Part 8: Mergers and Acquisitions, Sports Car Revolution, Japan Strikes Back and The Birth of the Electric Car
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Nobody had any idea just how destitute Nissan was in 1999....when Carlos [Ghosn] and I went over there, it was soon clear to us that this company had been living hand to mouth for years, struggling to keep things up above water, and the Japanese were too proud to admit the problems they were facing, not so much because of arrogance but because they feared failure and disgrace to such a degree. One of the things we had to hammer into people's heads was that failure did not destroy you. Nobody at Nissan, right up to Yoshikazu [Hanawa, Romney's predecessor] thought that way, and they did their best to cover up mistakes rather than recognize and fix them. It was so similar to what my father told me of how Detroit used to be it was almost eerie."
-- Mitt Romney,
The Adventure of Making Cars, 2014
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It seems odd that at one point people felt that there would only be six or seven carmakers in the world by this point, if you don't look at the role history has taken on the world of the automobile."
-- Jason Dawe, in an Interview with EVO America, November 2012
By the early 1990s, the most critical reality of the world's auto markets was the numerous alliances and consolidations that had begun to take hold. In the 1980s this had mostly involved smaller players (though Dan Gurney's takeover of the remnants of British Leyland in 1982 was something of an exception to that) and companies doing business because it benefitted both of them, such as the alliances between Peugeot-Citroen and Chrysler and AMC and Renault. Detroit had taken over a whole raft of the prestige small players in the 1980s in 1990s, with Jaguar bought by Ford in 1989, Lotus by General Motors in 1987 and Lamborghini by Chrysler also in 1987. In all three cases, the smaller makers desperately needed resources - Lamborghini had been living hand-to-mouth for several years at that point - and all became prestige assets for the companies involved, and in the cases of Lotus and Lamborghini, engineering assets with few rivals. But things came to a head for numerous automakers in the early 1990s - a situation which would come at a time when Detroit was both thinking very optimistically and, thanks to strong sales on larger vehicles and more profitable models, was flash with cash and eager to buy in.
This first came to a head with Italy's Fiat. Having left the United States market in 1984 and with its share of the European car market plummet in the 1980s as strong efforts by Gurney Austin Rover, the Volkswagen Group and the French automakers saw them improve their shares - and with Fiat's share of the Italian market dropping like a rock, Libya's 1970s investment in the company making for a political flashpoint and two top Fiat officials arrested in 1990 for bribing Italian politicians, things were looking bad for the Italian automaker - to the point that the Italian government had to front Fiat an operational loan of $1.9 Billion in 1991. Gianni Agnelli's retirement from Fiat that same year saw a new boss, General Electric board member Paolo Fresco, take over Fiat's operations. A tough manager and one with much more of an informal style, Fresco improved Fiat's performance but still found his company on the edge.
Enter General Motors. Looking for expertise in diesel engines for its car models - by the early 1990s the Chrysler / Peugeot and Volkswagen diesel cars were loved by owners for both increasingly-good performance and amazing fuel economy - GM went so far as to considering buying all of Fiat, but the rumors of that breaking in the spring of 1991 caused an industrial relations nightmare at Fiat - the unions already pissed at the changes in management style under Fresco, responded to the idea of a GM takeover by threatening "lifetimes of anger" and "destroying all that made the company great" if Fiat was bought out. Despite this, GM recapitalized Fiat, being provided with a 23.5% share in its operations in July 1991, though plans of a takeover never came to fruition.
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Whatever people could say about the UAW back in the bad old days, they never threatened years of pain or physically destroying the organization that fed them. We had no plans to run down Fiat in any way, shape or form, but the Italian unions saw us like we were the second coming of the fascists, with a totally unfounded hate that would have made Joseph McCarthy proud, even after we dumped billions into Fiat to keep them alive. It was terrifying....but when Alfa Romeo came into the picture, they said loudly that they were not going to do what the Fiat unions did. That was a huge relief to us, I can tell you."
-- Frederick Henderson, commenting about the Fiat affair to Autoweek in 2003
Despite that, Fiat's problems continued with the unions and its falling market share. In 1997, following failed negotiations with its unions, Fiat declared bankruptcy, just six years after the huge recapitalization. Thinking that GM would take over the company's physical plant and assets, the Italian government nationalized Fiat on August 24, 1997, to the happiness of the unions - who were even happier when the Italian government fired Fresco three days later. But this resulted in a lawsuit against Fiat by General Motors, who demanded that their access to the company's designs be maintained by the nationalized company - a demand loudly denied by the Italian owners of the company, who in effect told GM to get lost. Italian courts saw the battles fought in it through 1998 and 1999, with GM's objections leading to them fighting this into the European courts, with the likelihood of them winning - and thus holding a major portion of Fiat - being very good, the Italian government cut a deal with GM in August 1999.
GM would drop its lawsuits in return for a payment of the equivalent of $3.4 Billion US - less than one-fifth of their initial investment - but also having access to all Fiat engines and chassis platforms for 20 years, complete ownership of the Alfa Romeo and Lancia brands, half-ownership of Maserati and Magnetti Marelli and 20% of Fiat's stake in Ferrari, which amounted to 18% overall. It was a good deal if the companies involved prospered, and GM took it anticipating such success - and to help ensure it, when the first GM-developed Alfa, the 147, came out in 2002, it came out with GM petrol engines and many of its innovations, as well as being sold in a number of GM dealerships. Contrary to Italian worker fears, the 147 and the cars that followed it, the 159 and 169 sedans, continued to be made almost entirely in Italy. The 147 was a reasonable success, but the 159, which took full advantage of GM's advances in polymer body panels and aluminum construction and was a fantastic sports sedan by any definition, was one of the biggest hits by the Italian automaker in decades when it came out in 2004, and sold over 450,000 examples between 2004 and 2010, a solid quarter of those ending up in North America.
A 2005 Alfa Romeo 159 Sportwagon
For Ford, their purchase of Jaguar did not prove to be a real financial benefit, but it was a design and engineering one, and their subsequent close relationship with Gurney Austin Rover meant the two companies would end up working with each other frequently - and in the process end up saving a considerable portion of Britain's automotive industry. Ford's other big buy was the purchase of Volvo Cars in 1997, done as Volvo decided to focus on its heavy truck industries. Both Jaguar and Volvo, however, wound up benefitting immensely from being owned by Ford - Jaguar's XJ220 supercar and XK180 and F-Type sports cars came to fruition under them, and Jaguar's introduction of aluminum chassis and carbon-fiber bodies came to be because of Ford's financial investments, though the F-type's chassis would end up underpinning the Mustang, Jaguar's work with Japanese engineering firm IHI provided Ford with advanced turbocharger technology, which would see much use on their EcoBoost engines in the early 21st Century.
The 1997 Jaguar F-Type Concept - The 2001 Jaguar F-Type sports car looks very similar
A 1993 Jaguar XJ220
But it was AMC that was the biggest game-changer. When Renault was privatized by the French government in 1994, it was Mitt Romney - now the company's vice-president - who convinced AMC to buy a huge share of Renault stock, buying up nearly 40% of the company as a counterpoint to Renault's ownership of 46.2% of AMC stock, bought in the late 1970s. The huge cash injection that resulted from this gave Renault the funding to expand its model improvements, and the huge stock purchase caused Renault's stock prices to stay fairly high, a fact which allowed AMC to use it to borrow in larger amounts for development money for their cars. This deal turned out to be highly beneficial for both companies - and a sign of their long and deep relationship became clear five years later, with the beginnings of one of the biggest automotive alliances in history.
Facing enormous losses, Nissan in March 1999 entered into an alliance with Renault and AMC, both buying up 14% of Nissan stock each and under the terms of the deal allowing the companies to appoint many senior officers - which resulted in Carlos Ghosn's appointment as Nissan's Chief Operating Officer and Mitt Romney as Nissan's Chief Financial Officer. A huge shock to Japan's business community at first, it would not remain so for long, as Ghosn and Romney embarked on one of the most successful business turnarounds in history, with Nissan's sales and profits soaring in the following few years, a fact that made Nissan, Renault and AMC all billions of dollars in profit. The success of Nissan's reorganization was such that both Ghosn and Romney became something of heroes in Japan, famed for reviving one of the company's industrial heavyweights and saving tens of thousands of Japanese jobs at the same time. Romney's work in Japan catapulted him to fame, and he returned to America in 2007 to take over his father's job as the President and CEO of American Motors.
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Carlos Ghosn and Mitt Romney are two men who have quite possibly saved one of the major corporations of Japan, working incredibly hard and very diligently and doing much to prove themselves and their company to the world, and in the process doing incalculable benefit to Japan, ensuring the work of tens of thousands of the workers. They are men of a breed, a breed who have brought their extensive knowledge to Japan, to all of our benefit."
-- Statement from the Citations of Carlos Ghosn and Mitt Romney being award the Order of the Rising Sun, 2005
In a way, AMC would end up not really liking the success of Nissan's turnaround, as it came towards the trailing end of an enormous push by Japanese automakers into North America. Having suffered serious economic problems after the end of the Japanese "bubble" of the 1980s and the massive economic problems that resulted, Japanese automakers saw to get around problems at home by expanding their sales in other parts of the world, and North America, which was a lucrative market and largely dominated by the GM-Ford-Chrysler-AMC set, was a favored market because of its size. This, however, had a potential problem in that cars that would sell well in Japan would not do so in North America, at least so the thinking was in Japan. Into this, Toyota, Honda, Nissan, Mitsubishi, Subaru, Suzuki and Mazda dove in, in most cases going for advanced design ideas and taking advantage of the massive drop in value of the Japanese yen as the bubble fell, which returned the Japanese by 1994 or so to where their economics had been in the mid to late 1970s when they had made their mark in America. Swinging back with literally dozens of new products between them, Japan threw the gauntlet down at Detroit and dared them to try to get ahead.
A 1994 Toyota Supra Turbo on a test track
That was a challenge Detroit was ready for in a whole bunch of ways. Effectively unscarred from economic problems in the 1980s and with their huge market providing them ample capital, as well as many examples of vertically-integrated operations which simplified cost control, the challenge of countering Japan's offensive head-on was taken on with a will, even as Tokyo's legislators, hell-bent on using export performance to overcome the weaknesses of Japan's economy, pushed the companies in every possible way, including Japan's Central Bank fighting to keep their currency weak and the Japanese government lavishly subsidizing their research and development and providing billions of dollars in operating subsidies. The national, political and economic need for such performance led to Mazda, Subaru and Nissan betting their futures of big successes - and in all three cases, this led to later financial problems. The huge support led to distaste from Detroit (and absolute howling from the UAW), but it was dealt with in any case. Honda and Nissan also leveraged their assembly operations in North America to the limit, aiming for help in that regard and badgering American politicians to provide additional support for the local plants.
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If Washington wants to ask itself why Japanese automakers are able to do things we can't, there is a very simple reason, and it isn't anything to do with us or even indeed the management of the companies. It is because both law and custom in Japan for government and business to merge concerns. If Washington wants to look at who is responsible for Japan being able to blast their way into the American market, they need only look at themselves."
-- Stephen Yokich, Vice-President of the United Auto Workers union, 1994
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When [Ford] bought in, it didn't take of us long to realize that Mazda's bosses had not just bet big on their plans in the 1990s, they had bet the future of the company on it, realizing that if their cars in the 1990s hadn't been successful that they would be broke. However bad we had been in the 1970s with the moves to bring the Escort and Sierra to North America or in the 1980s with the Taurus, we'd never directly bet the future of the company on one model's success or failure. We'd had no idea just how hard they were pushing, and being pushed, to be successful. It was quite a shock, and while many were surprised when Subaru and Nissan had to work with others, I wasn't surprised at all. I had just wondered when the day would come."
-- Henry Wallace, Mazda's CEO from 1996 to 2000, in an interview with Forbes in 2005
With the pressure to perform, the Japanese went for every market imaginable, from the small cars like the Honda Civic, Nissan Sentra and Toyota Corolla all the way to the exotic and expensive Lexus and Infiniti luxury cars and the awesome Honda NSX, Toyota Supra and Nissan Skyline GT-R sports cars. In addition, facilities to build the cars in America, most of these in the southern states, starting springing up in the 2000s. For Toyota and Honda it was more than enough to stay operating, but for several companies, they had to chase foreign partners, leading to Isuzu and Suzuki allying with GM in the 1990s, Ford increasing its share in Mazda up to 33.4% in 1996 and Chrysler buying 51% of Subaru in 1997. All of this paled to the AMC/Renault-Nissan deal, of course, but they were significant in that Detroit was buying a major share of Japan's auto industry in the later 1990s, a fact that was initially shocking to Japan's corporate community. Henry Wallace and his successor in Mark Fields would get far in reorganizing Subaru, but when Ghosn and Romney forever changed the environment of the Japanese auto industry, it perhaps removed Japan's greatest single problem with its auto industry - their corporate culture.
In Europe, one of GM's well-known but not as profitable subsidiaries in this same time period unveiled a revolution in sports cars, that taking the shape of the Lotus Elise, the tiny sports car that Lotus rolled out in 1993, bringing with it a revolution in sports car design. The Elise was a tiny car with a bonded aluminum chassis, and thanks to design work by GM and British Aerospace (among others), a carbon-fiber body which used much larger bundles of carbon-fiber filaments, a technological advancement which made the material much faster and easier to work with - and as a result much cheaper. The combination of the Elise's aluminum chassis and carbon-fiber bodywork meant a car that only weighed 1,525 pounds, half that of a mid-sized sedan. The Elise used the GM QuadFour engine - another first for the company - and the QuadFour's relatively modest 176-horsepower output in the Elise still made for a very fast car, with 0-60 mph in the Elise taking just 4.6 seconds, and its rigid chassis and light weight made for a car with hilariously-good handling, as well as fabulous fuel efficiency and cheap running costs.
Two 1995 Lotus Elise sports cars
The Elise's pretty styling, fabulous handling and amazing speed made it an icon, spawning lots of imitators (including GM itself, with its Vauxhall VX220 / Opel Speedster / Pontiac Fiero trio in 2001) and selling tens of thousands of units, turning Lotus from a small company into a major sports car maker almost overnight - Lotus expanded from selling 2,655 cars in 1992 to over 35,000 in 2012, a graphic symbol of its success. The aluminum chassis design and carbon-fiber bodywork would be used much more in the future by GM, and not too far in the future, by many others.
After the development of more-advanced engines for its entire lineup, GM spent much of the 1990s focused on development of lighter materials for their cars. With aluminum-block engines nearly universal and the growing use of polyethylene plastic bodywork (which in addition to costing no more than sheet metal, also used mostly recycled materials and was dent and scratch-proof) made things better, but GM went several steps further with the development of aluminum for chassis components. GM's development of the aluminum space frame was done in conjunction with major Canadian aluminum producer Alcan, which would provide a great deal of the aluminum used by GM in these cars, and would prove to be a good investment. (Interestingly, Alcoa was working on a similar project with Volkswagen-Audi Group, which would first see use in the Audi A8 starting in 1994.) With the development of Lotus' bonded aluminum chassis, GM quickly worked with Ciba Polymers and Hydro Aluminum, the European-based developers of Lotus' bonded chassis technology, to advance it in road cars in North America, and the carbon-fiber body technology was also soon being commercialized for use on a large scale. The first GM car to get the new aluminum chassis technology was the new-for-1996 Cadillac Seville and Eldorado, but they would end up being the first of many. GM's money allowed Lotus to begin development of a wide range of new cars, which started with the Evora mini-GT and the new Esprit supercar, the former of which entered production in 1997 and the latter in 2000. Indeed, the second-generation Elise chassis (launched in 2001) would also be used as a base at the same time for the GM "Global Sports Car" project, which was sold as the Vauxhall VX220 in Britain, Australia, New Zealand, Japan and Korea, the Opel Speedster in Continental Europe, South Africa and the Middle East and the Pontiac Fiero in the Americas.
The Lotus M250 concept of 1994, which was the basis for the 1997 Evora
Chrysler had spent years selling the French-built Matra Murena at the time, but that had ended when Matra pulled the Murena from production in 1987. For years, the Dodge Daytona had carried Chrysler's small sports car banner - but that ended in 1993, with the Introduction of the Dodge Copperhead, followed in 1995 by the Plymouth Prowler. The Copperhead was a cheap car, with a conventional steel unitary chassis, fiberglass bodywork and Chrysler's 2.3-liter "Star Four" inline-four cylinder engine. Designed to compete with the Mazda Miata, the Copperhead was priced at just $24,500, which was cheap enough that it was in the price bracket of hundreds of thousands of buyers - who true to form bought a great many of them. The Prowler was more upmarket, of course, but the hot-rod styled Prowler clearly had a market in mind, and that market came to love the car, though its lack of a V8 engine (at first) did get some purists in a knot, with its 3.6-liter engine producing 323 horsepower and giving the Prowler a 0-60 time of 5 seconds flat, it was more than adequate for most who loved the styling of it - and between the styling and the amazingly-vibrant colors offered by Chrysler for it, it would turn the head of a blind man, and while the Prowler would grow to have a somewhat-undesired reputation as a beauty queen's car, its owners loved it, and the car was both a commercial and a PR success.
A 1994 Dodge Copperhead
But perhaps the biggest and most notable new difference of the 21st Century was the arrival of electric cars. Here, it was a battle between hybrids from Toyota, Honda, General Motors and Chrysler. With the introduction of the Toyota Prius, Honda Insight and Chevrolet Volt within eight months of each other in 1997, cars started going electric again - though Detroit did it in a different way than the Japanese.
Both the Prius and the Insight were parallel hybrids, effectively using an electric motor and battery pack, as well as their associated control units, to the traditional gasoline-powered car, using either one to power the car. The Volt, by contrast, used a small gasoline engine and the Volt's four-wheel-drive system, using four electric motors and a torque-vectoring computer system for maximum traction, which when combined with the
aluminum chassis technology and plastic bodywork, the Volt was the better performer of the trio, getting better mileage and better acceleration, while the thrust-vectoring system gave it better grip. The use of cylinder-deactivation technology improved fuel mileage still, giving a gasoline-only fuel mileage of 41 mpg, but with its electric mode it was over 104 mpg equivalent, an impressive achievement which bested both the lighter Insight and larger Prius. The Volt and Prius were natural rivals, the trend-setting but less-efficient Japanese competitor against the more polished but considerably more expensive machine from Detroit. Both cars came with plug-in connections from the start, and both were somewhat successful right from the off - but largely as a consequence of the fact that Japan's government paid for the R&D bill for the Prius, Toyota made profits on their cars much sooner. GM didn't get particularly bothered with this, though. The Honda Insight had both covered for efficiency in its first generation - but as a strict two-seater, the Insight was rather less useful in many ways than the Prius or Volt, in that it was limited to two people and a smaller amount of luggage.
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The Volt is the car of the future, a step into the age of personal transportation beyond petroleum, and its a machine that we could not be more proud of."
-- General Motors President John F. Smith Jr., at a press conference at the Detroit International Auto Show, 1997
GM's advancing of the electric car art got even more pronounced when the GM EV1 was shown off as a concept car at the same stage where the Volt became a reality at Cobo Hall in 1997. The EV1 was a pure-electric vehicle, and a result of the wild Impact concept car of 1990. Using a double-sized version of the same lithium-ion battery packs used by the Volt. The EV1 was also designed with the greatest of advancements - a similar bonded-aluminum chassis as the Lotus Elise, as well as carbon-fiber bodywork and a highly-advanced computer system, developed by GM subsidiary Hughes Electronics and Canadian electronics company ATI Technologies. The EV1 was the star of that year's show, and GM loudly said that they while they felt that they could not make completely viable electric cars for all markets, the EV1 was a test bed beyond measure, and as a result they would lease it out to customers who were interested in operating one, with a few conditions, namely the ability to have a high-current charge station installed at their home, and the initial program was only planned for launch in a few selected major cities - namely Los Angeles, New York, Phoenix, Miami and Atlanta. GM initially projected only a small number of interested people.
They got that totally and completely wrong.
GM's initial plan of having only a few customers went out the window when, within six months of the car's showing, they had over 40,000 volunteers to take on the EV1. The California Air Resources Board subsequently added a demand to have over 10% of sales from the eight-largest auto companies by sales in the California - including all four Detroit makers - by 2008. While all of the automakers involved took the CARB to court over this, GM went for broke and brought out the EV1, beginning deliveries to customers in the fall of 1998. Initially planning for it to flop, GM wound up being shocked stupid by the result. EV1 lessees proved to be massive fans of their cars, integrating it into their lifestyles and loving every moment of it. When GM's marketing of the car tapered off fairly quickly, numerous owners of the car, including actor Tom Hanks and actress Sigourney Weaver, got involved on their own and made their own advertisements for the car. (GM would eventually reimburse those who made good advertising spots.) The other benefit of the EV1 was its use of many components of the Volt, which improved economies of scale. By late 2000, company misgivings were going out the window because of the fanaticism of the car's lessees and the fact that production costs were falling as more Volts and EV1 went off the line - and the use of the battery cells as auto batteries in other cars improved economies of scale further. Having seen enough to convince them, GM expanded the EV1 program to several other cities - San Francisco, Seattle, Boston, Chicago, Salt Lake City, Denver, Washington, DC and Toronto and Vancouver in Canada, as well as Detroit itself - in the spring of 2001. This was done in time for recently re-elected President Clinton to lease one for his daughter, Chelsea, which she drove to her father's re-inauguration. The EV1 was never a profitable car for GM - but the public image boost it created was such that by the time GM began sell cars to lessees in the fall of 2001, they didn't care about the potential problems of spare parts costs or support for it, as the benefit in public relations was helping them to a great degree, and technological advancement had cut much of the losses from the vehicle down to size.
It also didn't hurt that the EV1 was a quick car. 0-60 mph in the EV1 took less than seven seconds, a factor no doubt helped by its lightweight construction, and the car's high-end suspension design and very low center of gravity, as well as the effect of regenerative braking adding to the car's brakes, resulted in a sporty car that cornered and stopped better than most, and got excellent range - the Li-Ion batteries of the EV1 gave a range of up to 225 miles on a charge, and a discovery of the heat caused by the batteries in development led to the development of aerogel-glass heat shielding around the batteries - an expensive solution but one which worked beautifully. Over 4/5 of EV1 lessees in the first three years of the program bought their cars from GM, and the EV1 and Volt became a symbol of General Motors looking to the future of the car, giving Toyota in particular a PR headache - they were using that very line, which didn't look real accurate when a rival was making a pure-electric car and you weren't.
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Believe it or Not, this thing goes! It really, really goes!"
-- Tom Hanks, talking about his EV1 on The Late Show with David Letterman, March 2000
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If you care about the world around you, and want your children to experience it in all of its majesty, this is your car."
-- Sigourney Weaver in her unofficial EV1 advertisement, 2000
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GM hadn't had a clue that EV1 owners would be any different than any other car drivers....But they were, and it became obvious early on. The guys at the Renaissance Center figured that they would just have the car as a novelty, but they began re-making their life around the car. The car wasn't able to do many of the things a normal car could do, so a great many of the owners made their lives work with their cars. And it wasn't like this was a few people. The EV1 program was a technical success from the start, and it became perhaps the best case of a car being a marketing success against the odds in the history of this business."
-- Sam Mitani,
Those Detroit Boys and their Magnificent Toys
A 1999 GM EV1 electric sports car
As the end of the 1990s came, while the world had changed much, there were some things that hadn't. After 40 years of innovation, Detroit was proving with cars like the EV1 that they were a long, long ways from out of ideas....
