Interview with Bob Lutz
"With the approval of Rick Wagoner who brought me in, I was able to throw out most of the analytical nonsense and get back to just putting the designers in charge of creating beautiful automobiles."
In a long and distinguished career, Bob Lutz was the archetypal 'car guy' auto industry executive. He may be approaching 80 years of age and 'retired', but he is still pretty active. Straight talking Mr Lutz tells Dave Leggett that he relishes the opportunity to advise Lotus and that his time at GM taught him that you need to give designers leeway if you want to make good cars...
The opportunity to interview Bob Lutz has always been something eagerly anticipated by journalists who follow business and the auto industry. Lutz has been there, seen it, got the T-shirt, put the T-shirt in the wash and hung it out to dry. The observations are clear and thought through, whether you are talking about engineering principles in car design or the travails of the global economy. Bob Lutz also has a deserved reputation for not pulling his punches. Even his critics concede that he is a refreshingly straight talker.
And he's got a book out. The title 'Car Guys versus Bean Counters' (published by Penguin) kind of suggests that he is not an admirer of the stereotypical MBA management types who pervade business generally. Lutz is an unapologetic unreconstructed 'car guy' who has worked at the highest level in Ford, Chrysler and, perhaps most notably, at General Motors (less well known is a stint at BMW).
Throw out the analytical nonsense
Can he pick out a career highlight? “I was able to transform General Motors from a culture that was ruled by analytical people....it's not that they wanted to do bad cars, they thought they were doing good cars, but they just didn't know what a good car was. Everything was over-defined numerically and the designers had very little leeway. You had a very cohesive and very logical system for creating products. It was reliable and produced the same results every time, but they were not good results – the end result was mediocrity.
“With the approval of Rick Wagoner who brought me in, I was able to throw out most of the analytical nonsense and get back to just putting the designers in charge of creating beautiful automobiles.”
Lutz claims that the GM cars selling well now and that are playing a key part in the company's recovery and resurgence are the product of that change in approach. He reels off the names of a number of models that he believes stand out – including the Cadillac CTS, Chevrolet Cruze (“it's doing 25,000 units a month in the US which is absolutely amazing”), Opel/Vauxhall Insignia, Chevrolet Traverse, Equinox and, perhaps unsurprisingly, the Chevrolet Volt range-extended electric vehicle.
Looking back, Lutz puts the long-term decline of the Detroit Three down to a number of factors.
“Some of it was self-inflicted and some of it was down to the US government,” he says.
On the self-inflicted causes, Lutz returns to the theme of corporate cultures more concerned with financial results than being passionate about the cars. He's clearly not a big fan of business schools. “The artistic side was being taken out and I blame the rise of so-called 'scientific management' as propagated by the nation's business schools.”
He also views the US regulatory framework under Corporate Average Fuel Economy (CAFE) as an own-goal that perfectly suited the Japanese vehicle makers back in the 1970s. The US makers wanted a percentage improvement target for different categories of vehicle but the Japanese argued for the fleet average and that carried the day in Washington. “The Japanese back then were specialist purveyors of four-cylinder small cars. The US industry was geared to body-on-frame, rear-wheel-drive behemoths with V8 engines and the American public loved them. When Congress passed the CAFE legislation, the Japanese rubbed their hands with glee because they were already on the good side of average. In fact, they were able to introduce bigger vehicles and trucks and move into the space that we [Detroit automakers] were being forced to vacate! We were on the bad side of the average so we have to spend tens of millions of dollars in a very short time frame to go from RWD to FWD, longitudinal transmission to transverse, V8 engines to V6 engines and so on. And that was going on through the whole model line-ups.”
Lutz maintains that the consequences of all this were adverse and profound, that the Detroit Three and the US domestic supplier industry simply did not have the engineering resources to pull it all off successfully in the required timeframe. “And that's when we got the reputation for poor quality.”
And he also believes that the Japanese industry was further assisted by a managed (for geopolitical reasons) exchange rate during this period that gave them a big cost advantage in the US market.
“You had a very weak yen, up to 170 to the dollar, which effectively gave them a US$4,000-per-unit cost advantage.” Lutz says that a proper exchange rate based on economic fundamentals should have been about 90 yen to the dollar but for years it was 130 or 140. “When a competitor has a systemic cost advantage of US$4,000 over time, you're dead.”
A final negative that took Detroit down in the eyes of Lutz is once again home grown. “The UAW kept demanding more and more. The union became so powerful and the strike fund so fat that no auto company could take them on.” As he sees it, the industry acquiesced and created a big problem for the future. “The concession on retiree health care was probably the single worst concession ever made.”
So, Lutz maintains that it was a combination of those four factors – bad corporate culture that produced mediocre cars, CAFE rules that hindered US makers, an unhelpful yen-dollar exchange rate and an over-powerful UAW – that resulted in the long-term decline of the Detroit Three.
..and Detroit's resurgence
How does he feel about Detroit's prospects now? He says he is very optimistic. “All the factors now are in favour of the US automakers.” He's upbeat about all three, but the report card is not all positive. “If you look at Ford, the Lincoln brand is still in trouble – they'll get it fixed but it will take a bit of time - and Chrysler is maybe a bit behind the other two, GM in the lead, but all three companies have discovered that you are not going to win against the competition with mediocre cars. There is an industry focus on excellence – beautiful panel fits, beautiful sheet metal, great interiors.”
For interior quality, a recent Chrysler Group model has impressed him. “The new Jeep Grand Cherokee...I defy any German or Japanese producer to show me a better interior than that. This the new reality of the American automobile industry: the products are great.”
And technologically in areas like fuel economy, Lutz believes that the US producers are at least as good as foreign brands if not better. Moreover, crushing fixed costs from debt servicing and the problem of retiree benefits have been removed. “General Motors is making exceptionally good variable margins on its cars and it's now not all being eaten up by that huge fixed cost that used to be the case.”
“For the foreseeable future I see GM and Ford as powerhouses, with Chrysler a little bit behind that could emerge as one later.”
Lutz sees a more realistic and better attitude among management and labour in the US industry. “The union realised that 'hey they were right after all, they said we would go broke unless we made concessions and they did go broke' and that maybe it is better to have an industry with lower paid jobs than one with higher paid jobs and no-one in work.”
And he cites a more realistic exchange rate as another plus, believing that the Japanese producers made huge profits in the US for decades on a favourable exchange rate. “According to our analysis they made all their money in the US. We were the great big cash cow for the Japanese automakers and now the yen is at 80 to the dollar and guess what? They're all losing money.”
He is a little frustrated that the American media has been slow to pick up on the rapid reversal of fortunes for General Motors.
“GM has been out of Chapter 11 for two years and the American media has been slow to get it,” he maintains. “The attitude has been 'oh, they'll survive but they will be a shadow of their former self'. Not at all. GM is on the way to overtaking Toyota for the number one spot in the world. And don't forget that General Motors is heading for 3m cars in China. Toyota is not nearly as well placed in China as GM is.”
Raise taxes on fuel
Now that he has retired, he is freer to talk about things like taxes on fuel in the US. He advocates higher taxes on gasoline to encourage a movement towards smaller cars, something that the customer base might not be so keen on.
“As I tirelessly try to explain to US government officials, you get the vehicle parc that you pay for with fuel prices. If you insist on having the US motor fuel price at one third what people in Europe pay, then the American public will buy large cars.”
He believes that the US should be moving to a vehicle parc that looks more like the one in Europe. “Frankly, I think that is an intelligent direction to head in.”
Lutz wants an immediate 25 cent per year increase to federal tax on a gallon of fuel. “We've got a country that is, to all intents and purposes, bankrupt with an enormous debt load. If we make motor fuel more expensive we are driving the right behaviour on the part of the public. If you did it on the basis of 25 cents a year, people would know that next year and the year after it's going to be more expensive and that would change purchasing behaviour.”
Lutz is well aware of the political reality though. “They say that touching fuel tax is the 'third rail' [ie the electrified one that will fry the unwary] of American politics. There is not a politician in America that is willing to advocate higher fuel taxes.” But, nevertheless, market forces are driving the price of gasoline up and lifting interest in more fuel-efficient cars.
Which brings us on to alternative powertrains and more specifically GM's Volt. Lutz sees the car as a genuine game-changer because it removes the range anxiety that come with full electric vehicles' battery limitations. It's a familiar argument and sure to be played up in the marketing, but Lutz sees it as a bridging technology and is convinced that much better batteries are coming.
“For the next 10-15 years the lithium-ion battery with range extension is an optimal solution but it will ultimately be rendered redundant by improvements in batteries. If you can get 350 miles on the battery, who needs a range extender. And improvements to lithium-ion batteries are inevitable, there's a lot of investment going into that, especially in Korea where there is a lot of government funding. Advanced solutions are being actively pursued that would, in an initial stage, triple the energy storage in a lithium-ion battery and improve it in the longer term by a factor of ten.”
What about that comment that must have caused consternation in the GM public relations office that global warming was a 'total crock of shit'. Does he stand by that? Yes, he does but he laments the politicisation of the debate, especially in the US.
“True science welcomes debate. There's mutual respect for differing theories. Not so with global climate change. That is a political movement and seems designed to heavily tax carbon-based fuels. It's going to end in a big taxation scheme.” He lists a whole load of predictions that he says the global warming lobby – from the IPCC to Al Gore - have got wrong.
Lutz is clearly coming at the alternative powertrain area from the standpoint that fossil fuels are being steadily exhausted and they largely come from an unstable part of the world. “The parc of hybrids and electrics will gradually build and this will largely be as a result of government policy because we in the Western world want to wean ourselves off fossil-fuels, not because of CO2, but because of where the fossil-fuel is located.”
Give the public 'value'
After so long in the business as a product guy, what does he see as the most important property that a new car has to deliver or be perceived by the customer to deliver? Quick as a flash, Lutz replies 'value'. “They have to have the feeling of 'this is amazing, I am getting this beautiful car for only this much money.'”
And that perception of 'value' can work in different ways, Lutz believes. “It can be performance, size or fuel economy and of course it's great when everything comes together,” he says. And he cites the Cruze as an example of a car that is so very successful around the world because it checks so many of these value boxes.
“People look at it and think 'it looks like a mid-size car' but it has great fuel economy and road manners, lovely interior detailing. It starts at US$18,000 and that is seen as very good value price-point for a car like that. The secret is to astonish people with the value they're getting. How do you push those buttons? The first button is superb design, inside and out. People have to love the car, to want one. It's interesting to note that people say in performance segments that out and out performance is what counts. But you can have a technological and performance tour de force that will fail if no-one wants to be seen in it. Vehicle appearance unlocks the door as far as the customer is concerned.”
So why do car companies still, with all the good info on best practice around, get it wrong? Lutz says there are no bad cars these days, just good cars and better cars. “The differences in areas like handling have become smaller,” he maintains. And he points out that brand is overpowering. People will buy BMW cars that are not very attractive because the brand is more important to them. He's back to appearance. “For normal brands, you have to have a beautiful car. Why do some companies have them and some not? To get beautiful cars the company has to be design driven.”
Lutz describes a hypothetical example of disagreement between design or engineering and the cost people where the cost people tell design they want the windscreen steeper because the flat windscreen uses more glass, that contributes to weight and cost and maybe requires a more costly wiper system. In short, what the designers want comes with higher cost. The designers protest that the windscreen design is core to the design theme, but the management sides with the cost accountants. “That is death by a thousand cuts,” Lutz says. “It's the same with the temptation to carry over from previous models with things like door handles. I have seen nice designs that go through the committees that end up destroying the good work of the designers.”
Retired? He's still a busy lad
Besides writing books, Bob Lutz is keeping himself busy in other ways. He still flies his military aircraft and enjoys riding fast motorcycles, driving cars. “I am still thrilled by good cars of any age.”
He's also relishing the role as a member of the advisory council at Lotus, which he sees as fulfilling a need that would otherwise be provided by a board of directors. “We can act to support the active management at Lotus bringing the automotive industry and business experience that a regular company board would otherwise provide.”
He can also help Lotus with his presence at events. “I make myself as available as I possibly can for Lotus press and PR activities here in the US. At the New York Show I basically acted as host on the Lotus stand for the press briefings.”
And how does he feel about the Lotus strategy?
“I feel very confident about it. The difference between the Lotus of the past and the Lotus of today is that the Lotus of today has the human and financial resources to carry out its plan. In the past, quite frankly, they did not. There is now an eclectic body of very senior management, many with terrific automotive experience and the Malaysian government has made a very substantial investment in the new model range.”
And he thinks the volume targets for the future are actually 'quite modest'. “The business plan has been set up to make money at those modest volumes and it all looks very realistic to me.”
Lutz reckons the scepticism from some quarters reflects the decision of Dany Bahar to shock the media and the public by unveiling so many future vehicles five or six years in advance.
“That created controversy but it achieved its prime purpose: it made Lotus a relevant sports car brand again.”
This interview first appeared in the Lotus Engineering e-magazine proActive
Bob Lutz rejoined GM September 1, 2001, as the head of product development.
Prior to rejoining GM as vice chairman, Lutz was chairman and chief executive officer of Exide Technologies. He served as chairman until his resignation on May 17, 2002, and as a member of Exide’s board of directors until May 5, 2004.
Lutz joined Exide after a distinguished career with the former Chrysler Corporation from 1986 to 1998, where he reached the position of vice chairman. Lutz also served as president and chief operating officer, responsible for Chrysler’s car and truck operations worldwide.
Lutz led all of Chrysler’s automotive activities, including sales, marketing, product development, manufacturing, and procurement and supply. He began his service with Chrysler in 1986 as executive vice president and was shortly thereafter elected to the Chrysler Corporation board. His 12 years with the company are chronicled in his 1998 book, Guts: The Seven Laws of Business That Made Chrysler the World’s Hottest Car Company. Guts was revised and updated in 2003 and retitled, Guts: 8 Laws of Business from One of the Most Innovative Business Leaders of our Time.
Before Chrysler, Lutz spent 12 years at Ford Motor Company, where his last position was executive vice president of truck operations. He also served as chairman of Ford of Europe and as executive vice president of Ford’s international operations. From 1982 to 1986, Lutz was a member of Ford’s board.
Lutz began his automotive career in September 1963 at GM, where he held a variety of senior positions in Europe until December 1971. For the next three years, he served as executive vice president of sales at BMW in Munich and as a member of that company’s board of management.
He serves as chairman of The New Common School Foundation and as a trustee of the Barbara Ann Karmanos Cancer Institute. He is also a member of the board of trustees for the U.S. Marine Corps University Foundation and vice chairman of the board of trustees for the Marine Military Academy in Harlingen, Texas.
Lutz received his bachelor’s degree in production management from the University of California-Berkeley in 1961, where he earned distinction as a Phi Beta Kappa. He received a master’s degree in business administration, with highest honors, from the University of California-Berkeley in 1962. He received an honorary degree of doctor of management from Kettering University on June 21, 2003, and an honorary doctorate of law from Boston University in 1985.
He also served as a jet-attack aviator in the United States Marine Corps from 1954 to 1965 and attained the rank of captain. Lutz was born on February 12, 1932, in Zurich, Switzerland.
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