Lessons from Detroit: 10
Years Later, the
Overhaul of the Domestic
Auto Industry and Its
Parallels with the
Republicans' Problem
With President Barack
Obama's expected
announcement later this
morning, the current
debate over whether to
save our domestic auto
industry has revealed
some starkly different
views about the future
of manufacturing in
America among
economists, elected
officials and corporate
executives. There are
many disagreements about
solutions to the Big
Three’s current
financial difficulties,
but the more fundamental
debate is whether the
industry should bend to
the will of the
government’s and
taxpayers' priorities or
serve only the needs of
the companies’ customers
and their shareholders.
Detroit had an
opportunity — nearly 10
years ago to the date —
to change. To understand
the globalizing world
around it, to understand
that consumers'
priorities and values —
especially those of the
rising
Millennial Generation
— were changing
drastically. While some
may think it's a leap to
compare an overhaul of
Detroit with an overhaul
of the
discredited Republican
Party, the
similarities are there:
But when the
government
becomes a major
stockholder in
private
enterprises, the
brand becomes
political. And
as General
Motors learned
to its regret,
when a company’s
brand is as
damaged as badly
as the
Republican
Party’s is now,
the chances of
it prevailing in
any debate about
the automotive
industry’s
future is
greatly
diminished. Very
aware of the
public tsunami
of anger over
AIG bonuses,
Wall Street
excesses and
public
perception of
corruption and
lack of
accountability,
President Obama
is not in a
forgiving mood.
He has made
clear the
domestic
automobile
industry has to
be seen as a
contributor in
ending America’s
dependence on
foreign oil and
improving our
environment to
secure his
support. Almost
exactly ten
years since the
debate at the
Detroit airport,
as a price for
its financial
support, the
federal
government will
in fact be
telling at least
General Motors
which vehicles
to produce for
its customers.
Given that
arrangement,
both parties to
this newest
partnership need
to find
“win-win”
solutions for
the industry’s
future that
match the
optimism and
civic spirit of
the Millennial
generation who
will have to pay
for the results
of their
decisions.
The last time the
industry seriously
engaged in such a debate
was during the Clinton
Administration and the
companies’ failure to
effectively respond to
Vice President Al Gore’s
offer to partner with
them in producing more
environmentally
sensitive products gives
substance to President
Obama’s charge last week
that their current
difficulties were caused
by executive
“mismanagement” in the
past.
Attempts to nudge
Detroit into producing
more fuel-efficient
vehicles have been going
on since the 1973-4 Arab
Oil embargo, which led
Congress to establish
Corporate Average Fuel
Efficiency (CAFÉ)
standards for cars and
light trucks. The
original fuel efficiency
target was for cars to
meet an average of 27.5
miles per gallon (mpg)
by 1985. On Earth Day,
1992, candidate Bill
Clinton proposed to
raise that standard even
further to 45 mpg if he
were elected President.
When Al Gore was asked
to join the ticket, auto
industry executives,
terrified at the
prospect that the man
who had called for the
abolition of the
internal combustion
engine might become Vice
President, implored the
leadership of the United
Automobile Workers (UAW)
to meet with the
candidates and bring
them to their senses.
The lobbying effort
worked. Clinton agreed
to delay the adoption of
higher CAFÉ standards
until it could be proven
that such goals were
attainable.
This formulation opened
the door for what came
to be known as the
Partnership for a New
Generation of Vehicles
or PNGV. Reluctantly
supported by the Big
Three, PNGV provided
approximately a quarter
of a billion dollars in
government research
funds to demonstrate the
feasibility of producing
a midsize sedan that
could get 80 mpg. Often
called “the moon shot of
the 90s,” each car
company was to make a
prototype of such a
vehicle by the
politically convenient
year of 2000 and begin
mass production by 2004.
After a few years of
technological research,
the partnership settled
on the combination of a
hybrid gasoline and
electric powered
propulsion system as the
most promising approach.
But by 1997, the car
companies began to
resist expending their
resources to develop
even a prototype for
such a vehicle. Vice
President Gore, who had
been in charge of the
PNGV program since its
inception, decided to
meet with the Big Three
CEOs to make sure they
did not forget their
past commitments. The
answer from Detroit was
emphatic: profits were
coming from SUVs and
heavy-duty trucks, not
cars. Gore countered
that argument by
offering to trade the
administration’s support
for tougher regulations
on the permissible
amount of sulfur content
in the diesel fuels that
would power some of the
new hybrid SUVs, if the
car companies would join
in expanding the scope
of the PNGV plan to
include SUVs, the very
product they said the
marketplace was asking
for. Gore suggested each
company produce a
concept SUV by 2002 and
three production
prototypes by 2006,
capable of getting 80
mpg. He also suggested
they advance the mass
production goal for cars
to 2002 by deploying a
60 mpg five passenger
sedan in 2002 rather
than waiting for an 80
mpg version in 2004.
Ford’s Peter Pestillo
and his UAW ally, Steve
Yokich, quickly replied,
“no way.” Pestillo
maintained, “We need
much more time than that
to make them cost
competitive.” Not all of
the auto executives were
blind to the challenge.
General Motors’
Vice-Chairman, Harry
Pearce had been the
driving force behind
GM’s ill-fated EV1
electric car experiment.
And William Clay “Bill”
Ford, Jr., great
grandson of the
company’s founder and
Chairman of its Board of
Directors envisioned
building a 21st century
version of the Model T
that would be
environmentally friendly
as well as inexpensive.
Gore asked the companies
to respond to his
suggestions by September
1998, the fifth
anniversary of PNGV.
But it wasn’t until May
of 1999, that the auto
company CEOs joined the
Vice President to settle
the issue of SUVs and
PNGV. Gore began the
meeting, held in a back
room at the Detroit
airport, by suggesting
that developing these
products could enhance
the industry’s image as
well as each company’s
individual brands.
Ford's Pestillo asked
for still more time to
consider the idea:
“While we love the
progress we are making
in PNGV as it’s
currently constituted,
it’s not yet clear to us
that the technologies we
have been working on
apply to the design of
an SUV.” But Pearce used
the platform (basic body
design) issue raised by
Ford to make Gore’s
point. He sketched a
future auto industry
where the line between
cars and trucks would
not be as clear,
describing what we know
today as “crossovers”.
It might therefore be
wrong, he suggested, for
PNGV to be limited to
just one platform.
Gore took the opening
and suggested the
companies think about
what such an
announcement might mean
to the industry’s image
and their individual
brands. “It’s not just
the substance of the
issue you need to
consider. You also need
to think about the
symbolism of the
decision. Putting SUVs
into the PNGV project
would change the
public’s perception of
where you are going in
the future.” When
Pestillo attempted to
return to his original
arguments, he was
overridden on the spot.
GM said, “If you will
include lean burn
technology (for diesel
SUV’s) into the project
that might work.” Gore
responded, “Let’s work
on this as a package.”
Recognizing the
breakthrough they had
just achieved, the
participants began to
think about what the
future might look like
if they formed a true
partnership — not too
dissimilar from what is
being contemplated now
under the terms of the
automotive industry
loan. Gore said he would
put his personal
reputation behind such
an agreement, which the
press would think of as
a “Nixon goes to China”
event, garnering the
auto industry a great
deal of positive press.
But when it came time
for the true test of
their commitment to this
new partnership, the
autos blinked. The Vice
President suggested they
sign off on a press
release, conveniently
drawn up before the
meeting started,
announcing the inclusion
of SUVs in an expanded
PNGV project. The CEOs
argued for a less
definitive announcement
stating that they would
address the issue of
highly fuel efficient
SUVs within the context
of the PNGV partnership,
but not commit to any
specific goals for their
production. This
less-than-definitive
agreement barely made it
to page B4 of the Wall
Street Journal the next
day and was generally
ignored by the public
the participants were
hoping to impress.
Unfortunately for
America, General Motors
then decided to go in
almost the opposite
direction. Rick Wagoner,
who became General
Motors' CEO in June
2000, chose to pursue an
SUV-centered strategy
that won big profits for
a brief period. Since
then, however, GM stock
has plunged 95%, from
$60 per share to just
under $4 today. General
Motors, which has lost
$70 billion since 2005,
has seen its market
share cut in half. Seven
years after the fateful
auto summit with Al
Gore, when asked what
decision he most
regretted, Wagoner told
Motor Trend magazine,
“ending the EV1 electric
car program and not
putting the right
resources into PNGV. It
didn’t affect
profitability but it did
affect image.” [emphasis
added].
His lack of commitment
to the type of
automobile industry that
PNGV envisioned
ultimately led to his
downfall with the Obama
Administration now
demanding his
resignation as part
their plan to save GM.
The importance of a
company’s public image
or brand value has never
been greater than in
this new civic era,
where the lines between
democratic
decision-making and
private sector planning
are becoming
increasingly blurred.
The organizing cry of
Boomer feminists was
“the personal is
political.”
The paragraph from above
bears repeating:
But when the government
becomes a major
stockholder in private
enterprises, the brand
becomes political. And
as General Motors
learned to its regret,
when a company’s brand
is as damaged as badly
as the Republican
Party’s is now, the
chances of it prevailing
in any debate about the
automotive industry’s
future is greatly
diminished. Very aware
of the public tsunami of
anger over AIG bonuses,
Wall Street excesses and
public perception of
corruption and lack of
accountability,
President Obama is not
in a forgiving mood. He
has made clear the
domestic automobile
industry has to be seen
as a contributor in
ending America’s
dependence on foreign
oil and improving our
environment to secure
his support. Almost
exactly ten years since
the debate at the
Detroit airport, as a
price for its financial
support, the federal
government will in fact
be telling at least
General Motors which
vehicles to produce for
its customers. Given
that arrangement, both
parties to this newest
partnership need to find
“win-win” solutions for
the industry’s future
that match the optimism
and civic spirit of the
Millennial generation
who will have to pay for
the results of their
decisions.
