever seen. Lutz saw the wisdom in building a truck that 80 percent of those who saw it would hate — because the truly passionate 20 percent would increase its sales. And they did. Now in its fifth generation, that Ram appears to be outselling the Chevrolet Silverado for the year.
No Secret Sauce
Lutz has been both kind to the Tesla Model 3 and quite harsh about Elon Musk and his business. As he has pointed out for years, there is no secret sauce to Tesla’s battery technology or power train unit. As for Tesla owning its stores, Lutz points out that when he arrived at BMW in the early Seventies, it had a handful of company-owned dealerships in the largest cities in Europe. And BMW made the same claim as Tesla does today: Those stores were there to improve the buying and servicing experience for their customers. Only they didn’t do that; they were nothing but financial black holes for the Bavarian automaker.
Everyone seems to have forgotten that Ford made a run of buying dealers out and having company-owned stores, first in Oklahoma, later in Utah, and in other cities. In fact, Ford announced that factory consolidation of stores in 1997, announced it was over in 1999, and, two years later, finally sold off every last dealership it had purchased.
Yet Lutz’s criticism is not of Tesla’s products, but of the poor way the company is run and managed, right down to having 9,000 people at the Fremont factory that’s building 150,000 vehicles per year. When Toyota and GM had that factory, it used half the labor and put out two and a half times that many vehicles.
As with all of Lutz’s pontifications, it’s all based on the fact that if you don’t know what you are doing, sooner or later you’re going to be cut off from your lifeline — Wall Street’s endless money stream covering bad bets. Or, as written here, sooner or later business fundamentals always win out. It’s only a matter of time.
Prophet of Cachet Doom
Lutz’s latest play is on-demand and fully self-driving automobiles, which he believes will become a reality because, “If you look at the congestion around major cities, you see that car ownership just doesn’t work anymore. We can’t keep adding lanes.” That’s an impactful statement from the man known as the world’s last great car guy.
In that column Lutz wrote about how autonomous cars will be the last great frontier of the automotive industry, killing the car company. That will happen because brand and cachet will no longer be required to get you from Point A to Point B — although he points out that the truly rich may well feel compelled to continue their car ownership.
When that column published it caused quite a stir. Here was the man who gave us, or helped in creating, the BMW 3 Series, the Ford Aero look, the cab-forward sedan and Ram trucks of the Nineties, and General Motors’ complete product renaissance in the first decade of this century. Now he’s saying that nondescript, self-driving automotive boxes will put car companies and dealers out of business.
But, as in all of Bob Lutz’s greatest hits, such as his remark that “Global warming is a crock of _____!,” there’s a caveat at the end of that column. “The whole system, I’m convinced, is 30 years away. Probably the biggest chance we have of this not happening is a lack of sufficient prosperity to bring it about.”
I’m amazed he didn’t say it wouldn’t happen because all the teams working on these autonomous cars still bear out his rule that the percentage of idiots remains constant. That, we’d all understand.