The Reckoning
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The Reckoning

David Halberstam

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eBook - ePub

The Reckoning

David Halberstam

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New York Times Bestseller: "A historical overview of the auto industry in the United States and Japan [and] the gradual decline of U.S. manufacturing" ( Library Journal ).
After generations of creating high-quality automotive products, American industrialists began losing ground to the Japanese auto industry in the decades after World War II. David Halberstam, with his signature precision and absorbing narrative style, traces this power shift by delving into the boardrooms and onto the factory floors of the America's Ford Motor Company and Japan's Nissan. Different in every way—from their reactions to labor problems to their philosophies and leadership styles—the two companies stand as singular testaments to the challenges brought by the rise of the global economy. From the Pulitzer Prize–winning author of The Fifties and The Coldest Winter, and filled with intriguing vignettes about Henry Ford, Lee Iacocca, and other visionary industrial leaders, The Reckoning remains a powerful and enlightening story about manufacturing in the modern age, and how America fell woefully behind.
This ebook features an extended biography of David Halberstam.

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THERE HAD BEEN PLENTY of warnings. Some experts had pointed out that the sources of oil were not limitless, that consumption was rising faster than production. Some noted that certain of the oil-producing countries were politically unstable and hostile to the United States. The men of the auto industry had never heeded the warnings. They dismissed them as veiled criticisms of the cars they were making.
In June 1973, a young man named Charley Maxwell flew from New York to Detroit to talk to the top executives of the three main auto companies. A decade later astute observers would mark that particular time, mid-1973, as the last moment of the old order in the industrialized world. It was a time when energy was still remarkably cheap and in steady supply, a time when the great business captains could still make their annual forecasts with some degree of certainty. Detroit was still Detroit in those heady days. It regularly sold eight million cars a year, and in a good year, a boomer’s year, the kind loved by everyone in the business from the president of a company to the lowliest dealer, it sold ten or eleven million. More, these were precisely the kind and size of cars Detroit wanted to sell—big, heavy cars loaded with expensive options. In those days no one talked about energy conservation except a few scholarly types. The average American car got about thirteen miles per gallon then, a figure far below that expected of cars in most other modern countries. Detroit’s cars were large, weighty, and powerful. Comfort and power, rather than economy, seemed important in the marketplace. Americans were a big people, and they liked to drive long distances. If the cars were no longer of quite the quality many of the company engineers and manufacturing men wanted, this was deemed a matter of no great consequence, for they still sold. Anyone who complained about the quality of the cars was a quibbler, more than likely an egghead who subscribed to Consumer Reports. After all, a car need last no more than the three years before the owner turned it in for a brand-new model, which would be equally large, or, given the American presumption of rising social status, even larger. As the new car reflected the owner’s climb, so the old car now began its own journey down the social scale, ending up an owner or two later in some ghetto inhabited by members of the American underclass. There, patched and repatched, it would consume even greater quantities of gas.
The intelligentsia of America, much given to driving small, fuel-efficient, rather cramped foreign cars, often mocked Detroit for the grossness and gaudiness of its product. To many liberal intellectuals Detroit symbolized all that was excessive in the materialism of American life (just as to many small-town American conservatives, the companies’ partner, the United Auto Workers, symbolized everything that was excessive about the post-New Deal liberal society). None of this carping bothered Detroit. It was a given that Americans preferred big cars—and only Detroit made big cars. There was a seldom-spoken corollary to this axiom: Big cars meant big profits, and small cars meant small profits. In early 1973 the fact that Detroit was selling what it wanted to sell was considered proof that Detroit, rather than its critics, truly understood the American customer. The future looked brighter than ever. An ugly war in Southeast Asia which had sapped the nation’s strength and resources was finally ending, and Detroit was bullish about the auto economy just ahead. That bullishness seemed to be based on good reason. For if there was one benign economic certainty, as far as American industrialists and American consumers were concerned, it was the low price of gas and oil, a price that seemed almost inflation-proof in the postwar era. In 1950 the price of a gallon of gas at the pump had been 27 cents, 20 cents of it for the gas itself and the rest for taxes. Twenty years later, the price of virtually every other basic consumer commodity had approximately doubled, but the price of gas had remained, tantalizingly, almost the same. At the moment that Charley Maxwell set out for Detroit, in 1973, a gallon of gas cost 37 cents at the pump, 26 of it for the gas itself. The price seemed a blessing so constant that everyone had come to take it for granted.
That was the premise of the city to which Charley Maxwell was traveling. He was thirty-five years old and had spent all of his adult life in the oil business, mostly with Mobil in the Middle East and Nigeria. He was by nature scholarly, and those long years in the field had added practical experience to his theoretical expertise, a rare combination. In the late sixties, when Mobil had started replacing its American overseas employees with foreign nationals, Maxwell had been sent back to the United States. It seemed to him that his career opportunities in the oil industry had been drastically reduced, and, looking around for a way to exploit his knowledge, he had become an oil analyst for a Wall Street firm called Cyrus Lawrence.
Every field has its awesome experts, but there was something about Charley Maxwell’s professional authority that was almost chilling. Part of it was his appearance, the hair plastered down over his forehead and parted in the middle, the old-fashioned, almost prim wire-rimmed glasses, the slightly stooped posture, the preoccupied manner; he looked like the sort of person who as a sixth-grader had been doted upon by his teachers because he had always gotten the right answer to every question, who had been good at what his teachers wanted rather than at what mattered to his peers.
He was an obsessed, intellectually passionate man. It was clear that what he was thinking about at any one moment he thought about to the exclusion of all other things. When Charley Maxwell started talking about energy, it was as if he might never stop, that meals might be missed, engagements forgotten. He answered questions thoroughly, his control of material was total, his voice was quietly confident, his judgments were clearly devoid of bias. He seemed to pursue the truth with so much intensity he made other men nervous. Eventually he would become one of the country’s most prominent experts on oil prices, a man whose opinions would be eagerly sought. He would win many professional awards, in fact would be named the number-one institutional analyst in the field of energy, and his firm would permit him to speak to business groups at a fee of $2000 a hour. By then when he would walk to lunch along Wall Street he would often be hailed by colleagues—and when one of them lightly asked him a question, this most serious and thorough of men would reply at length, his answer becoming an exposition lasting ten or fifteen minutes, as he jumped quickly from one century to another, one American administration to another. He seemed destined to be late to every appointment on his calendar. Reporters interviewing Maxwell would find him always a little short of time, and their interviews would of necessity continue as they walked with him to his subway stop or even rode the Lexington Avenue line uptown with him, Maxwell shouting his answers above the subway’s roar.
In those June days of 1973, however, he was not yet well known outside his field, and his field was not yet a hot one. Americans believed that their own domestic supplies of oil were plentiful and that there were virtually limitless sources in the Persian Gulf. What Charley Maxwell intended to tell the top-level auto executives he believed he would meet in Detroit was what he had been telling his superiors for some time now—that there would soon be dramatic, indeed revolutionary, changes in the price of energy. The assumption of the past, that energy would remain cheap because it had always been cheap and its price would increase only at small, acceptable, noninflationary increments, had to be discarded. America’s own resources were rapidly proving inadequate, and the nation would thus become far more dependent upon the oil-producing nations of the Middle East. But the American oil companies would no longer be able to control the prices set for Arab oil, as they had so easily in the past. The Arabs would set the prices themselves. Since oil was in those days significantly underpriced in terms of its true market value, the loss of that control would have serious consequences for American heavy industry in general and Detroit in particular.
Maxwell had seen all this coming for a number of years. As early as 1970 he had started using the phrase “energy crisis”—apparently his coinage. He used it to refer to a crucial, ominous shift in the supply and demand of oil. He calculated that worldwide oil consumption was climbing 5 to 6 percent annually, and there was no reason to believe the surge would abate. If anything, it was likely to accelerate. New nations, recently graduated from their colonial past, were fast becoming both industrialized and urbanized and demanding far greater amounts of energy. Throughout the underdeveloped world, people were leaving their tribal huts and moving into cities, and, as they did, they took new jobs in factories which required energy, they lived in apartments which required energy, and to get to work they used transportation which also required energy. It was revolution taking place, a revolution of people who were changing their way of life and of nations that were expanding and modernizing their economies. The world, Maxwell concluded, had changed dramatically and was going to continue to change as more and more nations moved toward industrial economies. Ten and sometimes fifteen additional countries were leaving the preindustrial age each year and coming into the mechanical age. But there had not as yet been any reflection of this trend in the price of the ingredient most precious to the modern industrialized state, oil. There was going to be one terrible moment, Maxwell was sure, when the price would simply shoot up, out of anyone’s control, the oil seeking its true market value.
By 1973, Maxwell was expecting the breakaway to come fairly soon, perhaps in three years, at the most in five. He was, he later ruefully noted, far too optimistic. His projections had not given adequate weight to rising Arab nationalism, though he was well aware that as the economic power of the oil-producing Arab nations increased, their awareness of their political power would increase as well. That so finite a resource as oil was remaining so inexpensive in a world that was demanding more and more of it constantly amazed him. Under normal conditions, Maxwell believed, the post-World War II era would have seen the price of oil go up steadily as the Arab nations, finally free of their colonial and semicolonial bondage, took direct control of their resources. But for some twenty years that had not happened. Instead there had been a vast postwar expansion of the Middle East oil reserves, because geologists, using more modern technology in their explorations, were finding more oil. The expansion of these reserves, particularly in places like Saudi Arabia, had temporarily neutralized the political and economic power of the producing states—the Arabs had so much oil to sell that they had not been able to push the price up. Now that was about to change.
Maxwell knew that he was not alone in his pessimism, that a number of other energy experts, using much the same research, had come to similar conclusions. But most of these experts worked for the large oil companies, where the darker view had not yet been accepted. Maxwell’s own superiors at the Wall Street investment firm of Cyrus Lawrence, however, had been greatly impressed by his estimates and the dispassionate way in which he presented his evidence. Both as a courtesy and also out of their own self-interest, for it would not hurt to lend out so brilliant a man with such original and important perceptions, they decided to send him to Detroit. There, the Cyrus Lawrence people proposed, he would talk to executives at the highest level, who surely would be more than anxious to hear these findings that had such fateful implications for their companies.
Maxwell himself was not so sure. He knew Detroit and he knew it well. He had grown up there, his stepfather had been employed at a middle level by Ford, he himself had even gone to Cranbrook, the city’s elite prep school, where many of his classmates were sons of auto titans. Maxwell knew how stratified the city was, how isolated and insular. It was, he believed, a place of bedrock beliefs, a place where new truths did not seep easily from the bottom to the top. In Detroit, truth moved from the top to the bottom.
Maxwell had been promised meetings with the high auto executives, people who operated at the ultimate level of power. He was dubious about that. He might be well known in the world of oil, but he was young, and Detroit did not readily listen to junior people. Detroit believed in hierarchy and seniority rather than in individual brilliance. One advanced in Detroit not necessarily by being brilliant—brilliance meant that someone might be different and implied a threat—but by accommodating oneself to the attitudes of those above one. Maxwell, because of his age and the nature of his message, would almost surely be looked upon as impertinent. These men would have their own sources of information, among them the men who headed the great oil companies, the men still resistant to the pessimistic vision of Maxwell and his kind. Powerful, successful, and conventional, typical of the corporate class, they believed that tomorrow would be like today because it had always been like today and because they wanted it to be like today. In their view, if the price of oil went up, it would go up slowly over many decades. They had controlled the oil world—and thus the price of energy—in the past. They would control that world and the price of energy in the future. So Charley Maxwell had been skeptical from the start that he would get the very top people as promised. If his superiors thought so, he knew better, and he had automatically translated his prospects downward. He would be lucky, he decided, to meet people at the 65 percent level of power. That, he soon learned, was too sanguine an expectation.
He did not do badly at the start. He went first to Chrysler, where Tom Killefer, the senior financial officer, had assembled a group of upper-middle-level executives. They listened quietly as Maxwell made his solemn little speech, saying in effect that all their estimates about what kind of cars Americans could and would drive were about to fly out the window. Killefer himself had been pleasant; he was a Rhodes scholar, different from the average Detroit executive, less narrow, in better touch with the outside world. When Maxwell finished, Killefer thanked him and said, “Well, what you say is very, very impressive, very impressive indeed, and of course if it’s true, then we’re going to have to give it a hard, hard look.” There were questions, and the bright young men in the group, perhaps less complacent because Chrysler was already a shaky company, were clearly interested. But even as he was finishing his presentation, Maxwell had a sense that it was all to no end, that these men would leave the meeting and shake their heads and say how interesting it had been, what a bright fellow Maxwell was, maybe a bit rash, something of an alarmist, didn’t they think, but bright and interesting nonetheless. Worth thinking about. That would be it, Maxwell thought, possibly a letter or two thanking him, but no real penetration of the process.
Chrysler, unfortunately, turned out to be by far the best of the three meetings. He had been taken seriously there, and Killefer was, whatever else, a representative of top management. Ford was a good deal worse. At Ford he met two people at the lower planning level. They were junior executives, making, he suspected, about $25,000 a year, which was a very small salary in executive Detroit. They were, he knew instantly, completely without power, and they had been sent there because a steadily descending series of Ford executives had told their immediate subordinates that someone had to go and cover the meeting, until finally, far down the line, there had been two men so unimportant that they had no subordinates to send. These two were there precisely because they were powerless. Maxwell felt a bit odd, standing in that room saying that Detroit was going to have to change its whole line of cars and that an entire era had ended, and saying this to men who could not change the design of an ashtray. Somehow that thought made his presentation more impassioned than ever.
General Motors, of course, was the worst. There were no high-level meetings scheduled. In fact, there were no meetings scheduled at all. Someone very junior asked Maxwell if he would like to drive out to the testing grounds and meet with some GM people there. He did, encountering no one in any position of responsibility, though for his troubles he was able to see some of GM’s new models. They looked rather large to him, cars that would surely use a great deal of gas.
Such was Charley Maxwell’s trip to Detroit. He had not even gotten across the moat. Detroit was Detroit, and more than most business centers it was a city that listened only to its own voice. But he left town worried about what he was sure was going to happen to a vital American industry. Maxwell did not think that the coming change in price would necessarily be so great that even a Detroit that was prepared for change would be severely damaged. Rather, he was worried because Detroit was unprepared—because no one in America seemed willing to practice even the most nominal kind of conservation, which suggested that the country was psychically unready for major increases. A big jump in price might trigger a panic, which would compound the difficulty of entering a new economic order. Those who were set up for change could deal with it, he suspected; those who were not were likely to come apart. Detroit, he feared, was going to have to learn its new truths the hard way.
A few months later, on October 6, 1973, on the eve of Yom Kippur, the holiest of Jewish holy days, Egypt tried a military strike on Israel. Eventually Israel struck back and once again, for the third time since World War II, defeated the Egyptians. To the Arab world this humiliation was one more demonstration of its powerlessness. The Arabs blamed Israel’s existence on its American sponsorship. Thwarted both militarily and politically, the Arabs now turned at last to their real strength, their economic leverage. They began an oil embargo on the West. Before it was over, the price of oil had rocketed from $3 a barrel to $12 a barrel. The United States, long accustomed to cheap energy, was completely unprepared to respond to the Arab move. Unwilling to increase the taxes on gasoline and oil and thus at least partially stabilize the price of energy, it had in effect permitted the Arabs to place a tax not just on the American oil consumer but on the entire country. The effects on the American economy at every level were dramatic. The era of the cheap energy upon which so much of America’s dynamism and its broad middle-class prosperity was premised was beginning to end. A new era with profound implications for the industrial core of America, the great Middle Atlantic and Midwestern foundry of the nation, had arrived. Occasionally in later years Charley Maxwell would run into Tom Killefer, who by then had left Chrysler to become the chairman of the United States Trust Company, and when he did, Killefer would shake his head and say, “You—you’re the one man I hate to see. God, I still remember that warning.”
At almost the same time that Charley Maxwell went to Detroit, a man named David E. Davis, Jr., was also given a special mission. Davis—David E., as he was more commonly known in Detroit—was a prominent and ubiquitous figure in the city. He was a certified car nut, and far more than most senior auto executives, who lived for their careers, he lived for cars. He loved them, he was always to be found tinkering with them, or racing them, or hanging around the men who designed them. In a previous Detroit incarnation he had been the editor of Car and Driver, a magazine by and for car nuts.
Davis was a close friend of Tom Adams, a major Detroit shaker who headed the local office of Campbell-Ewald, a New York advertising agency that handled the GM account. Campbell-Ewald had hired Davis not so much because it needed his advertising expertise but, it was widely believed, because it was doing a subtle favor for GM, finding a place for a talented car man whose instincts were clearly first-rate but whose style was too outrageous for that most conservative of American business institutions, General Motors. Thus though his salary was laundered through Campbell-Ewald, Davis in effect worked for GM. At the agency, his manner, his clothes, his beard, his passion for the truth would not offend his superiors, and their manners and dress would not offend him. For as far as Davis was concerned, the GM executives all wore the same suit, spoke the same language, lived in the same Detroit suburb, even, he believed, drank the same wine, which, he was convinced, was Blue Nun. (Davis claimed that GM tours of Europe—rewards for executives who had surpassed their quotas—were carefully arranged so that all the inns along the way would be sure to serve thick steaks and Blue Nun.)
Tom Adams of Campbell-Ewald was glad to take Davis in. Adams knew that if his agency was to serve its huge client well, it would not only have to show GM’s products to the world, through advertising, but keep the cloistered executives of the gigantic corporation in some kind of touch with that world. Between GM and the world a man like Davis was a good bridge.
Adams himself had played the role of bridge before, not always with complete success. During the late sixties, when John DeLorean was the enfant terrible of GM—at once a very able car man and a violator of all unwritten codes for GM executives, in dress, length of hair, and youthfulness of female companions—Adams had found himself constantly mediating between DeLorean and his older, more traditional superiors. Once in those years, in the middle of a high-level Campbell-Ewald meeting, Adams had been obliged to take an urgent phone call. A few minutes later he returned to the meeting.
“I will never,” he said, shaking his head, “be able to explain to my grandchildren the business I have been in all my life.”
“What happened, Tom?” one of his colleagues asked.
“Well,” he replied, “that was Roger Kyes, the head of General Motors, the largest corporation in the world, and he asked me if I was a good friend of John DeL...

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