Top stories of 2001

Nasser, Lutz make year's big headlines

The two biggest auto stories of 2001 were about a fall from grace and a rise to power.

The top story: CEO Jacques Nasser fired from Ford Motor Co. No. 2: Robert Lutz elevated to product czar at General Motors.

Then came the industry’s 0 percent financing blitz, which pumped life, at least temporarily, into an auto market shellshocked by the Sept. 11 terrorist attacks on New York and Washington.

The Ford-Firestone mudbath was next, and rounding out the top five was the industry’s surprisingly strong 2001 sales performance.

Here’s a look back at the top auto stories of 2001, as chosen by the editorial staff of Automotive News.

1. Jac gets the sack

Jacques Nasser was flying high a year ago. The CEO of Ford Motor Co. was trying to energize the company to move at Internet speed.

But like the dot-com stocks, Nasser crashed. On Oct. 30, the Ford board of directors shot down its high-profile chief after 34 months at the top. He alienated too many Ford stakeholders — employees, dealers and suppliers. The company also was haunted by quality problems and by an ugly public battle with Firestone.

Chairman Bill Ford, great-grandson of company founder Henry Ford, was named CEO, marking the first time a Ford family member has run the company since Henry

Ford II resigned as CEO in 1979. Nick Scheele, not long removed from Ford of Europe, is Ford Motor’s new COO and president of Automotive Operations.

Scheele will spend 2002 carrying out a painful, costly restructuring plan designed to put the automaker back in the business of making reliable cars and trucks.

2. GM hires Lutz

GM was an automaker looking for a product guy; Robert Lutz was a product guy looking for an automaker. They joined forces, and that was the No. 2 story of 2001. Lutz’s arrival gave credibility to GM’s recurrent promises to shake up its cautious culture.

Lutz, 69, began work as vice chairman for product development Sept. 1 and quickly began revising vehicle designs. He rattled GM culture with a widely leaked memo of his “strongly held beliefs.”

By mid-November, Lutz added the title of chairman of GM North America after Ron Zarrella left to become CEO of Bausch & Lomb Inc. GM named Gary Cowger president of GM North America.

Though Lutz spoke warmly about Zarrella’s contribution to GM, by year end he and Cowger were readying changes to GM’s product development process. The goal was to streamline GM’s market-research-driven process and attack two longtime Lutz targets: unnecessary standard features and boring designs.

3. Lots of interest in 0% interest

The U.S. economy was staggered by the Sept. 11 terrorist attacks. As fear and uncertainty gripped the nation, auto dealers reported sharp decreases in showroom traffic and sales.

A week after the attacks, Bush administration officials visited Detroit to urge action to bolster consumer confidence. GM was ready to announce its response that day but waited out of deference to other automakers at the event. The next day GM unveiled a 0 percent financing program called “Keep America Rolling.”

The program rocked the industry, succeeding to a degree that GM execs hardly expected. Key competitors followed suit, ceding industry price leadership to GM. Sales soared as the nationwide incentive gripped the public’s imagination — and perhaps met the public’s need for a show of confidence that the U.S. economy would keep on rolling.

October’s seasonally adjusted annual sales rate was an astonishing 21 million units.

Critics assailed GM for trashing profit margins and ensuring a slump in the first quarter of 2002 by pulling sales forward. Others said GM’s quasi-patriotic appeal was in poor taste.

GM officials remained unapologetic, extending the program several times. CEO Rick Wagoner told Automotive News the automaker was doing what it could to help the economy by selling cars. He said the other option — production slowdowns and layoffs — would have crippled consumer confidence, starting round after round of cutbacks.

But the issue of how many sales have been stolen from 2002 — and whether lasting damage has been done to margins — will play out over the coming months.

4. Firestone fiasco

The ties that bound industry icons Ford and Firestone for 100 years — forged by business and by blood — were shattered during one unforgettable week in May.

Ford Motor, saying it no longer could trust Firestone tires on its vehicles, decided unilaterally to recall 13 million tires, a dramatic $3 billion sequel to the tire maker’s own recall of 6.5 million the previous August.

Bridgestone/Firestone Inc. fought back, severing ties with Ford and calling on federal regulators to investigate the automaker’s popular Explorer, alleging unsafe handling, not faulty tires, was the cause of a problem that has been linked to at least 271 deaths.

The companies have been paying out tens of millions of dollars to settle lawsuits over Firestone tires that lost treads and Ford vehicles that crashed afterward. And a federal judge granted class-action status to millions more Firestone and Ford customers, making them potentially eligible for awards even if their tires haven’t failed or their vehicles crashed.

Finally, there were signs peace may break out. Bridgestone/Firestone Inc. agreed to a slightly broader recall requested by the government rather than fight to the bitter end, as company CEO John Lampe had vowed. And Shigeo Watanabe, CEO of parent Bridgestone Corp., said he was open to reimbursing Ford for some costs.

5. Strong sales and shifting shares

Automakers made 2001 one of the best sales years ever, the old-fashioned way: By offering deals.

The bad news for the Big 3 was Toyota, Honda, Hyundai and Kia were the big market-share winners for the year, while the Big 3 footed most of the bill for 0 percent financing and other incentives. European brands also gained share slightly.

After 11 months of 2001, share was flat for GM. Both Ford and the Chrysler group were off sharply. Meanwhile, Toyota Motor Sales had a 10.1 percent share of the light-vehicle market , vs. 9.2 percent a year earlier. That includes both Toyota and Lexus. No import brand has ever topped 10 percent share for a full year.

While U.S. light-vehicle sales were off 3.5 percent through November, sales were up more than 40 percent for both Hyundai and Kia.

In all, 2001 light-vehicle sales should reach about 17 million, only 2.3 percent behind the 2000 record.

6. Eaton: I told the truth

When Daimler-Benz AG acquired Chrysler Corp., top executives at both companies portrayed it as merger of equals, but late in 2000, Juergen Schrempp told the Financial Times that he only said it was a merger of equals to persuade Chrysler executives to go along. Furthermore, he said Chrysler Chairman Robert Eaton shared his vision.

His statements put Eaton on the hot seat, but the former Chrysler chairman — after nearly a year of hibernation following his March 2000 retirement — challenged Schrempp’s version of events in 2001. “I have not deceived anyone,” Eaton said in an interview with Automotive News. He continued to insist that he entered into the 1998 deal to sell Chrysler to Daimler-Benz AG to create a merger of equals.

The versions of Schrempp and Eaton may differ, but there’s no doubt about who’s calling the shots: The Germans clearly are at the helm. The Chrysler group is undergoing a draconian restructuring, and 26,000 jobs were to have been eliminated by the end of 2001.

7. Chrysler in crisis

A restructuring plan announced Feb. 26 was to have paved the way for the Chrysler group to return to prosperity in 2003.

The turnaround seemed to be on track until fall. Then the company decided it was spending too much on incentives and concluded dropping prices of its 2002 models would be more sensible — and more profitable.

The group lowered prices by an average 0.9 percent. The price reduction on the slow-selling Jeep Grand Cherokee was a whopping $2,000.

The strategy barely had been tested when the terrorist attacks of Sept. 11 blew up the economy, and car sales slowed nationwide.

To spur sales, GM began offering 0 percent financing. Ford Motor followed. The Chrysler group tried to resist but plunged back into the incentive arena.

The Chrysler group hasn’t benefited as much as GM or Ford. Its sales fell 6 percent in November while competitors’ sales rose. Revenues haven’t been meeting targets in a booming year for the industry.

So the corporate restructuring may have to go deeper, beginning with a sale of more assets. Dieter Zetsche, the group’s CEO, says no layoffs are needed beyond the planned 26,000 jobs.

8. Big supply of trouble

Trouble flows downhill, and that made 2001 a tough year to be an auto supplier.

Suppliers bore the brunt of automakers’ efforts to staunch losses and try to eke out profits in one of the best sales years ever.

The bad news actually began as 2000 was drawing to a close. That’s when Dieter Zetsche and Wolfgang Bernhard, the Germans dispatched to try to shore up the ailing Chrysler group, demanded an immediate 5 percent price cut from all the automaker’s suppliers, with an additional 10 percent due within the following two years.

As sales fell short of projections month after month, domestic automakers began hacking at production schedules. The shutdowns, decided week to week, were chaotic for suppliers, who had to scramble and balance their own production schedules. Zero percent financing jump-started sales, but that was little comfort to suppliers faced with producing higher volumes on money-losing contracts.

Suppliers, already operating on thin margins and in many cases carrying large debt loads from acquisitions, struggled to put their balance sheets in order. Many gave in to the price cut demands from DaimlerChrysler and its rivals, rather than lose business. Those cuts flowed down the chain to Tier 2 and 3 suppliers.

The sudden downturn took its toll. Federal-Mogul, Hayes Lemmerz International and Valeo’s U.S. operations filed for Chapter 11 bankruptcy protection, while Textron made a deal to get out of the automotive business.

Were there any happy suppliers? Sure: those who had contracts with Japanese and European automakers, particularly those with plants in North America. Those plants kept running at full steam as overseas-based automakers grabbed market share away from the Big 3.

9. VW changes the guard

He has had more wrecks than a NASCAR rookie:

n A $1 million McLaren F1 driven off the road into the woods near Munich and totaled in 1995.

n BMW, the company, seriously damaged in the mid-1990s by his decision as CEO to acquire Britain’s Rover Cars.

n Seat, the Spanish subsidiary of Volkswagen Group, where a record of steady monthly sales gains was wrecked by his decision as managing director to reduce dealer count and dealer margins at the same time.

n The cherished goal of Ferdinand Piech, Pischetsrieder’s boss — achieving a 6.5 percent operating profit margin for Volkswagen this year — most likely has been wrecked by Seat’s substandard performance.

But, hey, nobody’s perfect. So Bernd Pischetsrieder has been given a chance to try his hand at running VW beginning in April, when he is scheduled to succeed Piech as chairman of the management board — or CEO, if you will.

The affable Pischetsrieder, 53, will split VW into two broad product groups, one led by the Volkswagen brand and a more upscale group led by Audi.

The goal is to replace Piech’s manufacturing-driven, cost-oriented platform strategy with a more marketing-driven, brand-oriented one.

Piech will stick around as chairman of VW’s supervisory board, a powerful post that oversees management.

10. Mr. Duck, your car is ready

Supa Mann. Patty O. Furniture. Daffy Duck. Mickey Mouse. Bud Weiser. These and hundreds of other patently bogus names began showing up on Mitsubishi Motors of America’s official Retail Delivery Records as “buyers” of new cars and trucks in the fall of 1999.

Why use fake names? To inflate sales numbers.

When Automotive News got wind of the bogus reporting and asked Mitsubishi for clarification, we were assured nothing was going on. When our investigation determined that thousands of sales had been falsified, and we so informed Mitsubishi, we were warned that we were being fed false information.

When we published our story — which pointed out that legitimate buyers of cars previously reported as sold to imaginary buyers could lose warranty coverage — we were accused of acting irresponsibly and threatened with a lawsuit.

The saber-rattling didn’t bother the State of Florida.

Launching an investigation after our story was published on Sept. 18, 2000, the attorney general’s office determined hundreds of sales had been falsified in the state from September 1999 to August 2000. In a sampling of 1,070 sales, it said, it found that 301, or 28 percent, were bogus.

Ruling that the practice jeopardized the warranty protection of legitimate buyers, Florida on Feb. 22 slapped the company with a $275,000 fine and ordered that it open its sales records for annual inspection for the next four years.

It also ordered the company to identify every vehicle sold falsely and adjust the warranty start date.

Mitsubishi signed the order without admitting wrongdoing.

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