Tag Archives: Car Books

Car Books – Fourth Gear

Continued from Car Books – Third Gear

After reading what a scandal Volkswagen perpetrated on the unsuspecting public throughout the world, I was ready for a more upbeat car book to read.

I thought this might be a good read as I recalled from previous car books how divisive the relationship had been between car guys and financial people within Ford. Bob Lutz is unique in that he held executive positions in all three of the Detroit car companies, Chrysler, Ford and GM (twice) and this book covered his second stint at GM. But it turned out not to be the book that I thought it was and having been written by Lutz himself, only portrayed the story from his perspective, which to me, based on his opinions of the job he could have done had he been CEO, seemed a bit haughty (although I did appreciate Lutz’s disdain for GM’s PMP process, a Performance Management Program I too despise).

So I next tried this book, Once Upon a Car: The Fall and Resurrection of America’s Big Three Automakers – GM, Ford, and Chrysler by Bill Vlasic. Vlasic, being a business reporter, gave a much more balanced accounting among the Big Three as well as the UAW and turned out to be a really good book.

This book covered the fall and rise of the Big Three as a result of the Financial Meltdown of 2008. But the book actually picked up the history starting in 2005, which provided helpful background information about the financial health of each company prior to the sub-prime mortgage collapse that took place in 2008. Prior to the events of 2008, I was not aware of the huge issues the car companies were facing. These details made for a very interesting read.

The storyline in the book alternated between each of the Big Three, which gave a complete perspective of what was happening in each. At the time, all three of the Detroit car companies were heavily dependent upon gas-guzzling trucks and large SUVs, vehicles that each company made enormous profits from. And with these three US manufacturers holding over 90% of the US truck market and with trucks outselling cars by a factor of nearly 2 to 1, their sales made for tidy profits. In this period, cars were just not that profitable and were viewed by most as boring offerings.

But then Hurricane Katrina hit in the summer of 2005 and suddenly gas prices shot up a dollar a gallon and sales of gas guzzling vehicles plummeted. With no attractive fuel-efficient cars to offer, sales shifted dramatically from large US makes to small economical cars from Japanese manufacturers.

The Big Three quickly found themselves with parking lots full of unsold vehicles and excess manufacturing capacity. Each of them, in their own way, made plans to shutter plants to reduce their excessive manufacturing capacity. But the prior contract agreements with the UAW and the legacy “Job Banks”, a union guarantee that even laid off workers would still get paid by the manufacturer, minimized the potential savings of simply closing plants. Therefore, costly worker buyouts, in some cases exceeding $100,000 per worker had to be offered as well. Added to this the high cost of healthcare coverage for both active workers and retirees limited the savings the car manufacturers could realize. These “legacy costs” added thousands of dollars to the cost of a US car that foreign competitors, with their national healthcare systems, just did not have thus giving foreign car companies a financial competitive advantage.

Negotiations with the UAW began to occur and with the losses mounting, progress over reducing these legacy costs began to be made as the Union realized bankrupt car companies would be bad for all parties concerned. At one point during this period, GM was losing a billion dollars a month and Ford and Chrysler were each having record losses.

Chrysler, the one company in better financial shape, thanks to their relationship with Daimler (Daimler-Chrysler at the time), struggled with making progress with the union. That is until Daimler decided to unload Chrysler selling them to Cerberus Investments.

Meanwhile, Kirk Kerkorian was trying to wrestle control of GM from its management team by purchasing up to 10% of its stock and placing his right hand man on the GM board. His efforts ultimately failed which left GM in a precarious position having had the added distraction of fending off Kerkorian. To try to sell its backlog of vehicles, GM launched the idea to offer, “employee pricing” to everyone. While it helped them unload many more unsold vehicles, the pricing meant little to no profit and in some cases even a loss on the transaction.

At Ford, a different approach was being taken. Their plan was named the “Way Forward” which included plant closings, improvements in quality and new car offerings to spur sales. To finance this effort, Ford planned to borrow 20 billion dollars by mortgaging everything, even the Ford name. But Bill Ford didn’t think all this would be enough and so was trying to bring in a new executive to replace himself. After several highly qualified candidates declined, Bill brought in Alan Mulally from Boeing (a story that is told very well in American Icon: Alan Mulally and the Fight to Save Ford Motor Company by Bryce G. Hoffman). Ford’s borrowing in 2006 when credit was available was quite fortuitous given the collapse of the credit market in 2008.

In 2008 when GM and a Cerberus owned Chrysler went in search of credit to help fund their cost reduction plans, none was available. Knowing that the only way forward for GM and Chrysler was to continue to reduce their size and work force, these buyout and closure costs along with a plummeting of the US auto market from a high of 16 million vehicles to around 10 million units, resulted in their largest losses ever. The catastrophic decline in the auto market even left Ford with their largest loss in their 100-year existence.

Secretly GM approached Ford about merging (a fact I did not know) but Ford flatly declined. Jilted, GM next approached Chrysler about combining their two companies but was again turned down once it became apparent to Chrysler that it was just an attempt to save GM.

That Fall, just as Obama was about to be elected president, GM approached President Bush about the possibility of garnering government loans—a request for 10 billion of the TARP money that had been allocated to rescue the banking industry. The answer was no.

After Obama won the election and promised he would not let the US auto industry die, GM, Ford, and Chrysler went together to Congress to ask for help. Congress’s initial rebuff following a grueling two days of questioning was made only worse by the highly publicized debacle of the CEOs winging it from Detroit to Washington on their corporate jets to beg for billions in relief. Their only hope was a more successful second trip to Washington, this time each CEO having been driven in a hybrid vehicle made by their own company.

By this time Ford, given their previous borrowing, decided to forgo any loans from the US government. So it was just GM and Chrysler that requested loans. These loans came with very strict requirements which GM and Chrysler were ultimately not able to meet. This failure led to them both declaring bankruptcy with even the CEO of GM becoming a casualty, one of the few private company executives ever to be “fired” by the federal government.

With active US government participation, a new, but much smaller GM emerged from bankruptcy with the government becoming a 60% owner (this prompted the phrase “Government Motors”, technically a true moniker at least until the new GM issued stock and the US government sold off their shares to recoup their investment cost). For Chrysler, the government forced them to merge with Fiat, the Italian maker of these cute little cars.

Within two years, all three companies returned to profitable operations and today, are much stronger and much more able to compete in the US market. Looking back to these disastrous events that took place almost 10 years ago, it’s frightening to think how close the US auto industry came to becoming extinct. Since hindsight always provides a 20-20 perspective, it is easy now to say that had not the hard decisions been made and the hard work expended, our only choices today when purchasing a car would be a foreign-made or foreign-owned model!

And thanks to this book, I now had the story behind how it all came to fruition.

Car Books – Third Gear

Continued from Car Books – Second Gear

This is a car book I wanted to read even before I knew it was a car book. Ever since the story began to unfold of the Volkswagen Diesel Emission Scandal in 2015, I knew this would be an intriguing story to read. As I learned new details almost daily from my online Autoweek news magazine at the time, the fraud became even more incredible and I hoped someone would write a book. Thanks to Jack Ewing writing Faster, Higher, Farther: The Volkswagen Scandal, that book is now published and thanks to my wife’s unprompted gift of it to me for Father’s Day, I now know so much more.

I was already familiar with how Volkswagen got its start, essentially as a propaganda car company by Hitler prior to World War II so I was a little puzzled when the book traced the beginning that far back. But through an abbreviated history of the company, along with its founding of Audi in 1969 and its close relationship with Porsche, important details were provided about the automotive environment at Volkswagen. And learning about the senior management of the company and their business philosophies—their attitude of make it work or you’re fired—helped me understand how such a scandal could actually transpire.

As I read, there were several learning’s that surprised me.

Turns out, this was not the first time a car company or engine manufacturer had implemented a “defeat device” to disengage emission equipment to improve performance. In the 1990s, there were three separate cases, Cadillac, Ford, and Cummins Diesel that had programmed Engine Control Units (ECUs, the onboard computers) to disengage in certain situations. In each case, the ECU was programmed to recognize when it was undergoing testing—when the engine was driving the wheels but the steering wheel was not being turned—and employ all emission equipment to function properly during the testing. Once deceit was proven, the Cummins case alone resulted in a 1 billion dollar fine by EPA.

The introduction of the Turbo Direct Injection (TDI) Diesel by Volkswagen in 2009 supported Volkswagen’s professed goal of becoming the world dominant automaker outpacing all other car companies in numbers of sales. Diesel-power, while less common among passenger cars in the US, offered advantages of reduced carbon dioxide emissions and better fuel efficiency (relative to gasoline) and afforded Volkswagen an opportunity to compete against Toyota’s highly fuel-efficient Prius. But due to the higher operating temperature inside the cylinder, diesel engines produce much more nitrogen oxides, the gases that cause smog and have a direct link to asthma and other deleterious health issues. The challenge presented to the Volkswagen engineers in 2006 was to create a clean diesel engine for this planned 2009 launch.

Since Audi had marketed a diesel engine since 1999, the engineers looked there first to see how they had addressed emissions difficulties. When they began to examine the ECU programming, they found an unusual section of code that had been included to reduce the loud clacking noise diesel engines make when they are first started. They realized, this was a defeat device as it turned off emission equipment to reduce the noise.

When the engineers kept encountering issues achieving the clean diesel goal, it was suggested that Volkswagen use a similar defeat device to address the poor car performance that resulted when the emission equipment was fully operational. It was reluctantly pursued and since Volkswagen did not write their own ECU code, they had to instruct Bosch, the ECU manufacturer to include it, which broadened the scandal even further. As with the previous devices, these were programmed to recognize when they were being emission tested in the laboratory so that emissions would be within acceptable levels.

By mid-2015, thanks in no small part to their TDI diesel cars, Volkswagen overtook Toyota as the largest global carmaker in terms of sale volume. But interestingly, it was events in Europe that began to unravel the fraud.

Diesel cars are much more common in Europe because of diesel’s price advantage over gasoline and diesel’s superior fuel efficiency. But in spite of still meeting less stringent European emission standards, actual pollution within cites was found not to be decreasing as it should (based on calculations) but rather was increasing. The European organization similar to EPA contracted with West Virginia University (WVU) to test several diesel cars both in laboratory settings and on the road. The WVU staff just happened to test two Volkswagens and a BMW in California where the California Air Resources Board (CARB) had even more stringent requirements than EPA. The results were eye opening. While all three cars easily passed the laboratory test, only the BMW met emission requirements under actual road conditions. On the road, the two Volkswagens exceeded the nitrogen oxide limit by as much as 20 to 30 times.

Still not understanding that fraud was at play, future testing was conducted by CARB. Conflicting data continued to pile up between laboratory and on road testing. Then CARB decided to extend the standardized lab test sequence and discovered a remarkable result. One minute after the test was scheduled to end, emissions jumped dramatically on the car still rolling on the tester.

CARB first asked Volkswagen kindly for explanations but since none were forth coming, began to demand answers. No reasonable answers were provided and so in July 2015, CARB chose to use their nuclear option threatening not to certify the 2016 diesel cars that were already sitting in US ports, an act that would actually preclude their sale not just in California, but anywhere in the US.

From the time of the original WVU study in 2014 through all of the testing by CARB in 2015, Volkswagen continued to obfuscate the truth about the scandal by providing misleading and confusing answers to CARB. Volkswagen eventually admitted to a technical issue with the emission systems in early 2015 and agreed to recall and fix affected diesel cars. But following CARB’s retesting of the repaired diesel cars which still gave failing results, Volkswagen finally admitted that a defeat device had in fact been included in all 11 million diesel cars sold worldwide, a fraud on par with Enron.

The legal process that ensued was complex since it involved government regulators, states, VW dealers, and car owners. Partly due to Volkswagen’s covering up of the fraud, the legal settlement between Volkswagen, US authorities and car owners amounted to 15 billion dollars, well above the previous 1 billion defeat device fine, only to be increased by another 5 billion the following year related to another type of Volkswagen diesel sold.

While this was not the type of car story that would typically pique a car lover’s interest of cars, it was nonetheless, a very interesting tale of just how bad and how potentially unscrupulous a car company could be.

Car Books – Second Gear

Continued from Car Books – First Gear

But it is this most recent book that I read by David Halberstam that has given me the most comprehensive look into the modern automobile industry. I have to admit that I had an almost love-hate relationship with this book while reading it as some of the details it went into in its massive 760 page length I was just not that interested in. On more than one occasion I considered not finishing the book. But I kept on plugging and I am glad I did. In fact, after finishing the book and reflecting on the different interwoven stories, I now see that they were all critical parts leading to ultimately what happened to the US auto industry in the 1970s and 1980s.

This book mainly focuses on Nissan, Ford, the United Auto Workers (UAW) union, the Japanese auto unions and several influential individuals inside and outside the auto industry, going back and forth between all of them on the same chronological timeline as they each enjoyed different successes over their history. The story traces its beginning all the way back to just after World War II when Douglass McArthur was in Japan helping the Japanese to resurrect their manufacturing industries. It was interesting to get more details of the story I was only aware of at a high level of how it was Americans, in particular Edwards Deming that taught the Japanese how to develop quality driven manufacturing processes that led to high quality vehicles (think of products made in Japan in the 1960s vs. the 1980s).

I enjoyed learning of the history of Nissan (Datsun in the US), which was thoroughly covered in the book, all new knowledge to me. But once the book began to describe the development of the Ford Mustang, my interest was particularly piqued. I can still recall as an adolescent in 1964 when the Mustang was launched. The details included helped clarify the controversy over who was ultimately responsible for bringing the Mustang out. While Lee Iacocca has been credited with its development, it was actually others who came up with the design. But it was no doubt Iacocca who shepherded the car through the Ford political morass and into production and his prescient foresight that ensured adequate manufacturing capability to keep up with the unprecedented demand.

It was also incredible to read how close the Mustang came to not being produced at all, for at the time, Ford was controlled by very conservative finance people who had Henry Ford II’s ear and who constantly impeded the product people, the “car guys” whose passion it was to design and build exciting cars. In fact over much of its history, Ford has been controlled not by car guys but rather finance guys who were always looking out for maintaining the wealth of the Ford descendants instead of bringing innovative automobiles to the market.

By 1970, all three US automakers were producing really big, highly profitable cars because they claimed they couldn’t make a decent profit on small cars. And US consumers kept buying these big cars in spite of their poor quality. But all of that was soon to change.

Superimposed on these automotive stories were the events surrounding the oil producing nations and how for so many years, oil was cheap (I can still remember from my childhood seeing gas selling for 29.9 cents per gallon). This storyline reached a climax in 1973 when the Yom Kippur War (Six Day War) led to the Oil Embargo against countries supporting Israel and resulted in the escalation of the price of gasoline and the end of cheap energy. It was at this time when the Big Three (Ford, GM, Chrysler) had no small fuel efficient cars but only large poor quality cars that on average got a mere 13 miles to the gallon. It was the turning point for the Japanese to gain a real foothold in the US auto industry with small fuel-efficient cars that had better quality. Interestingly it was at this time that I bought my first car, a 1973 American Motors (AMC) Gremlin.

As Ford, GM, and Chrysler scrambled to come out with small cars, it was this portion of the book that was of most interest to me as these were events I could readily recall from my teenage and early 20s, the times when GM came out with the ill-fated Chevy Vega and Ford, the maligned Pinto. Having previously read Iacocca’s book, I was quite familiar with his ouster from Ford and his very successfully saving of Chrysler. I can even vividly picture the commercials he starred in for Chrysler and the return of the convertible and the launch of the now ubiquitous mini-van.

The book also covered the development of the highly successful Ford Taurus, the riskiest product launch ever undertaken by Ford and the development of the Nissan plant in Smyrna, TN.

But the underlying theme of the book came to a climax in the chapter with the same name as the title of the book, The Reckoning. For while it was with great interest in the US automotive industry with which I read this book, the fact was that for the forty-year period from 1945 to 1985, that it was the Japanese that became the major producers of automobiles sold in the US. What started, as a very diminutive importing of Japanese cars became the major manufacturers that we know them as today. With the huge market share garnered by the Japanese, the “Big Three” became simply the “Detroit Three” since no longer were they the manufacturing behemoths they had once been. And I guess this reality is reflected in my own selection of cars as with the four cars I currently own, none of them are domestic but rather all are Japanese.

Reading this book has reignited a desire in me to read more books about the automotive industry. Until I read this book, I had not run across one in over four years. But now searching I will go on Amazon for more good car books to test drive.

Car Books – First Gear

I have posted numerous times of one type of book I enjoy reading which I refer to as my Building Books—books about building things. But until recently, I realized I had never written about another genre I especially enjoy reading, books about cars. The more I thought about it, the more I recognized it was long over due.

If you are a frequent reader of my blog, you know that I have been a lifelong car lover, a Miata owner for over 20 years, and now that I have more time to do so, an avid reader.

I can still remember from when I was a toddler that my favorite picture book with all of its colorful cars and dog drivers was Go, Dog. Go! by P.D. Eastman. And when I was in grade school, I can recall with delight when I discovered my first book about cars at the Scholastic Book Fair, a book about buying and taking care of your first car. In high school, my mother suggested I read Wheels by Arthur Hailey, a fictional novel that explored the auto industry from the perspective of the dealer, the manufacturer, the line worker, and the consumer. This was my first exposure to the complexity and politics of manufacturing cars and probably dampened my naïve desire up to that point to work in the automobile manufacturing industry.

As an adult, I read with fascination a number of different books about the development of specific cars, in particular Corvettes, Mustangs, Muscle Cars and Miatas.

I absolutely fell in love with the Mazda Miata when first seeing this car ad in 1989 since convertibles had all but disappeared from our US roads, especially small sports cars. After purchasing a Miata, I bought this book by Jay Lamm. It was with fascination that I read how three different development teams within Mazda vied for creating the car and then once the winner was declared, how the final car was brought to market and all the changes that occurred over its first seven years of production. This could have been a thick 1,000-page book rather than the slim 140 pages it was and I still would have read and poured over every page. The entire development story was an enjoyable read with a most happy outcome.

However, not until I read The People’s Tycoon: Henry Ford and the American Century by Steven Watts did I got an inside look into how unpleasant it could be to live in that world. This book covered the history of Ford as it spanned over its founder’s lifetime. I found absolutely shocking some of the things that occurred within the Ford Motor Company that confirmed my wise choice to enter the field of science rather than automobiles as my career.

Knowing that Lee Iacocca was a part of that troubled history under Ford’s grandson, Henry Ford II, I wanted to get Iacocca’s side of the Ford story so I purchased his autobiography and gained further insight into those difficult years at Ford. In addition, this book covered Iacocca’s successful turnaround of Chrysler after he was fired from Ford.

A much more upbeat story about Ford that I read was American Icon: Alan Mulally and the Fight to Save Ford Motor Company by Bryce G. Hoffman. I was already familiar with Alan Mulally having seen the PBS documentary many years ago on the building of the Boeing 777 jet airplane, a development program spear-headed by then Boeing executive Mulally. And I recalled from 2008/2009 when the other big automakers were getting bailout loans from the federal government as they were entering bankruptcy; Ford had gone it alone and survived without government loans and without enduring bankruptcy. While he seemed to be quite a likeable person in the PBS series, it was only through reading this book that I gained tremendous respect for his executive office prowess.

This book covers the period from when Alan became CEO of Ford when the great grandson to Henry Ford, CEO Bill Ford stepped aside. It tells the story of the struggle between the changes Alan wanted to make and the wishes of the Ford family, which to this day as a block, owns a controlling interest in Ford. To Bill Ford’s credit, he recognized that dramatic change was necessary to save Ford and so mediated with the family to help Alan make the changes. This story is so intriguing and came so close to failing that it might well become a case study for others to learn from in business school. Particularly since Ford still enjoys today the successes that Mulally forged under his leadership.

But it is this most recent book that I read by David Halberstam that has given me the most comprehensive look into the modern automobile industry.

To be continued…