The End of Detroit (11 page)

Both Toyota and Honda were boosted in the 1970s by three things: oil shocks, the institution of fuel economy standards and the tastes of baby boomers. In 1973, Arab nations launched the first of two oil embargoes that sparked soaring gasoline prices and fuel shortages across the country. Lines snaked around gasoline stations, and police caught numerous petty thieves siphoning gasoline from parked cars (the practice soon triggered a run on locking gasoline caps). The following year, the Environmental Protection Agency issued its first Corporate Average Fuel Economy standards governing automobiles, which at the time averaged 14.7 miles per gallon. The EPA directed that automakers had to achieve 20 mpg within a few years, a figure that eventually jumped to 27.5 mpg by 1987. Simultaneously, the agency imposed new regulations on the auto companies for exhaust emissions, demanding that they clean up their cars and reduce the amount of pollutants coming from their tailpipes. Detroit auto companies were paralyzed. Their lineups were chock-a-block with gas guzzlers, long-hooded, large-trunk cars laden with angles, shiny trim and fat tires that promised comfort but could by no stretch of the imagination be called economical. They were dirty, too, spewing carbon monoxide and other dirt into the air with each cough of their tailpipes. Although small cars like the Mustang, the Falcon and the Pontiac GTO had been enormously popular during the 1960s, by the 1970s Detroit’s offerings had swelled in size. The Mustang was but one example, going from a nimble, affordable and sporty car at its birth to a heavy, fast and powerful automobile a decade later. Detroit’s lineups had almost nothing to offer in the way of smaller cars, and the few they had were afterthoughts.

By contrast, Honda and Toyota’s lots were replete with small, fuel-efficient vehicles that met customers’ immediate needs for better gas mileage. True, American auto industry executives and car reviewers laughed at Honda’s first entry, the CVCC, a minicar that seemed little more than a passenger compartment with a roof. The company had to make some significant improvements in size and durability in order to protect the car’s reputation. But Toyota, with its Corolla and a lineup that was slowly expanding, provided some decent consumer options. Detroit’s Big Three auto companies begged consumers to wait out the crisis. In just a few years, they promised, they would remake their lineups and bring their fuel economy in line with the new government requirements (all the while fighting the new regulations tooth and nail in Congress and in court).

Many customers remained loyal. But others, particularly consumers in their twenties and thirties, did not. They sampled the vehicles that the Japanese companies offered, and discovered that these small cars were economical and durable. Honda may have been the subject of derision from Detroit, but fans of its motorcycles knew how reliable its bikes had proved to be and became some of the first customers for its cars, including the mid-sized Accord, which was introduced in 1977. Californians were among the first to embrace Toyota’s vehicles, pleased with their gas mileage, their low-polluting engines and their maneuverability in the state’s heavy traffic.

Those early fans became evangelists for the company, convincing friends and neighbors to take a chance on the vehicles. These new buyers were not disappointed. And the cars’ quality and affordability resulted in some of the deepest buyer loyalty among any brands in the car business. About two-thirds of Honda owners are repeat customers, while half of Toyota’s owners have bought one of its vehicles before.

While Detroit scrambled, the Japanese companies began to see that the United States would be a valuable market. The next step for both Honda and Toyota would be to open factories in the market that had increasingly joined Japan as their most important. Conventional wisdom is that these companies were forced to build plants in the United States by political pressure. According to James Womack, author of
The Machine That Changed the World
, a 1990 book that examined the companies’ manufacturing expertise, that was not the case. The Japanese companies saw the United States as a key opportunity to expand automobile sales, and political pressure in the end turned out to be a valuable cover. “They were going to come here all along,” Womack said.

Honda beat Toyota to American production by several years, opening first a motorcycle plant in Ohio and then its first car manufacturing plant in Marysville, Ohio, in 1982, before Toyota had begun talking about building vehicles in the United States. But Toyota’s own approach was more comprehensive and much more like that of one of the Detroit companies. One of its most important tactics was to populate its American management ranks with scores of talented executives recruited from Detroit companies, especially Chrysler and Ford. Among the most outspoken and enthusiastic managers was Robert McCurry, a savvy former Chrysler executive who ran the company’s sales operations from 1984 to 1995. Now 80, McCurry’s place in automotive history would have been ensured even if he hadn’t gone to Toyota, for he was the man who invented rebates for Chrysler’s cars and trucks and came up with the phrase “Buy a car, get a check.” But he retired from Chrysler in the late 1970s, after a 28-year career there, frustrated by the company’s management tactics. Enticed by a friend to join Toyota’s Mid-Atlantic dealership network, he subsequently moved to Los Angeles and was named executive vice president of Toyota Motor Sales USA in 1984. McCurry and Toyota were a match of American sales acumen and quality vehicles. He taught the Japanese, who still sold vehicles one at a time, door-to-door in their home market, how to market their cars on a much broader scale. “The Japanese, once they got here, found out that the American market was much different,” McCurry said.

Meanwhile, McCurry was enthusiastic about the way the Japanese executives listened to him and embraced his suggestions, one of the fundamental tenets of TPS. “In Detroit, it was hard to get your voice heard,” he said. “As close as I was to a lot of people in Detroit, it was difficult to communicate. People had their eye on the corner office”—meaning a promotion to a top job. McCurry had a powerful platform in Toyota, where he was first to declare that the company was aiming to capture 10 percent of the U.S. market, a mark it achieved in 1997. He argued strenuously that the company should build plants in the United States to get there, and he was also first to push Toyota into the developing market for light trucks, including pickups, minivans and SUVs.

More low-key, but equally critical to Toyota in the United States, is James Press, who began his career at Ford but jumped to Toyota in 1979, where he spent years behind the scenes as a strategist before assuming the top American sales job, which he holds today. Along the way, Press and McCurry recruited more American managers, including Illingworth and Borst, who each ran the company’s Toyota and Lexus divisions before going on to even more critical positions. Illingworth, quiet and thoughtful, and Borst, known for his quick quips, have been linchpins behind the scenes of the company’s strategy to attract American consumers. Illingworth was a key player in the project that led to the creation of Lexus, while Borst leads Toyota Financial Services, the automaker’s powerful lending subsidiary.

McCurry and the other Americans who joined Toyota were eager to do things differently than Detroit had done them. For Illingworth, switching to Toyota meant abandoning a promising career at Chrysler. In 1979, he was general manager for its Cleveland region, the youngest ever to hold the position. Two weeks after he got the job, Chrysler, which was close to bankruptcy and would soon seek a federal bailout, closed the regional office. Illingworth traveled with his staff to the company’s headquarters in Highland Park, Michigan, to meet with Iacocca and determine their future. Illingworth sat in meetings for two days, waiting to see Iacocca, wondering what his fate would be.

He got the answer at 7:30
A.M
. on the third morning, when Iacocca burst into a conference room, puffing on his trademark cigar and cursing. The situation in Cleveland was symptomatic of all the problems that Chrysler faced, Iacocca said, blaming Chrysler’s customers for their lack of faith, its dealers for their ineptness, and the government for dragging its heels on Chrysler’s bailout bid. At the end of the tirade, Iacocca leaned across the table, blew out a plume of smoke, and said to Illingworth, “If you guys can’t get the job done, I have plenty of guys who can.”

It was just the impetus Illingworth needed to go elsewhere, and at McCurry’s invitation, he took a job at Toyota. On his first day there, general managers from all over the United States held a meeting in California, where they sat at a U-shaped table in a Marriott Hotel conference room. Each general manager was advised by Toyota managers what the company hoped for from their region, and given specific instructions on how to achieve their sales goals. The atmosphere was cordial and polite. Said Illingworth, “It was the ballgame. I thought, ‘They get it, they understand it and they are driven by the marketplace.’”

With these Americans at the helm, reporting to some of Toyota’s smartest Japanese executives, Toyota began implementing a strategy that would, years later, lead to its continuing growth. Its success didn’t come quickly. It was simply a step at a time. Among the most significant was its first manufacturing venture in the United States. In 1982, Toyota reached agreement with GM on a joint car-building venture in Fremont, California, that was called New United Motor Manufacturing Inc.—or NUMMI for short. GM was not Toyota’s first choice. Two years before, Toyota had approached Ford Motor Co. and offered a similar deal in which it would share production of the mid-sized Camry with Ford at its Twin Cities plant in Minnesota. Ford at the time was mired in a financial crisis almost as deep as the one at Chrysler, and there were real worries that it would not be able to emerge without its own federal bailout. The Toyota venture, though appealing, was too risky for Ford’s management to approve. In a decision that echoed all of Ford’s past reluctance to tie up with Toyota, it declined the offer, prompting Toyota to turn to GM.

On the surface, the joint venture with GM benefited GM more than it did Toyota. Barely in better financial shape than Ford, GM had suffered badly from its lack of competitive small cars. It had tried developing them on its own, sharing the vehicles among its different divisions as a way to expand their sales, but the vehicles looked too much alike and suffered from terrible quality compared with their Japanese counterparts. Then it tried importing them from lesser Japanese companies, like Suzuki and Isuzu, only to find out that not all Japanese companies were the same when it came to quality. Finally, GM embraced the deal with Toyota as a way to give its customers a vehicle equal to the competition, and perhaps learn some of the secrets that had made Toyota such a strong manufacturer.

In an agreement negotiated by Jack Smith, later to become GM’s chief executive and chairman, and Tatsuro Toyoda, a member of the founding family who went on to become president, the companies agreed to share production of the Toyota Corolla. It would be built, under Toyota’s supervision, at a factory in Fremont, California, that GM had recently closed. GM’s version of the Corolla would be sold by Chevrolet, which solved GM’s most immediate need for a small car. Toyota chose not to sell the NUMMI-built Corollas right away, waiting to see if they were as good as those its workers built in Japan. Eventually, in 1988, two years after the first NUMMI Corollas were produced, Toyota did put a NUMMI car into its lineup. It was a limited-edition hatchback called the Corolla FX, and it marked the first time Toyota was able to claim a locally built car. But Toyota, through the venture, had an even more important strategy in mind. It saw the NUMMI plant as a way to find out what it would be like to work with American workers, and help it make up its mind about building its own plant in the United States.

By the time the NUMMI deal got under way, Toyota was late to American production. With Detroit companies demanding that Japanese companies build cars in the United States or risk trade sanctions, Honda, Mazda, Nissan and Mitsubishi had announced joint ventures or built their own plants years before. It seemed that Toyota was being overly conservative, and in fact its executives were very nervous about the NUMMI plant. “There’s no question in my mind that NUMMI was the test case,” said Dennis Cuneo, the president of Toyota Motor Manufacturing North America, the umbrella organization for Toyota’s manufacturing operations. An attorney who helped negotiate the deal between GM and Toyota, Cuneo wound up being the first NUMMI employee, hired personally by Tatsuro Toyoda. “There was quite a bit of dissent in Japan about even doing NUMMI,” Cuneo said. “I was told by several people that if NUMMI had not been a success, Toyota would have gone back to building cars only in Japan.” That would have meant billions of dollars in North American investment would have never occurred, and Toyota today might be half the size that it is now.

But Toyota’s caution paid off, due in part to the efforts of a former assistant plant manager at Ford named Gary Convis, who had spent 18 years in Ford’s manufacturing operations. He had been promoted from plant to plant, finally landing a position as a manager in Lorain, Ohio, where Ford built trucks. Having spent so many years at Ford, he had no intention of leaving, and ignored a headhunter’s call when he was approached about a job at NUMMI. “I didn’t know what it was,” except that the job would be in California, said Convis. His wife, however, who commented that “Lorain, Ohio, wasn’t California,” suggested he call back. He knew nothing about Toyota and had never heard of the Toyota Production System. But Convis was encouraged that Toyota was ready to build cars in the United States.

Abandoning a position at one of the Detroit companies was like stepping off a ledge. And Ford made him an attractive offer to stay. “They said, ‘You can write your own ticket. Tell us what you want,’” Convis recalled. “But Toyota said, trust us and join us.” He became employee No. 5 at NUMMI. But he spent little time in Fremont, boarding a plane two weeks later for Japan, bound for Toyota City. As he toured Toyota’s factories, he was stunned by their efficiency. He watched, amazed, as parts arrived next to the assembly line just before they were needed, illustrating the just-in-time inventory concept, then unknown in Detroit automakers’ plants. At Toyota, parts were seamlessly unloaded, and materials handlers scooted off with empty bins to restock them and return again just as fresh supplies were needed. There were no arguments, no phone calls demanding deliveries, no shutting down the assembly line to wait for replenishments, and most important, no need to stock weeks’ worth of parts in warehouses out back in case suppliers didn’t show up. “What I was seeing was something I had never seen before. It was like poetry. It was like a dance,” Convis marveled. “It scared the hell out of me. I wondered, ‘How on earth are we going to compete with this?’’’ He had good reason to be frightened. The workforce in GM’s Fremont plant—the labor pool for the joint venture—was known as one of the most difficult in the industry, rife with complaints of drug abuse, absenteeism and a general disinterest in anything but punching a clock. But UAW leaders insisted that GM employ workers from the closed Fremont plant in the NUMMI venture, or it would not give its sanction to the deal. GM could have challenged the union, but it didn’t want to risk a confrontation with the UAW, which had struck GM numerous times over its various efforts to streamline its operations. Home from his trip, Convis held a five-hour meeting with Bruce Lee, the UAW official in charge of the plant. He leveled with Lee, telling him that workers’ previous behaviors couldn’t stand. “The world has changed and it will never be the way it was again,” Convis said.