5 Auto Industry Black Hats

Jim Motavalli

Jim Motavalli | Jun 19, 2015

Somebody has to wear the black hats, and in the car industry I nominate these guys. Considering the leadership, it’s amazing we still have an American Big Three—and we almost didn’t. That’s part of our story here, how clueless dudes did their level best to sabotage our automotive heritage. So here’s five fellows who, we can be thankful, no longer have their hands on the tiller.

John Z. DeLorean: The Reckless Ride. Here’s a guy who truly had it all. At General Motors he had a meteoric rise and was known both as an innovator and a long-haired maverick who wore jeans to work. But Detroit didn’t argue with his success, because he was a leading force, while at Pontiac in the 1960s, behind the “wide-track” Grand Prix, the GTO (which tripled the division’s sales) and the Firebird. He was thought to “get” what the kids wanted.

John DeLorean in his glory days, with an early Firebird. He soon decided he was too big a talent for General Motors. (GM photo)
John DeLorean in his glory days, with an early Firebird. He soon decided he was too big a talent for General Motors. (GM photo)

Despite his corner office, big salary ($650,000 in 1971!), stake in the Yankees and trophy wife (the fourth one, supermodel Christina Ferrare)—DeLorean wasn’t satisfied. His name wasn’t on the cars. So, after quitting GM, in 1978 he told the British government, “I can build you a factory, design and produce a car, and employ 2,000 people—all in 18 months.” And he promised to create world-class “ethical” sports car with gullwing doors, and he would do it in troubled Northern Ireland. And his name was on it, the stainless-steel-bodied DeLorean DMC-12.

DeLorean could have been Elon Musk, creating the first successful automotive startup since Chrysler in the 1920s, but this world-class hedonist didn’t have Musk’s legendary concentration.  The DMC-12, with its down-on-power French-sourced V-6, poor handling, and bad build quality, was no Model S, though it was similarly expensive--$25,000 (more than a Corvette). Only 3,000 were sold in 1981.

DeLorean on the line in Northern Ireland. Despite appearances here, his nose and his attention were in New York. (DeLorean photo)
DeLorean on the line in Northern Ireland. Despite appearances here, his nose and his attention were in New York. (DeLorean photo)

Many of the glitches could have been fixed, but DeLorean was too busy being “a staple of the cocaine-fueled 1980s glamour scene,” as Road and Track described it. When DeLorean finally realized the ship was going down, he arranged a $60-million coke deal with an FBI informant. Handing dope over at a videotaped airport hotel meeting, he proclaimed, “It’s as good as gold.”

DeLorean was arrested, the factory closed. DeLorean was ultimately acquitted because of FBI entrapment, but he was a spent force in the auto industry. The only legacy of the car is its appearance in the Back to the Future movies. Meanwhile, DeLorean, who died in 2005, dampened the world’s enthusiasm for “visionary” automotive startups for decades to come. Here he is, reflective, in 1988:

Roger Smith/Rick Wagoner: GM Business as Usual. Some of Michael Moore’s Roger and Me is a bit of cheap shot—these former GM CEOs didn’t single-handedly destroy the automotive legacy of Flint, Michigan. The Big Three’s complacency in the face of credible Japanese competition set the stage for massive layoffs as Americans bought Civics and Corollas instead of Impalas and LTDs.

But Ralph Nader was on the money when he said, “Roger Smith’s tenure was one of the darkest in General Motors’ history, for customers, workers and for residents of GM’s factory towns.” Former GM VP Marina von Neumann Whitman called him “almost a character in Greek tragedy, the great man with the tragic flaw.” Roger and Me captures that, but emphasizes the flaws. Smith was the quintessential company man, not a “car guy” but an MBA bean counter who was clueless about product—except for ensuring that each platform had five badge-engineered variants to save money.

Roger and Me director Michael Moore made hay from Roger Smith's empty chair.
Roger and Me director Michael Moore made hay from Roger Smith's empty chair.

Smith was CEO of GM until 1990, after having presided over a decline in the company’s market share from 46 to 35 percent (it would go much lower). Rick Wagoner, the GM CEO who presided over the company’s bankruptcy, praised Smith when he died, saying he “knew we have to accept change, understand change and learn to make it work for us.”

But both Smith and Wagoner were part of the entrenched, top-down culture that nearly destroyed the company. And neither accepted change. Wagoner is best remembered for his “what, me worry?” appearance before Congress in 2008. To get to the hearing and ask for $10 to $12 billion to bail the company out, Wagoner (and his counterparts at Ford and Chrysler, too) flew in corporate jets. Wagoner’s G4 ride cost $20,000 round-trip.

Wagoner (also not a car guy; he had an MBA from Harvard) told the Senate Banking Committee, “We want to continue the vital role we’ve played for Americans for the past 100 years, but we can't do it alone.” But his arrogance put Congress in a foul mood. "This is a slap in the face of taxpayers," said Tom Schatz, president of Citizens Against Government Waste. "To come to Washington on a corporate jet, and asking for a handout is outrageous." Obama’s appointed auto czar, Steve Rattner, made dumping Wagoner one of the conditions for moving forward with the GM loan. Rattner said in 2009, “It seemed obvious that any CEO who had burned through $44 billion of cash in 15 months should not continue.”

Don’t worry about Wagoner, though. Despite GM’s condition at the time, he walked into retirement with a golden parachute exit package worth more than $10 million. Even his life insurance policy was worth $2.6 million.

In later years, Wagoner admitted one of his biggest mistakes at GM was not pursuing hybrid cars. Keep in mind that GM spent millions developing a credible hybrid as part of the government-sponsored Partnership for a New Generation of Vehicles. I put GM’s car on the cover of my first book, and badgered executives about building its car, the 80-mpg Precept. But the bottom-line-oriented Wagoner didn’t see the potential, and Toyota got a four-year head start with the million-selling Prius.

Mitt Romney: Let Detroit Go Bankrupt. Campaigning for President in 2008, silver-spooned Mitt Romney—the son of a former American Motors' chairman and president—watched the auto industry’s struggles at the brink and advocated for a free-market approach.

In an op-ed piece for the New York Times, he famously wrote, “If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.”

"Now what does this doodad do again?" (Romney's '63 Rambler convertible, a replica of his first car and a gift from his son.)
"Now what does this doodad do again?" (Romney's '63 Rambler convertible, a replica of his first car and a gift from his son.)

Romney declared, “I love cars, American cars. I was born in Detroit…” But this is the guy who drove to Canada with his dog strapped to the roof of his National Lampoon’s Vacation-style Chevy Caprice wagon. He always looks uncomfortable behind the wheel of a car. In calling for a “managed bankruptcy” with no federal cash, he seemed to think that private capital would somehow bail the companies out, but this was 2008, and there was no investment money around—and GM and Chrysler were running month to month.

Enough roof space to accommodate all your pets. (GM photo)
Enough roof space to accommodate all your pets. (GM photo)

If Dr. Romney’s prescription had been filled, only Ford (which didn’t need a bailout) would still be standing. One recommendation Romney made was prescient—he called on the auto companies to dump their executive teams and hire competence from outside. Ford ended up doing that with Alan Mulally from Boeing, and it was a very smart move.

Rogue Car Dealers: Bad Boys With Money. Understand I’m not condemning car dealers as a class, just some bad apples. First, let’s stipulate that, as structured in America today (with a possible 18-million-sales-year in the offing), a major auto franchise is a license to print money. Carmakers stay out of actually selling cars, and the dealers have all the power, both in their communities and in the corporate board rooms.

That’s why, of course, the rise of Tesla Motors is so upsetting to the dealer trade associations—which have used their clout to lean heavily on state legislators to keep the company out. That approach has triumphed in Texas, Michigan, Arizona and other states. In April, West Virginia became the fifth state to ban Tesla’s direct-sales approach. It’s rather telling that the bill’s champion in the legislature was the Senate president, Bill Cole, an auto dealer in both West Virginia and Kentucky.

Auto dealers can become fabulously wealthy. I once published a piece on dealers racing their luxury yachts because, well, they could. But some of them, trying to get even richer, make some bad mistakes. Here’s a few:

  • A Chicago-area wholesale auto dealer was convicted of five counts of bank fraud this year. He apparently coerced people into applying for loans to buy luxury cars, then deposited the money into bank accounts he controlled.
  • A Buffalo-area auto dealer was convicted in 2010 of money laundering and failure to report cash transactions of $10,000 or more. According to the FBI, he “helped drug dealers launder proceeds of their illicit businesses by purchasing high-end used cars.”
  • A Missouri dealer got five years probation in 2015 for rolling back odometers on used cars, the state attorney general said. One car with more than 180,000 miles on it was represented as having only 99,000.
  • A convicted Virginia auto dealer “helped run an online sports gambling ring and sold cocaine to a police informant,” the Roanoke Times reported. He had earlier lost his dealer license because of a federal conviction for laundering money for a local cocaine smuggler, but got it back after completing probation.

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