The Promise of Progress in Government-Industry Relations

MR. ARMSTRONG:

Mr. Consul General, honoured guests, ladies and gentlemen: Who can make you happy? The Chrysler Man can! Yes, the Chrysler Man can. To paraphrase this lilting commercial, we of The Empire Club of Canada are very happy to have the Chrysler Man as our guest of honour today. Indeed, we are more than happy to welcome to our midst many Chrylser men on this occasion.

John J. Riccardo, President and Chief Operating Officer of Chrysler Corporation, is a New Yorker by birth (and he drives one from his home in Birmingham, Michigan to his office in Highland Park each day). Mr. Riccardo was born in Little Falls, New York, the son of a labourer who came from the Naples area of Italy. Mr. Riccardo Senior believed that his sons should be employed at an early age and found our speaker a summer job during his high school years in a nearby factory. The first day when John J. Riccardo came home from his first job he asked his father, "Do you expect me to do this all my life?" to which his father responded, "No, there are other ways but I want you to learn what this way is like." The young Riccardo got the message and made plans to attend Teacher's College in Albany. He abandoned his desire to become a musician with the recognition that he was somewhat less than a virtuoso on clarinet and saxophone in the high school band.

From Little Falls, Mr. Riccardo progressed to Bachelor and Master's Degrees from the University of Michigan. He majored in Economics, planning to pursue a career as a University Professor, but inner doubts dissuaded him and he joined the Chartered Accountancy firm of Touche, Ross, Bailey and Smart in 1950. There on the first day he met Lynn Townsend, a member of that firm and now Chairman and Chief Executive Officer of Chrysler. Here the relationship began with Townsend and the two agreed that if ever Mr. Riccardo were to sever his ties with Touche he would contact Townsend first.

In 1957 our speaker joined Chrysler to become a member of the Townsend team. In slightly more than ten years he was President. His rise was so rapid that repeatedly he was in the position of supervising men to whom he had been reporting months before.

Within three months of his ascendency to the Presidency in January, 1970, Mr. Riccardo was forced to announce a $100,000,000 cutback in capital outlay to a roomful of stockholders, already stung by losses of $29.4 million in his company's poorest first quarter in its history. He had to take the responsibility for the dismissal of more than 1,000 white collar employees. A few months later the company lost its "prime" credit rating in the financial market but in Mr. Riccardo's first full quarter as President the company was able to report first half earnings of 42 million in 1971, a reversal of $73 million from the prior quarter.

Retrenchment required a hardnosed unsentimental approach and Chrysler's President did not shirk his responsibility. As a result of his necessary action, he acquired the back office nickname "The Flame Thrower". This man recognised that on his shoulders rested the jobs of 230,000 employees with whom he had to keep faith and he asked relief from no one for what he had to do.

Our speaker is known as the Numbers Man and to quote him, "The important thing isn't being good with numbers. What matters is knowing what they mean and how to use them.

The question is how do you act on what the numbers tell you." I like to produce one or two anecdotes to lighten the statistical side of introductions of prominent speakers but the store of anecdotes about Mr. Riccardo seems to be non-existent. At least no one at Chrysler has volunteered one, except to inform me that he is a superb gin rummy player.

One veteran automotive writer states: "There are apparently two things in the world the guy cares about. His family and Chrysler. "

A word about Mr. Riccardo's family. He met his bride-to-be in a Spanish class at Ann Arbor. She and his five children keenly anticipate his evening arrival at home and the numbers stop at the front door. He says, "There are five kids there wanting help with their problems."

The week before he was officially named President only his wife knew the decision had been made. The day the announcement came out, on his arrival at home the children had strung out a banner reading "Welcome Home Mr. President".

Mr. President stood there for a minute accepting congratulations, at which point his four-year-old son (whose message in more mature terms would be interpreted, "Well, now that we have dispensed with the formalities. . . ") said, "O.K., Dad, now how about playing with the steam shovel." This is John Riccardo's release from the burdens of the day.

I shall not go into further detail concerning our speaker's many accomplishments. Suffice to say that he served in the China-Burma-India theatre in World War II with the U.S. Army Quartermaster Corps. He was Lay Chairman of the Archdiocesan Development Fund of Detroit in 1968 and was General Chairman of the Sixth Biennial National Religious Arts Exhibition. He holds honorary degrees of LL.D. and Doctor of Science, but is too modest to assume the title of Doctor.

Ladies and gentlemen, it is a great honour for me to present to this audience, John J. Riccardo, President and Chief Operating Officer of Chrysler Corporation, who will speak to us today on the subject, "The Promise of Progress in Government-Industry Relations".

Mr. Riccardo.

MR. RICCARDO:

Good afternoon. It is a great pleasure for me to be with you today and to spend some time talking with a group of fellow businessmen. The three years I spent working in Canada were the most productive and satisfying years I have ever spent. And it's really nice to be back.

I know that tradition calls for me to start out with some glowing remarks about our thousands of miles of unguarded borders and our long-standing economic interdependence and partnership. But I also know that there are people on both sides of the border who are not entirely happy with some elements of that partnership-with the extent of U.S. investment here, with the ratio of exported raw materials to imported finished products, or even with the Canada-U.S. auto trade pact.

Certainly relationships between governments, and between governments and industries, are constantly altered by variable pressures, not only economic, but political and sociological as well. However, without trying to make a very complex situation sound simple, I believe the majority view is that the positives in our partnership far outweigh the negatives, and will continue to do so in the years to come.

Because of that continuing relationship, I would like to spend some time today discussing some of the political and sociological pressures that are having a serious effect on businessmen in the United States, and appear to be having a similar impact here in Canada.

To set the stage for this discussion, I would like to cite a few examples of some rather difficult lessons we have been learning in the United States as we have set out to solve some of our current national problems. With your permission, I will draw these examples from the automobile industry, not only because that's the business I know best, but also because the lessons which can be learned from our experience may well have universal application.

As you know, the rapid growth in population and the trend toward centralization in our country have brought with them a steady increase in urban congestion. They have also brought a number of problems-air and water pollution, litter and waste disposal, safety issues, inadequate transportation, energy shortages, and all the rest.

We Americans have never learned our history lessons quite as well as we should have. We have too often failed to do the kind of long-range national planning which might have lessened the impact of these social problems, and have made the mistake of waiting until they reached the crisis stage before we united to solve them.

As you might expect, the nation's growing concern over our critical issues of pollution, safety, and energy were most loudly expressed by environmentalists and consumerists who described them in terms designed to get everyone's attention. It worked. And although the rhetoric was often too strong, we all ought to recognize that the problems were real.

Unfortunately, the solutions to these new problems are highly complex, requiring technology of a much greater sophistication than anything we have known in the past. Our modern technological society is a very sensitive instrument. And because of the great interdependence of its many parts, its balance can be very easily upset. Attempts to solve problems through artificial controls in one area often create undesirable secondary effects in another.

We have come to believe in our society that no challenge is too difficult to be solved by modern technology. The revolution of rising expectations has spread to the demand for instant solutions to every problem. If we can send men to the moon, why can't we do just about anything we want, anytime we want it. We have become a nation of hip-shooters. And our government, recognizing this demand for quick remedies, started to move toward quick solutions. In most cases, those solutions were in the form of new regulations. And the regulations were often hastily drawn and based on incomplete knowledge.

The automobile, as a dominant factor in almost every element of the American life style, was a target for a proportionate share of those new regulations.

However, in time it became apparent that some of the new regulations were written without enough consideration for need or feasibility, and without an understanding of the sensitive balance of our nation's economic and social system. As this information gap became apparent, we in the industry, in the interest of society as well as in our own interests, were forced to break tradition and to fill the need for this basic information. We were in the new and often uncomfortable position of challenging the traditional wisdom, questioning old assumptions, and calling for the scientific research which up to that point had been lacking.

Despite all the rhetoric and debate, our position was really quite simple. We were asking that decisions which will have serious, long-term effects on society be made on the basis of considered, realistic, scientific data. And I believe that I can support the contention that some progress is being made in that direction.

For example, as recently as last year we heard the critics saying that Americans had ended their love affair with the automobile-it was going the way of the horse and buggy-although it was never quite clear what would replace it. The only observable change in that love affair is the trend toward smaller cars, a trend which the industry has been actively responding to for several years.

The vitality of the automobile industry will survive regulations, economic controls, and the supposed lack of enthusiasm because overriding all of the problems is the fact that the automobile still provides a better means of personal transportation. It provides freedom of movement, freedom of choice, and personal pleasure better than any known alternative.

So, in a sense, we can consider it a victory for the cause of reason that we have at least established that the automobile is a valuable and essential component of modern life. That's a step in the right direction. And we are beginning to see others.

In the area of automobile safety, for example, there is a growing recognition that there are cost-benefit factors involved in protecting occupants from injury. Not too long ago the much-talked-about air bag was assumed to be the panacea-fool-proof passive protection for passengers involved in an accident. And the Department of Transportation established a rule requiring in effect that it be installed in all new cars in the near future.

However, because the rule was based on inadequate test procedures, it has been overturned in the courts. In addition, subsequent studies have also established that not only was the rule too hastily drawn, but also that the combination lap and shoulder belt system which is standard on all new cars has the potential of saving more lives than air bags, and at much less cost.

There is still some public resistance to the new belt system. But we are confident that logic will prevail, and that the acceptance rate will be much higher as we do a better job of education on the advantages of safety belts. Incentives, such as reduced insurance rates, seat belt laws, and even loss of insurance coverage for failure to use the system all can contribute to fuller utilization. And the system itself, requiring no maintenance and experiencing no deterioration, will, as its use increases, clearly demonstrate its superiority to the still unproven and much more expensive air bag.

Another case in which the facts, at long last, are beginning to be heard, is in the still-boiling controversy over the regulation of automotive emissions.

When the existing U.S. laws governing automotive emissions were passed, the premise was that three emissions-carbon monoxide, hydrocarbons, and oxides of nitrogen-pose a serious threat to health. Unfortunately, at the time the laws were passed, there were too few studies or facts available to either prove or disprove that premise.

In the years since those standards were set, however, studies have been made, and facts have been assembled, and they do not support the premise. The automobile industry, against conventional wisdom and in the face of considerable criticism, has made every effort to make those facts known, so that new standards could be established based on need, cost, and feasibility.

As a result of our efforts, Congress has commissioned the National Academy of Sciences to make a new evaluation of the auto emissions standards. When the Academy's report is finally delivered next fall, we believe its findings will support our case. Unfortunately, that will be one year too late. We will already be locked in to an expensive system of emission controls that might have been avoided.

The lesson to be learned here is that we should have worked harder, earlier, to help insure that we got off on the right foot in the first place with the kind of information needed to establish a more realistic law.

Today we are facing a comparable situation as the world comes to grips with the energy crisis. The automobile, as a major energy consumer, is getting the same degree of attention as it did at the start of the safety and emissions crusades.

Ironically, those same devices that have been mandated for the automobile in the name of health and safety contribute to the automobile's role as a villain in the fuel crisis. Safety equipment adds to the weight of the vehicle and cuts mileage. Emission control systems cut down on efficiency-and on mileage.

Given a realistic set of emissions standards, and sufficient lead time, we could have both clean air and improved fuel economy. We would not need to sacrifice one to get the other.

Beyond that, we believe the total energy crisis can be short-term if we establish the right priorities, encourage development of new energy sources, and institute policies that will expedite the full use of the abundance of energy already available to us.

Hopefully, we will not repeat the same mistake with the energy problem as we did with safety and emissions. Unfortunately, we have already waited until the problem reached the crisis stage before we began working to solve it. As a result, the job of bringing reason into the energy debate will be extremely difficult. But even at this late date we must work to make sure that the long-range goals that are established do not bring counterproductive secondary effects which we will come to regret.

These few examples I have given here suggest that we must make greater progress in the direction of a more pragmatic approach. I do believe there is already some light at the end of the tunnel. But the light didn't just happen. We at Chrysler, for example, have had to do our own research, check our own findings, and then take them to the government and to the public. We have had to buy full-page ads and make speeches, testify at Congressional hearings, and visit with individual Congressmen to try to get the facts across. And we are going to have to keep on doing it. But I'm sure you will agree that's the way it should be in a free society.

Unfortunately, a large part of the effort we have expended so far has been much too late. It has been remedial-getting things undone instead of done. It has required an expenditure of both time and money which would have been better spent before the crisis was upon us. And it will force the expenditure of scarce resources that might otherwise have been preserved. Today, when the world's resources are seriously strained, no country-not mine and not yours-can tolerate that kind of waste.

So what do we learn from these examples, and how do we avoid similar problems for industry and government on both sides of our border in the future?

It would appear that we in the U.S. have allowed a situation to develop in which government and industry, instead of co-operating to identify and solve long-range problems, have placed themselves in an adversary position. As a result, all too often when the crisis is already on us, we hear charges and counter-charges of conspiracy on the one hand and lack of foresight on the other. And we see very little effective action.

Perhaps the time has come to step back from this situation, and at the risk of sounding simplistic, ask some rather basic questions about the responsibility of business and government to each other. For example, what should government expect from us businessmen? Obviously, it has a right to expect us to do a good deal more than make a profit and pay taxes. But along with all the other responsibilities we must accept as good citizens, we have an especially important responsibility to speak out as clearly as we can on issues of public concern.

We ought to have a hand in determining facts on public issues during the early stages of debate. We ought to help weigh the costs of the solutions against the benefits, and decide the best way to get the job done. That's the nature of business. But our skills ought to be available to government before the laws are established. And government should be the one to demand that we weigh in early with our contribution.

Government should also expect us to deal from fact and not just from a desire to keep government out of business. The credibility of business is not very good. And it can be improved only if we determine the facts before we speak, and then speak out as clearly and with as much cool logic as we can bring to bear.

On the other hand, what do we in industry have a right to expect from government? I believe we should expect that legislative decisions be made on the basis of prudence rather than passion. We ought to expect a more careful attention to the second and third effects of any new law, with special attention to costs and benefits. And we have a right to expect that a law, once established, not necessarily be considered immutable for all time. The needs of society do change, and laws have to change with them.

Then finally, and most important, what do the citizens of your country and mine-the people at whose pleasure we are permitted to operate-have a right to expect of us-both in business and in government? Certainly they don't want to see two adversaries locked in combat. They have a right to expect more than an attack on each other's credibility to the point where all credibility is destroyed.

I believe they have a right to expect us to work together-using all the resources of labour, the scientific community, and our educators-to establish realistic long-range goals which can be achieved with the most efficient use of resources. Because society's current problems demand more technical solutions than in the past, our people have a right to expect us to establish our goals and set our priorities on the basis of the best data available. In order to make this happen, reason must replace emotion in the discussion of such critical issues as the energy crisis. Common sense must prevail over nonsense in the field of international trade and relations between sovereign countries. Facts must replace fiction in the great debate over the quality of our air and water. And discretion must replace waste in the use and the allocation of our very scarce resources.

The list could go on and on. There is no shortage of problems, and there are no simple solutions. But I believe if we are wise enough to learn from experience, we businessmen, our representatives in government, and all the other forces in our society, can work in cooperation to solve the many problems that stand in the way of the great promise of the 1970s. As businessmen, as nationals, as world citizens, we can do no less.

Thank you.

Mr. Riccardo was thanked on behalf of The Empire Club of Canada by Brigadier General Bruce J. Legge, C. St. J., E.D., C.D., Q.C.