The 1980s For U.S Automakers
1980s U.S Carmakers
Ford hired Philip Caldwell in late 1979, the first person outside the Ford family to be named CEO. Still reeling from the Pinto disaster, Caldwell had to do something dramatic in manufacturing 1980s cars in order to save the troubled company. He mandated to make quality the number one goal of the Ford Motor Company. But not before losing $1.5 billion in 1980, $1.1 billion in 1981, and $700 million in 1982, a total of $3.3 billion in three years, an astounding figure for a company that had not reported an annual loss since World War II.
Although Ford had a profitable and respected line of trucks, among car owners, the company had become something of a joke. It was decided that the company needed something completely different: a midsize car that would be striking in both design and performance. That car was the Taurus. Conceived in 1980 and introduced in 1985, the Taurus was instrumental in reversing Ford’s decline.
Unveiled in January 1985, it was immediately popular. Dealers could not keep the 1980s cars in stock. It performed very well, it was smooth, efficient, economical, comfortable, and fun to drive. It was rounder, more stylish – it didn’t look typically American. It was at one time called “the hotdog” because of the sort of round shape but the shape was a blessing in disguise because it became a very distinguishing factor.
The Ford Taurus helped to lift Ford from its early 1980s difficulties. Ford committed $3 billion to the Taurus project. Even though Ford turned the corner before the Taurus was introduced, by 1986 profits soared to $3.3 billion. The huge popularity of the Taurus, coupled with renewed interest in the company’s high-end “Panther” cars (the Lincoln Continental, Lincoln Town Car, Ford Crown Victoria, and Mercury Grand Marquis) helped Ford earned $4.6 billion in 1987 and $5.3 billion in 1988.
Chrysler’s comeback was engineered by Lee Iacocca, a charismatic guy. Once working at Ford to bring the Mustang to profitability, he was hired by Chrysler to turn the business around. Virtually broke, the government bailed the company with an unprecedented $1.2 billion guaranteed loan. With Iacocca’s steady hand, the company slashed its workforce by half. With it’s line of K-cars – Dodge Aries, Plymouth Reliant, Chrysler LeBaron, Dodge 400, and, in Mexico, Dodge Dart, strongly performing, in the first quarter of 1984, Chrysler showed a profit of more than $700 million. At the end of that year, profit was $2.38 billion. Profit in 1985 was $1.64 billion. Its line up of 1980s cars, once again, were profitable.
Lee Iacocca became a celebrity. By turning around a virtually bankrupt company, he went on to make $20 million in 1987. Life again for Chrysler’s worker was great. Iacocca, who took the helm of a struggling company, was even talked about as one who would run for President of the United States.
GM made $4.5 billion in 1984, owned 44 percent of the U.S. market, but for all of that, made a series of miscalculations that proved its undoing. By the end of 1986, GM’s market share had fallen to 34 percent. Their 1980s cars were of low-quality. Management’s stubbornness in the decisions that it made caused the company to spend more than it was making. GM’s CEO, Roger Smith, relied on automation (42 billion dollars spent on new factories and equipment form 1980-1985). But the technology failed to deliver. GM’s million-dollar robots made more mistakes than its human workers and the company continued to produce the shoddiest 1980s cars in Detroit.
The Pontiac Fiero, a tiny plastic sports car that looked great but had the tendency to burst into flames, was one of the company’s worst cars. In 1989 the company built more than 240,000 4-cylinder Fieros; each one was recalled twice!! Response was slow on its new GM-10 cars (which included the Pontiac Grand Prix, Chevrolet Lumina, and Buick Regal). Mechanical problems plagued the car. Sales were bad. Losing money, the company slashed the work force and closed factories.
Fortunately, GM was compelled to change its tactic. The management adopted the Japanese team approach to making its cars at its independent Saturn division. Saturn’s customer-friendly approach to selling them won customers over. To deal with the loss of market share, GM’s CEO focused on automation at a cost of $40 to 45 billion, an astounding figure since that was 14 times Ford’s annual pretax earnings at the time.
Roger Smith’s decision elevated him to the status of press darling in the first half of the 1980s. He gained accolades from the press and awards from several publications and institutions. Described as an “innovator”, a “futurist”, and a “visionary”, the ambitious attempt to surpass the Japanese at their own game backfired: according to automotive research undertook by the UCLA’s Lieberman and Dhawan, each GM employee produced just 11.7 cars, while the same metric at Ford was 16.1 and as high as 57.7 at Toyota. GM also earned 38% less than Ford and 26% less than Toyota on each vehicle they made.
With GM’s spending calculated at $34.7 billion over the period from 1986 through 1989, with that amount, GM could have purchased Toyota and Nissan. This would almost double GM’s world market share, increasing its penetration over 40% of the entire free world. Doing so could have easily hurt 80s car imports to the US.
With Smith’s miscalculations and faith that robotics is the Holy Grail of auto building, it just shows that attention to detail and the ever-present realities of the automobile landscape matter in business as much as the best-laid business plan.