The first Chrysler bail-out; the M-1 tank.

THE FIRST CHRYSLER BAIL-OUT

The M-1 Tank

On a July afternoon ten years ago, Lt.Colonel George Mohrmann sat at his desk on Capital Hill awaiting a phone call. As head of the Army's congressional liason office, he was ready to deliver a stack of sealed letters to members of Congress announcing the winning contractor in the multi-billion dollar competition to build the Army's M-1 tank.

The two competing contractors, Chrysler andGeneral Motors, offered a clear choice. Chrysler had built its tank around a radically different and unproven tank engine, the turbine; GM had used a more conventional diesel engine. The two tanks had undergone months of head-to-head trials at Aberdeen Proving Ground in Maryland. GM had won.

The Army, it seemed, was not going to risk addingthe M-1 to its growing list of overlysophisticated weapons that cost too much and don't work. "We were sitting there poised to deliver [the envelopes],' Mohrmann recalls. "The decision [to select GM] had been made. We were just waiting for the Secretary of Defense to be briefed.'

The call, however, was surprising. The Pentagontold Mohrmann not to deliver the letters. The next day, Defense Secretary Donald Rumsfeld ordered a whole new round of competition. A week later, Rumsfeld turned the M-1 tank program upside down. He mandated that the tank be redesigned to incorporate the turbine engine. Four months later the award--which promised to generate $20 billion in sales--went to Chrysler, and the Army was on its way to getting a weapon suited more for a paved interstate than a battlefield.

There was another mysterious element toRumsfeld's decision. He not only changed the tank's design to suit the turbine engine; he also demanded, against the strong advice of Army experts, that the tank incorporate a new main gun. Instead of the proven 105 mm gun selected by the Army, Rumsfeld moved forward with a controversial new 120 mm gun that was not only more costly, but more dangerous for soldiers to use. The new gun, together with the turbine engine, would increase the M-1's price by over a billion dollars.

That isn't another story about the Army's incompetentbureaucracy. "You can blame the Army for a lot of things,' says Anthony Battista, a staff member of the House Armed Services Committee, "but not for the troubles of the M-1.' Rather, it's a story of how outside factors can overwhelm military considerations in the Pentagon decision-making process, how narrow interests--in this case the ailing Chrysler Corporation and, by a strange twist, the U.S. Air Force--can outweigh the need for a reasonably-priced and effective military. The M-1 was never just a weapon; it was also a bail-out package.

Paperwork brigade

When the M-1 program began in 1972, the Armyhad already spent the better part of a decade and well over half a billion dollars trying to replace its M-60--with nothing to show for the effort. The MBT-70 program had been launched jointly with West Germany in 1963 to standardize the NATO tank force and take advantage of the latest technological gadgetry. With the two nations unable to cooperate, the program floundered for years and finally ended in 1970 after producing just a half dozen tanks. The Army then tried the XM-803, but like the MBT-70, this tank soon sank under the weight of its own sophistication. In late 1971, the House Armed Services and Appropriations committees killed the program.

Meanwhile the Soviet Union was producingnew and impressive tanks at an alarming rate. The U.S. Army was desperate, and facing such intense pressure from Congress that it agreed to try something new: good old-fashioned competition. Set a firm price, cut the red tape, and let the industry engineers make it work.

The approach sounds simple, but it was actuallya major departure from typical weapons development. A service usually spends years developing several hundred pages of formal performance requirements and systems specifications which it then circulates to defense contractors. The contractors respond with detailed engineering designs, and the service awards the proposal that looks best.

The winning proposal is then converted intoan equally voluminous development contract, which must be constantly updated as production difficulties aries and as the service changes its requirements. Each change is renegotiated with the contractor, resulting in cost overruns and schedule delays. Using this system, the Army gave GM the contracts for the MBT-70 and XM-803 before a single tank had been built.

But for the M-1, the Army replaced this paperworkbrigade with one remarkably simple document. Aside from some basic standards for size, weight, and reliability, there were essentially no performance requirements at all. Instead, the Army offered only a prioritized list of 16 performance categories, such as crew survivability, gun accuracy, and speed. The Army simply asked that each tank cost no more than $507,000 in 1972 dollars, and that only proven hardware be used. Each bidder would have to design, develop, and actually build a prototype M-1. The final award would be based not on paper promises, but on actual field tests conducted by the Army.

It was a simple message. "The Army told us,"You're the experts. You trade off and give us the best tank you can for the money,'' remembers Lou Felder, who was with the Army's MBT-70 project office and later became Chrysler's M-1 project manager. Even though his Chrysler tank came in second, Felder says "the initial competition for the M-1 . . . [was] probably the best development in the history of the Army.'

Scalding the troops

When the Chrysler and General Motors entriesfirst met at Aberdeen, the Army found that it had received two very good tanks, both exceeding the Army's performance expectations. But it soon became apparent that the one built by GM was better. The Army tests showed General Motors's tank had superior armor protection, better fire control and turret stabilization systems (for the M-1's fancy "shoot on the move' capability), and a more sound overall design. Meanwhile, GM's price bid for M-1 development and initial production was $208 million compared to $221 million for Chrysler. "As a corporation, GM was hard to beat,' says Major General William R. Kraft, who helped supervise the M-1 competition. "Chrysler seemed to have some trouble getting organized for this program,' General Kraft said. For instance, Chrysler hadn't completed assembling its prototype and had to compete without a finished turret.

More important, though, was the enginechoice: diesel or turbine. The diesel engine employed by GM represented a significant improvement over that used in the earlier generation M-60 tanks. Using an innovation in variable compression pistons, the new diesel could squeeze out twice the horsepower with only two-thirds the weight. Although there had been serious difficulties with the new technology when it was first employed in the 1960s, engineers had years of experience with it by 1976.

Theoretically, the turbine used by Chrysler offereda number of advantages over diesel: it was lighter, quieter, less smoky, and, with fewer moving parts than the diesel, potentially more reliable. Chrysler chose the turbine amid a growing sense that it might well be the engine of the future.

But the turbines had serious drawbacks. Unlikediesel engines, all of the air required to run a turbine must be filtered. That isn't a problem for an airplane or a helicopter flying hundreds of feet off the ground, but it can be disastrous for a tank on a dusty battlefield. Designing adequate filters would be a tremendous engineering challenge.

The second problem was exhaust. Turbineengines emit far more exhaust than diesels. And at 2,000 degrees this exhaust itself becomes a lethal weapon. It means infantry soldiers cannot walk behind the tank--a time honored practice that helps protect both the tank and the soldier--without being fatally scalded. The hot exhaust also makes it far easier for an enemy to detect the M-1 on the battlefield with simple infrared sensors.

Furthermore, standing idle the turbine uses atleast twice as much fuel as the diesel, even though they both offer equal horsepower. Tanks tend to spend up to 80 or 90 percent of their time idling. The high fuel consumption causes tactical problems as well, since fuel trucks have to stay close to the tanks, either by moving with them into battle, or by forcing the tanks to hang back.

The biggest factor pushing the Army to choosediesel, however, was fear. After seeing its last two tank development programs canceled, the Army was reluctant to saddle this third program with an unproven engine. "The turbine really wasn't a mature engine at that point,' says General Kraft. "It's just a conservative instinct to go with what you know.'

The big pitch

By lunch time on July 20, only the stamp ofthe defense secretary was needed to give GM the award. The Army was so confident of the decision that it began notifying reporters that the award would be made by the end of the day. It wasn't.

At 1:30 that afternoon, Army Secretary MartinHoffman brought a team of army generals into the office of Deputy Defense Secretary William Clements to brief Clements and Malcolm Currie, the director of defense research and engineering, on the results of the source selection. Given that Hoffman was the official "Source Selection Authority' responsible for making the M-1 award, Clements and Currie were expected to rubber stamp the decision. In fact, Currie had signed a memo that morning okaying the Army's request to name a winning contractor and move toward production.

Instead, Clements and Currie lashed out at theselection and strongly questioned the Army's choice of the diesel engine. Clements argued that the entire source selection should be re-evaluated. When Hoffman and Clements brought their respective arguments to Donald Rumsfeld later that afternoon, Rumsfeld ordered a 24-hour delay to decide whether or not to proceed with the award.

Army leaders were surprised and angry. Thetank for which they had waited almost 15 years was suddenly in danger. Following a brief binner break, virtually all the top Army leaders, including Hoffman and Vice Chief of Staff Walter Kerwin, gathered in the office of Assistant Secretary for Research and Development Ed Miller to talk over what happened and plot a strategy. They worked until 4 a.m. writing memos on the validity of the testing process and the need to move forward with the program. "The whole Army mobilized against the delay,' recalls Miller.

At 7:30 the next morning, Hoffman met onelast time with Rumsfeld to try to persuade him to make the award, but without success. According to Miller "we stayed up all night writing rebuttals. I don't even think they read the stuff.' Instead, Rumsfeld announced a four-month delay in the M-1 program.

Within days, GM was asked to submit a brandnew proposal incorporating the turbine engine. (Chrysler was also asked to submit a design including a diesal engine, but it was never seriously considered.) As Ed Miller puts it, "It became increasingly clear that the only solution which would be acceptable to Clements and Currie was the turbine. . . . It was a political decision that was reached, and for all intents and purposes that decision gave the award to Chrysler since they were the only contractor with a gas turbine.' On November 12, 1976, the Defense Department awarded the contract for the $20 billion program to Chrysler.

Why did Secretary Rumsfeld overturn the Army'srecommendation and choose Chrysler and the turbine instead? At the time, Rumsfeld justified the decision as necessary to standardize key components of the M-1 with the emerging Leopard II tank of West Germany. It's true that the standardization agreement reached with West Germany opened the door for use of the turbine engine several years in the future, but that was at Rumsfeld's request. The Europeans disliked the turbine, had no intention of using it, and only agreed to consider it to appease Rumsfeld. When Robert Parker, then principal deputy director for research and engineering, described the M-1 decision recently, he spoke not of standardization nor of any performance analysis. (Rumsfeld's staff hadn't done any independent analysis of the tank engines.) Instead he explained the decision this way: "Each of us in a position of authority sometimes feels our judgment is what we're being paid for. Bill Clements is a hard-headed businessman who has some pretty strong beliefs. And he just felt strongly that we should forge ahead with the turbine.' Clements, according to Parker, just felt in his gut that the turbine was the way to go.

But others familiar with the selection processsay there was another reason. Despite its highly lucrative M-60 tank business, Chrysler had suffered $52 million in losses in 1974 and $260 million in 1975. "Chrysler was already beginning to feel the effects of problems that would become clearer in 1979 and 1980,' admits Lou Felder, then with Chrysler.

General Motors, by contrast, was faring quitewell in the mid-1970s. Though affected by the industry-wide lag in auto sales in 1974-75, GM still managed to turn profits of more than $2 billion. Unlike Chrysler, GM was not at all dependent on government business, which accounted for only about 1 percent of its sales, compared to 5 percent for Chrysler. Chrysler's tank division represented the only money-making operation in the corporation. Because of the cost-plus system of defense procurement, a contact would practically guarantee a considerable future profit. "General Motors really didn't care about the tank business,' recalls one government defense analyst. "But for Chrysler it was a matter of life and death.' In fact, it had taken a special plea from the Pentagon in 1972 to convince GM even to bid for the M-1 program.

Chrysler executives pulled out all the stops intheir attempts to influence the M-1 award. On June 17, 1976 Chrysler chairman John J. Riccardo visited the White House to meet with William Seidman, the assistant to the president for economic affairs and executive director of the powerful Economic Policy Board. Seidman was a close friend of Gerald Ford, one of a select group of advisors with personal access to the president.

According to Seidman, Riccardo's agenda forthe meeting was simple: he wanted assistance for Chrysler. "The Chrysler people came in looking for help,' recalls Seidman. "And when we looked into it we saw that they were in some trouble. We wouldn't give them any direct aid, but we did look to help them out within the regular decision process.' With the M-1 award only weeks away, the direction of this help was obvious. "We went and talked to the people in the Pentagon,' Seidman recalls. "We wanted to find out whether Chrysler was going to win that contract. We let them know that there was a problem [at Chrysler] and that Chrysler was in for help.' Seidman insists that "we didn't order anything. We just made sure that they were aware of the problem.'

A week after the meeting, Rumsfeld made thedecision to push the turbine engine in the NATO standardization talks.

Following the Riccardo-Seidman meeting,Chrysler continued its lobbying effort, right up through the day of the scheduled award to GM. That day, Chrysler lobbyist John Keegan hand-delivered a letter to William Clements. In the letter, Chrysler, which should not even have known the results of the source selection, threatened to issue a formal protest if the Army went through with the award to GM.

The Army Edsel

The M-1 contract provided a desperatelyneeded financial boost to Chrysker, creating $60 million annually in profits in a period when Chrysler's automotive operations were consistently losing money. The benefits became even clearer in 1982, when Chrysler sold its tank business to General Dynamics, netting $336 million in the midst of its most serious financial crisis. The award ranked alongside the 1979 federal loan guarantees as a key factor in the company's remarkable turnaround. "The sale gave them the cash they needed to get over the tough times and develop their new product lines,' says one former Chrysler official now with General Dynamics. As defense analyst Paul Hoven says, "If you're looking at the financial success of Chrysler and Lee Iacocca, you're probably looking at a tank contract.'

Today, Rumsfeld and Hoffman deny that helpingChrysler was a factor in the decision. In fact, Hoffman claims, "the financial condition of Chrysler consistently cut against them in the competition.' Rumsfeld adds that "those are the kinds of things that are said by people who are on the fringe [of the decision-making process], who don't like a decision and figure that something of this sort must be behind it.'

But in reality, politically motivated contractawards have been a fact of life for decades. Perhaps the most famous case involved the TFX aircraft in 1962, when Robert McNamara awarded the $6.5 billion program to General Dynamics--which was financially ailing and politically well-connected--after a military evaluation team had four times rated Boeing's plane superior. One White House insider admitted later, "Bob McNamara was instructed on what to do about the TFX. He was told what to do . . . [and] he was a good soldier.'

More recently, political factors weighed heavilyin the award of the infamous DIVAD anti-aircraft gun to Ford Aerospace and Caspar Weinberger's decision to buy Lockheed's C-5B transport instead of McDonnell Douglas's C-17, which was strongly favored by the Army and Air Force. In each case the award was given to the contractor in the greatest financial difficulty--not the one with the best weapons system. More such instances are likely to be seen in the future. A recently retired Army officer put it this way: "If you think you can maximize socio-political factors without exacting a major penalty in military performance, why not?'

Chrysler, of course, had every right to lobbySeidman, just as Seidman had good reason to make the Pentagon officials "aware' of Chrysler's problems. The health of a large corporation employing thousands of people is a serious matter. In this case, however, the cost of satisfying these non-military concerns was high. When the M-1 began rolling off the assembly line in 1980, the Army found that the turbine engines were seriously deficient. The air filter system, as feared, had not yet been perfected and the engines broke down at an alarming rate. "We were still having tremendous problems [in the late 1970s] with the turbine,' says General Donn Starry. "We had to completely redesign the air intake system.' Ultimately, the Army had to slow down its production of the M-1, and spend hundreds of millions of dollars to implement needed changes. The tank that was once described as "the best procurement in Army history' had become, as Barrons put it, "The Army Edsel.'

The only logical choice

The Chrysler bail-out only explains a few hundredmillion dollars of the extra costs involved in building the M-1. Another bail-out explains the rest. This one involved the M-1's main gun and a prized aircraft program of the U.S. Air Force.

Both General Motors and Chrysler initiallyproposed using a 105 millimeter gun on the M-1. While the 105 mm was the same gun used on the older M-60, a new generation of more powerful ammunition had just been developed which vastly increased the gun's effectiveness. A trilateral committee of American, British, and West German experts in 1975 unanimously recommended keeping the 105 millimeter gun for the M-1. "We were making so many improvements to the ammo for the 105 that it looked like that gun could kill anything the Soviets had for a pretty long time,' says Ben Schemmer, editor of the Armed Forces Journal. But Donald Rumsfeld saw it differently. In June 1976, Rumsfeld's negotiators in Europe agreed to West Germany's request that instead of standardizing around the American 105 millimeter gun, we would modify the M-1 to handle a new German 120 millimeter gun.

From a military perspective, Rumsfeld's dealmade little sense. While the 105 mm gun was a proven weapon, the 120 mm gun was less accurate, added greatly to the program's costs, and wouldn't be ready for two or more years.

In order to keep the M-1 program on schedule,the Army would have to design a "hybrid' turret that could handle the 105 mm gun in early production and the 120 mm gun later on. General Robert Baer, the Army's M-1 project manager, testified that this bigger turret--which made a bigger target for enemy anti-tank weapons-- would reduce the overall effectiveness of the tank by as much as 10 percent.

In addition, the 120 mm gun was moredangerous to use than the 105 mm gun. Because its shells lacked the protective metal covering found on 105 mm rounds, the ammunition was much more likely to explode prematurely and tended to leave burning residue in the breech, a major hazard for the gun loader. The Army suffered a woeful experience with similar ammunition in Vietnam.

The 120 mm gun did offer a bigger bang:because of its greater mass, the 120 mm shells could travel further and with more force than the 107 mms. These larger shells, however, greatly limited the ammunition load. Probably a tanker's worst nightmare is to run out of ammo on the battlefield. "It was just a personal opinion of guys like me, who'd spent much of our lives inside tanks,' notes General Kraft, "that we'd rather have more bullets than a bigger whack.' Furthermore, the Army felt strongly that the 105 could beat anything in the Soviet force. Writing in March 1976, Currie concluded: "U.S. evaluation of the tank guns . . . further confirms the adequacy of the 105 mm and indicates that need for a larger gun than 105 mm in the future is very unlikely. The major considerations . . . weigh so much in favor of the 105 mm system that, in our view, there is no other logical choice.'

Yet just three months later, Currie's boss,Rumsfeld, agreed to standardize around the 120 mm gun. Again, the Pentagon said it was in the name of NATO compatability. But the decision actually reduced the level of NATO uniformity, since the vast majority of tanks in Europe already used the 105 mm gun.

So way did Rumsfeld agree to standardize onthe 120 mm gun? Asked that question, many military experts point to the skies--to the airplane known as AWACS.

In their final planning meetings for the M-1contract award in July 1976, Army officials were joined on several occasions by a man wearing a blue uniform, Richard Bowman, a general with the U.S. Air Force. Serving as director for European and NATO affairs in the Pentagon's international security affairs division, Bowman took an unusually active interest in the M-1 program.

"The underlying politics was Air Force,' saysAnthony Battista, "particularly AWACS.' AWACS, the Air Force's airborne warning and control aircraft, had originally been designed to coordinate U.S. air defenses against possible attacks from Soviet bombers. But when the Anti-Ballistic Missile treaty was signed, AWACS suddenly found itself without a mission: why did we need this expensive radar plane to stop Russian bombers if we weren't going to stop their missiles?

Instead of canceling AWACS, however, the AirForce simply changed the AWACS's mission. Instead of defending the U.S. against strategic bombers, AWACS was supposed to assist tactical fighter planes in Europe and act as an overall battlefield control station. (This mission was questionable as well since AWACS almost certainly turn off their radar periodically--the key to battlefield control--to avoid being destroyed by enemy missiles.) With General Bowman leading the way, the Air Force began an intensive effort to sell AWACS to our allies, particularly West Germany. As one congressional staffer put it, "General Bowman's only job was to sell AWACS to NATO. If he wanted to become a three-star or a four-star, he'd better see to it that that happened.' But the Germans seemed to be giving the Air Force a cold shoulder, apparently reluctant to buy yet another U.S. weapon (they had just agreed to a major purchase of F-16s) while the U.S. consistently neglected to purchase German-designed arms. In late March 1976, Carl Damm, a member of the German Bundestag, delivered a message to his counterparts in the U.S. Congress: "To speak quite frankly. . . . I personally do not see any possibility for the Federal Republic of Germany to take part in the AWACS program unless the United States of America spends a corresponding amount on German tanks. This would be a fair deal, a two-way street.'

While the Germans had few illusions that theU.S. Army would abandon its M-1 program entirely in favor of their Leopard II tanks, they did hope the U.S. would at least adopt the 120 mm gun. In fact, it was essential to the German Army's own strategy for lobbying the Bundestag. "The German [Army] was having difficulties selling the expense of the Leopard II to the Bundestag, and the tank's big selling point was the 120 mm gun,' explains one former Army officer. "Unless they could get the U.S. to agree with the threat and go to the 120, they were in trouble.'

So they turned up the heat on Rumsfeld."Rumsfeld had taken some political shots from the Germans,' says then Army Secretary Martin Hoffman, "and he wanted to do something-- the 120 gun was paramount.' The need to sell AWACS could only add to the pressure.

Throughout 1976 and 1977, awaiting a finalcommitment from the U.S. to put the 120 mm gun into production, the Germans continued to hold back their support for a NATO purchase of AWACS. Finally, around the same time the Carter administration finally agreed to the 120 mm gun in early 1978, the AWACS purchase received NATO funding, with West Germany leading the way. Ultimately, NATO purchased a total of 18 AWACS for well over a billion dollars. More important in the eyes of the Air Force, NATO's involvement in the program served to quell congressional opposition to AWACS and ensure continued funding.

While the Air Force was delighted with thedeal, it was the Army that paid the price. In addition to the penalties of poorer accuracy, diminished ammunition stowage, and increased vulnerability, the switch to the 120 mm gun added more than $1 billion to the cost of the program, mostly for the purchase of new ammunition.

Political lemon

Today, many of the M-1's problems have beensolved. Even its most fervent critics acknowledge that it is a better tank today than the trouble-plagued lemon that emerged several years ago. But despite its progress, the M-1 still bears many scars from its early development. Excessive fuel consumption rates have limited the tank's range and required added investments for fuel and refueling vehicles; maintenance costs for spare parts are reportedly ten times higher than those for the M-60, and hot exhaust has placed permanent constraints on the M-1's battlefield usefulness.

Looking back on the M-1 episode, Ed Milleris resigned and a bit cynical. "We held an honest and above-board competition for three years. We had extensive data and test results. We had binding price bids for full-scale engineering development and for the initial production. We were enormously upset by the decision to give the award to Chrysler and switch, guns, but we went through with it.' After all, Miller adds, "that's politics.'