Lessons from Detroit: 10 Years Later, the Overhaul of the Domestic Auto Industry and Its Parallels with the Republicans' Problem

Note: Morley Winograd and Mike Hais, NDN Fellows, are co-authors of the critically acclaimed Millennial Makeover: MySpace, YouTube, & the Future of American Politics. Winograd and Hais also have a long history with Detroit and Michigan. Winograd lived there for 50 years and was Chairman of the Michigan Democratic Party from 1973 to 1979. Winograd later served in Washington, DC, as Senior Policy Advisor to Vice President Gore, during which time he witnessed the events described in the essay below. Prior to joining Frank N. Magid Associates in 1983, Hais was a political pollster for Democrats in Michigan and an Assistant Professor of Political Science at the University of Detroit.

With President Barack Obama's expected annoucement 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.