The DeLorean Saga: Fraud, Drugs and Marty McFly's Car

Pushkin, Hello everyone, and today a crossover episode the Marvel cinematic universes built on them. Musicians love a collab, so why can't we do Likewise, My old compadres, Jacob Goldstein and Robert Smith, who I first met at least a decade ago while they were working on Planet Money, have a new podcast called Business History, produced by Ryan Dilly, one of the most important creative minds behind Cautionary Tales.

Business History is all about the surprising stories behind brands, products and entrepreneurs who shaped our world. But what if a business's history was also a cautionary tale. This week I talked to Jacob and Robert about the Dolorean car, a story with so much going on, from cocaine to money laundering, we only just have time to talk about back to the future. Enjoy and if you want more business history you can find it where if you get your podcasts.

This is a very exciting moment in podcast history. Cautionary Tales x business.

History giants come together.

This is epic.

This is very exciting. Can't we say business history versus cautionary tales? That I feel like that's is that like a nineteen nineties thing?

Tim Harford, Robert Smith, Jacob Goldstein. This is cautionary tales and business history together.

In the same studio. Well, kind of not, but it'll have to do so.

Tim, we have a rule at Business History, and it is a rule I just made up, but I think it's a good rule. And the rule is if, at any point in the story the protagonist is captured on video in a hotel room with a bag full of cocaine, that is the scene we have to start with. Will you do us the honor of starting with that scene?

Let's do it perfect. It's October the nineteenth, nineteen eighty two. John Delorian walks into room five oh one of the Sheraton lorraina hotel in Los Angeles. Delorian's tall and handsome six', four silver, hair shirt and, tie and he's in room five oh one because he's trying to save his life's. Work the car that has his, name The, DeLorean And.

Tim And robert maybe this is the same for you. Guys ME i remember this car for one. Reason it was in the Movie back to The, future yes Eighty.

Famously if you know one thing about A, delorian it might be that it's silver stainless steel and it has these.

Doors they don't open, out they open. Up they're called goal wing doors because it looks like a goll in. Flight And delarei himself is an interesting. Guy like a decade before, this he had been on, track probably possibly to become the president Of General motors OF. Gm but by nineteen eighty, two his company's in. Trouble sales are, low debts are, high And John dolurian is about to lose control of his. Company and one day his friendly neighborhood drug dealer offers him an opportunity put some money upfront and get in on a cocaine deal that could net millions of dollars in profits.

And save the, company and save the.

Company and so On october, Nineteenth John dolorian walks into room five oh, one sits down in a comfortable. Chair he doesn't know, it but there is a video camera hidden in the, room so you can actually see what happens. Next it's on.

YouTube the world will see it soon.

Enough out a bag of some, sort maybe it's a, suitcase maybe it's a, briefcase puts it on a coffee table in front Of, dolorean opens it up to reveal fifty or sixty pounds of. Cocaine make sure you orient it toward the hidden. Camera And delorian in the video leans, forward lifts up a bag of cocaine from the suitcase and he laughs he Has harvord bets. It then, gold he, said, gold ways more than. That. Oh and then there's a shot Where delurian and three other guys are around the same coffee table and now they're raising their glasses in a toast And delian, says here's to a lot of success for. Everybody sometime after, that there's a knock at the.

Door two men in suits walk. In one of them, says, Hi John Jerry WEST. Fbi you're under arrest for narcotic smuggling. Violations could you stand up. Please delian stands, up and the agent Puts delorian's hands behind his back and puts handcuffs on. Him. Wow, Tim we were working on This delorian story and we decided it would be the perfect crossover with cautionary tales because, cocaine for one, thing it's a great rise and, fall a lot goes. Wrong there's a compelling. Protagonist there's a car that was made famous in a. Movie i'm sold let's. Go let's go, now room.

ROOM i didn't even mention the industrial policy. Part, yes so Good.

Tim there's another rule At Business, history which is at this part of the, show we say the protagonist's name and we say the middle name when they have. ONE i like these. Rules John Zachary delorian was born in nineteen twenty five in a small house near the railroad tracks In, detroit which is in A United states Called. Michigan, Tim, YEAH i heard of. It you've heard of. It, cars, right they, did cause that cars a lot of. Cars in, Fact delaurian's own father was an immigrant who worked at the foundry At. Ford When delorian was, ten his dad bought him an old MODEL t That delorian would take apart and put back. Together that's the Way delaurian told the.

Story as we'll, hear he is a somewhat unreliable. Narrator and he eventually got a job in The pontiac division At General MOTORS.

Gm and the whole thing ABOUT gm is there were all these different divisions and each one was a different. Brand and we talked about this in our show about HOW gm Beat ford in the nineteen. Twenties The chevy was your Basic american all purpose. Car then you had The cadillac obviously for your, grandfather rich, guy and The pontiac was the car your grandmother, drove practical mid sized.

Car it wasn't very. Popular there was talk of shutting down The pontiac.

Forever, yeah the whole division was, like MAYBE gm would just get rid of. It and the people At pontiac are trying to think about how to save the, division the, brand and they know that there is this demographic wave who will soon be named the baby, boomers who are about to grow up and start buying, Cars and so they, think, okay what do what do kids want in a? Car they wanted to go, Fast they didn't want grandma, costs they don't want grandma's. Car and so they start putting big engines in, cars and in, fact sales start growing And delorean's getting promoted and he wants to push this fast car strategy farther and one day he and his colleagues have this kind Of eureka. Moment they, say, well,

okay we've been putting big engines in big cars and they go, fast and small engines in small, cars and small engines and small. Cars what if we put a big engine in a medium sized, car then it would go really. Fast but there is a problem with this. RULES gm had, rules and one of the rules was you can't put a big engine in a medium sized car because then it goes too fast and it's too much like a race. Car AND, gm which among other things is afraid of anti trust, action actually doesn't want to be seen to be making race.

CARS i love the image of the guy in THE gm suit being, like it's too.

Fast. Good So, delorian a man who is we'll, see doesn't love a, rule finds a. Loophole and the loophole is. This this rule about big engines in smaller cars only applies if you want to build a new. Model but if you just want to make the big engine an option on an existing, model there's nobody to say. No so that is What delorian, does and that is why in the early sixties you could have your. Choice you could buy the regular nineteen sixty Four Pontiac tempest for your.

Grandmother for your grandmother are very reasonable car grandmother can drive to the store and. Back or for another three hundred dollars you can get your grandma's car with a really big v eight engine in, it basically a racing engine hiding inside your grandma's. Car And delareie himself comes up with a great name for this, model for this.

Option he takes it From ferrari Gran turismo. Omologato, tim how's My italian sounds okay to? Me? Okay well you know what everybody here just called it?

Gto oh little.

Gto, yeah there was actually a, song, Right there was.

A famous song back then called Little. Gto AND i thought it was just a song saying how awesome THE gto. Was it turns out it was kind of a an ad for the cover.

Sort, of so that there was this like famous marketing guy who at least says he had some input into, it like he told the guy like mention some of the features of the, car, whatever four on the, floor.

Whatever, well this was part of the beach boy imitation, era where you could just pick out a product and sing about how cool it was at the beach and that was pop.

Music so THE gto was a, phenomenon The Pontiac. Gto you could argue that it was the first Great american muscle. Car it was wildly, popular and it Made delarean a star And this is really the moment his ascent, begins and he rises to become the head Of pontiac and he keeps going, up and now he's the general manager Of, chevrolet the biggest brand AT, gm and then he goes all the way up to the fourteenth floor Of General motors, headquarters where it becomes vice president of all cars And trucks FOR. Gm he's a man rising, fast and, yet and Yet delaurian didn't really fit in AT. Gm SO gm at this time was this like giant bureaucratic corporation based in the middle of the. Country it was run by, boring reliable men in dark.

Suits white, shirts skinny, ties And delaurian just didn't like all these.

Rules why WAS gm like? This why was it more like a machine full of cogs than an entrepreneurial. Organization and the answer is by. Design this was. Deliberate so decades earlier there had been a CELEBRATED gm, President Alfred. Sloan he had TURNED gm into this efficient corporate. Machine he was one of the inventors of really the modern, corporation and he was super, successful very widely. Admired loads of people copied. Him businesses all around the world adopted the same structure and the same kind of processes AS.

Gm they were run by managers who loved, rules Like. Jacob they loved. Committees you two, guys not a. Committee and it just wasn't an entrepreneurial era at.

All and in Comes. Denorian my other, things he wore gans to. Work who does?

That he's like a baby boomer.

Hero he is like a baby. Boomer, hurry he's too. Always is that a? Problem i'm here in shorts. Him i'll tell you the. Truth don't make me stand. Up don't make me stand.

Up it's warm here today In. Oxford i'm not wearing anything below the. Waist but you, know nobody needs to know.

That So delourian's wearing. Jeans he dyes his, hair he gets a. Facelift he starts actually putting his face in print ads next to the. Cars he gets bored of Boring detroit and starts going TO la and hanging out with movie, stars going to clubs and. So somewhere around the time he gets promoted up to you, know vice president OF, gm he gets.

DISILLUSIONED i don't know why he's living the.

Life it's, true it's. True, well so he tells a journalist about what was going on with him a few years. Later, tim you want to read to us From delorean's own description of his feelings at this, Time.

I'll spare you The michigan, accent, though he, said my concern was that there hadn't been an important product innovation in the industry since the automatic transmission and power steering in nineteen forty. Nine in the place of product, innovation the automobile industry went on a two decade marketing binge which genuinely offered up the same old product under the guise of some new and Useful this was an indictment of myself as well as my fellow auto.

Executives so this Is delorian explaining why in nineteen seventy three he. Quits he quit his job as vice president Of General, motors which is not something people did at the, time, right at least That's delurian's version of why he. Quit, Yeah i'm too creative, Too, yeah oh those. Rules, no there's another version that's well told in this book Called Grand, delusions written by a reporter named Hillel. Levin it's a very good, book very well. Reported it was a key source for the show, today And levin basically says or suggests That delurian resigned under. Pressure he, SAYS gm executives Thought delaurion had too many outside, interests you, know like smoking.

Gun but there is this sense that internally AT, gm people are, like we don't like this. Guy we don't want him around. Anymore so whatever, happened he's. Out but within about a, Year deloorian had his big. Idea he would build a truly new, car and it would be a sports.

Car we'll be back in just a minute with The.

Delorier Tim, harford give me a cliched thing for a man to do when he's having a midlife.

CRISIS i, mean for, me you take up running in. Calisthenics BUT i think that the more the bigger cliche is you divorce your wife and you buy a sports.

Car. Red, Yes delorian did both of. Those one. Better he got two, divorces, wow one in the late, sixties another in the early, seventies and he decided to invent a sports. Car to create a, car he went. Big one thing we can say About, delium the man went. Big tim give us a couple of lines from a guy who worked With.

Delorian he, Said jones started out with an image of the car in his. Head he'd say it was a hazy view of the car sitting in a field somewhere with a gull.

Wings the, doors always the. Doors it's so central to the. Car it's the first thing you.

Say eighty percent is the. Doors and he didn't invent the golding. Door by the, way there was A mercedes that had been made long before that with golling. Doors but they're very, impractical which is why cars almost ever have, them as we will see. Spoiler so there were the, doors and there was the fact that he was having a midlife. Crisis but it wasn't just those things that Made delorian want to build a sports. Car there was a sound business idea behind. It and it basically comes down to the way economies of scale. WORK i don't, Know robert And, tim like you guys want to duke it out for who economy of scale you want to do it?

TOGETHER i want to Hear tim do economy is a scale oh too.

Kind so an economy of scales simply means that the more you're producing of a, thing the cheaper it gets to produce each extra. Unit so you might contrast say a sports car with a sports. Massage so if you're in the sports massage business and you give someone a sports massage.

For Our american, listeners that's a. Massage go, on tim, honestly point please leave a.

Massage it takes an, hour, right it takes an hour of your. Time and you want to do another sports massage, anyway very, good, whatever it takes another. Hour and if you want to do another, one it takes another. Hour you're not really gaining anything by having more massage. Appointments none of this is getting any cheaper or more. Efficient but if you think about a, car you've got to design the, car you've got to test the, car you've got to tool up the, factories and it costs an absolutely enormous amount of money and time and effort to uce the first, car and then the second one is way, cheaper and the third one is. Cheaper so there's a real advantage to just trying to produce as many of these cars as you possibly, can not just because, hey

everybody wants to sell, more but for any given, price the amount of cars you're selling could mean that you're making a loss on each, car or you're making a massive profit on each, car.

And this makes it very hard for new competitors to come into an industry where there's these economies of, scale BECAUSE i could, say, like, Oh i've got a great idea for a, car but ALL i need is millions and millions of dollars to build the, factory hire the, workers get the, land design the.

Car before you even sell, one and that first car needs to be very. Expensive you've got to borrow a lot of.

Money you've got to persuade a lot of people that this is a good. Idea who are you going to Persuade who's.

Going to come up with that? Money, so in, fact this is a big part of the reason it's so hard to start a car company as opposed, to you, know a massage therapy. Business and in, fact for decades Before delarean tries to start his, company people have tried and failed In america to start new car. Companies it has been like fifty years since there was a successful new car, company which by the, way was also started by a FORMER gm executive Named Walter. Chrysler So dolauri of course knows all. This he knows About, Chrysler he knows about all these, failures and he thinks that a sports car might actually help him solve this economy of scale problem because people will pay a lot of money for a beautiful sports car with doors that open up

instead of. Out so if you can charge a lot for that, car you don't have to sell as many to get over the economy of scale.

Hurdle this is exactly the same trick used By Elon musk when he first Started. Tesla like the first car was a sports, car it costs one hundred thousand, dollars but he also signed people up in advance to get the money to help make those first, cars and then of course later on he developed cheaper cars and weirder looking cars t once he.

Got to, right you use the sports car as the first car that gets you to, scale and then you can sell the cheaper car for the.

Masses Did Elon musk Stop? Tesla by the? WAY i feel we're gonna get letters about?

This he did, Not, robert did you say?

That he?

DID i Think i'm gonna read you the listener letter right now, Here, Sir.

Elon musk Joined tesla and helped make it.

Successful thank, you, Okay but the sports car strategy makes Sense musk used, it And delorian is going to go for.

It, yes this is his, plan but still you gotta raise all that. Money you still have to raise a crazy amount of. Money so in nineteen seventy five he starts The DeLorean Motor company and he starts raising. Money he's very, glamorous, Right he's good, looking and he's kind of a, star and he's of the. Moment and so he's raising money From Johnny carson And Sammy Davis, junior WHICH i love these as like nineteen seventies cool. INVESTORS i, Mean JOHN i can't tell if That's Sammy Davis junior Or Johnny, carson AND i don't want to. Know and so some money is coming in and he's sharpening his vision of the. Car he works with this Famous italian designer who comes up with this, low boxy design that is like a great. Design if you think about the,

time you, know cars are kind of moving in the direction that The dolorian is. Going it is kind of ahead of its. Time And delian also decides to use this process where the frame of the car is built basically with this special kind of plastic and then there's stainless steel on the outside kind of like The model t any color you want as long as it's. Black The delorian is any color you, want as long as it is stainless, steel which also looks. Cool did he work With lotus as?

Well he.

Did he did work With lotus as A british. Citizen perhaps this means more to you than to, me but tell me About. Lotus it means so much to.

Me because the car That James bond turns into a, submarine this sleek white sports. Car he's escaping for the helicopter and he drives off the pier into the lake and then the car just sprouts fins and it turns in. Submarine and WHEN i was a, BOY i had the toy of that, car that die cost car you press about on h the submarine fins come, out and yeah that's ALL i know about, Notice but, YEAH i just wanted to Do and.

This is probably a similar, error, RIGHT i, mean did that car look kind of like a like A dolorean him to have that kind of boxy. Vibe, also, YEAH.

I mean it was super it. Was it was super sharp at the, front had a very very sharp point at the. Front but that's for cutting through the water.

Exactly they didn't have laws then to keep kids.

Safe so so this is this is the vision for the. Car lotus has worked on This italian designer stainless. Steel of course the doors now is when you need the real, capital not The Johnny Carson Sammy Davis junior kind of, capital but, big big. Capital and by capital you mean money of, money thank, you, yes. Money WHAT i mean is.

Money and we live in this world today where somebody Like dolrian would have people you, know running down his door to give him. Money we live in a much more financialized world. Now there wasn't a startups ecosystem like we know. It there wasn't private equity like we know. It there wasn't venture capital like we. Know all these things were getting, started as we've talked about on the, show and As, tim as you've written about and talked, about but it just was not like it is. Today and also every New american car company for the past fifty years had been a Failing so you need.

Somebody with money and no. Judgment that's What, yes, yes.

A government government and governments especially at this, time but actually still governments really love car.

Companies, yeah they love them because jobs making. Cars they are manufacturing. Jobs they are perceived as high status jobs for ordinary. Citizens you, know it's not for the, elite it's not for people with fancy. Degrees it's for regular. Guys and they usually are guys without a load of education who can get some skills training and they can get a good job and it's a steady. Job and what's, more there's going to be a whole network of suppliers which are all going to be relying on this car.

Factory and so you're not just building a, car you're giving citizens great jobs and you're revitalizing an entire.

Region that's the. Attraction that's what governments are hoping.

For and the nice thing about having someone build a factory on your territory is it's hard for them to take it back once they've built. It it has to stay.

There, yeah and you, know we've been mocking. Governments i've been mocking. Governments But china has done this and has been very. Successful but it's not cars like The, glory and it's the new cutting. Edge it's electric. Vehicles and some of the best electric vehicles in the world are coming out Of. China and that story about the supply.

Chains that counts as. Well so this is also a story About china having an ev. Grid it's also a story About china developing battery. Technology it's a story About china developing rare. Earths you, know whatever those things. Are they're important for electric, cars, magnets but not only, that they're also key building blocks for drones and for missiles and for high tech, electronics all of this other stuff that you're indirectly supporting by backing your car. Industry so this is this is the, dream, Right this is why governments have a point when they throw money at car.

Industries and in, fact When John, delorian this glamorous Former General motors executive with this idea for a beautiful, car starts shopping around for a place to build a, factory governments basically throw money at. Him he's tucking to people In, spain In, detroit at, home he's In Puerto, rico gets really close to going To Puerto, rico but in the end he gets a better offer from The United, kingdom home Of Tim. Harford THE uk government is going to give him something like one hundred million dollars if it seems cheaper in, pounds most of it and, grants some of it in the, loans but there is a, catch and the catches to get the, money he has to build the factory In Northern.

Ireland this is another classic move by. Governments they don't want the factory to just be. Anywhere once they can convince a factory to come to their, country they look around at which part of their territory is struggling the, most because that way you can get the most bang for your buck and it solves sort of two, problems a political problem and an economic problem at the same.

Time so Why Northern ireland?

Term so Why Northern.

Ireland So Northern ireland is part of The United, kingdom but it is physically on The island Of, ireland so next to The republic Of, ireland and it's been contested politically for a long. Time so you've got The protestants and The catholics In Northern. Ireland some of The catholics want to be reunited with The republic Of. Ireland The protestants do. Not they want to stay of The United.

Kingdom this disagreement gets extremely. Violent there are, bombs there are, killings there are soldiers on the, streets there's barbed. Wire they are building, walls they call them peace, walls just Between protestant And catholic. Neighborhoods AND i don't know whether the peace walls were a good idea or a bad, idea but they're not a good sign. Right so it's a very tense, situation and of Course Northern ireland is suffering economically as a result of. That and so you have the decision makers who are In. London of course they've got the, money they've got the, power and they're trying to do something to make this problem less of a.

Problem it's probably worth mentioning as. Well you might think Of Northern ireland as. Well maybe it's a rural, economy maybe it's a bit economically. Backward, Actually Northern ireland historically has a lot of manufacturing and amazing shipbuilding, industry but that shipbuilding industry itself was under pressure from competition at the time From, japan From. Korea so there's another question we're going to we're losing these manufacturing, jobs where are we going to get the manufacturing jobs to replace. Them so for all of these, reasons the idea of putting a car factory In Northern ireland seemed attractive to the decision, makers most of whom were In.

London Tim, harvord what's the most famous ship ever built In Northern? Ireland you want to go?

There it's The. Titanic i'm not going to Blame belfast for. That, no we blame The iceberg for. That so this is the.

Context unemployment In Northern ireland is something like ten percent at the. Time it's even higher in this sort of rust belt parts Of Northern. Ireland and, so of, course when Beautiful John dolorian comes along with his beautiful car and his promise of his beautiful, factory of course they want him to put it In Northern. Ireland and they don't just want him to put it anywhere In Northern.

Ireland they want him to put it in this particular, spot on this marshy, field in between A catholic neighborhood and A protestant neighborhood in an industrial town Called, dunmrie just outside Of.

BELFAST i can imagine The protestants and The catholics coming together through the factory door wrenches in, hand building together a New tomorrow and a new.

Car spoiler. Alert they're gonna have to build two different, doors one for The protestants and one for The laurien, says, yes, sure we will build the factory, there and On october, second nineteen seventy, eight he broke. Around there's a picture of it THAT i.

Saw he is.

There he's got a suit and a shovel with some. Dirt he's under a. TENT i guess because it was. RAINING i infer and so this is going to be. Hard it's always hard to build a greenfield new factory for a new. Car it's really hard to do it in the middle of violent civil. Unrest there's barbed wire. Everywhere when executives come to stay in a hotel to work on the, factory to get into the, hotel they have to be frisked in this special. Trailer they're supposed to start production in nineteen seventy. Nine they. Don't in nineteen.

Eighty delaurien goes back to the government for more, money and the government then starts like looking at the books of this, company and you, know they're, like why are you spending so? Much, sure it's a lot to build a, factory but just we're just noticing that you have THESE us offices where you're millions of dollars over. Budget why is this? Happening and somebody working With delorian actually looks at you, know looks at this situation and goes To delorian and makes the case, like you, know maybe we could spend a little less on the on THE us.

Offices we're millions Over robert give Us delurion's reply to this, Guy.

John delaurian, says a two point five million dollars shortfall for THE us is. Peanuts i'm not going to be nickel and dimed by those. Bastards i'm not going to run a nickel shit. Company if they don't like, IT i will close it down Next. Friday, Tim just to translate for, you nickel shit would be like a tuppence.

SHITE i believe he sounds like a nice, guy but that's the. Threat if they don't like, It i'll close it down Next. Friday jacob does? This people believe? This, well they give him more. Money, yeah it's The government of THE. Uk they're not really known for overcoming the sunk cost fallacy.

Right, well and think about. It they've put all this money into the. Project they have promised that they're going to bring thousands of jobs to this place that desperately needs it. Right delorian is not a nice guy, here but he is.

Savvy he is.

Right what they end up doing is largely giving him more loan, guarantees which you, know is like. Money as we have seen time and again in. History the government can say, no, no it's not, money it's just a loan. Guarantee there is something quite money like about a loan guarantee in the. End quite, often and in early nineteen eighty, one these beautiful silver cars start coming off the line and they're you, know shipped to auto dealers In, america and people start buying this, car and every car comes with a letter From JOHN. Z delorian asking the new owner for. Feedback tim give us a hit of the. Letter, okay noksweeds in the.

Letter they're not not a.

One, okay if as you come to know your car, better he wants to comment on how well we have achieved our goals or how we might even. IMPROVE i do hope you will do. So warmest personal, Regards JOHN. Z. Delorian it's, nice nice. Letter sounds like a nice guy who really.

Cares Robert, smith please read to us from one representative letter from A doloreian owner In, chicago who says he's noticed a number of small problems and who actually lists. Them.

Yeah number one side window sticks in the up. Position number two fuel pump is excessively. Noisy number three die from the optional floor mats comes off and stains, clothing, shoes and. Skin number four interior body fit of the door is not. Excellent number five owners manual does not state the type of light bulbs to. Use suffer were burned out upon. Delivery number six the radio is, terrible especially in THE fm stereo. Position with the exception of the, ABOVE i have found the car to be, great so, good so.

Good is he joking or? Not is he joking or? Not this is a QUESTION i don't.

THINK i don't think he's joking because the kind of car nuts who are buying this, car they love.

It they love it.

Well SO i guess it is possible to have all of those faults and to, still you, know the car could still look, great handle.

Brilliantly you.

KNOW i could imagine you could still like your car even with those. Problems but then it's not a good, sign is.

It The doloreans were, bad not a good. Sign they were. Leapons they were cars that did not. Work, well what about the? Doors the going? Doors they got. Stuck the doors got. Stuck there was actually some car show In cleveland where somebody got stuck inside for an, hour like the like the spinal tap Seat river where the guy gets stuck inside the.

Egg Derek small's his name, Is That's That's.

Delorians were bad. Cars they, leaked, windows fell, out and in fact the company winds up setting up what they call quality assurance centers around The United, states which sounds like it's, like, oh we're just assuring that every car is built to the highest standard of. Quality but this is obviously not what they were. Doing they were fixing the cars that came off the line that didn't. Work they actually came up with this fix for the doors where they added some kind of a metal, LATCH i guess to prevent them from getting. Stuck and what they had to do for a while before they could do it in the factory was pay a machinist In california to just make them one by. One so this guy would like show up every week or whatever with a

paper bag full of metal latches to put on you, know the beautiful doors of the beautiful car of the.

Future so much for the economies of.

Scale, yeah right, right your your marginal cost is high at this. Point this is not. Good we'll get to more of, this but this is the kind of things in industrial. Policy with your Host Tim. Harford, yeah BUT.

I, Mean delriian have kind of got themselves into this situation where the skills exist to make these cars, work but not In Northern, ireland which where their. Shipbuilders they exist in The United. States and so you're shipping these bad cars to THE us and then lavishing all this extra expense and all this extra skill to make them actually.

Work and yet for a, moment for a, moment people are very excited about these. Cars when they get to, dealers it's, news you, know local news might do a. Story the cars are actually selling for more than the sticker price because everybody wants one and there aren't that many, everybody you, know rich people want them. Anyway and at some point in the second half of nineteen eighty, One DeLorean is telling the factory, like increase, production you, know let's get up to, scale let's get more. Cars and then comes the. Winter the winter is. Bad sales often go down for cars in the. Winter in, addition it's nineteen eighty. One Paul volker is hiking. Rates as we have all talked about many, times The Federal reserve is

basically creating a recession to fight, inflation an economic, winter an economic winter along with the climatological meteorological. Winter and Now DeLorean really is in. Trouble they have all these loans they've taken out from the, government from private, lenders and they're just Not they don't have the cash, Flow they're not selling enough cars to pay their. Debts and on top of, that on top of, that it is becoming clear That John dolorian, executive may not be entirely on the, level may not be the straight arrow he thought he.

Was should have known from the.

Genes should have known from the. Genes you can't trust a man in. Genes in, particular people start asking questions about millions of dollars That DeLorean the company sent to a firm CALLED Gpd services AND gbd serve is is really what winds up turning The dolarean story from a failing business to a.

Scandal it wasn't the cocaine in the hotel.

ROOM i, mean it was the eighties right Where, ever people were putting cocaine in their. Coffee AS i understand, IT. GPD gpd was the big. Story SO gpd stands For General Product development or Maybe Grand prix. Drivers i've actually seen both.

Reported, okay this is suspicious. Already you're setting checks To General Product development firm is registered In.

Panama but don't. Worry the checks aren't going, There they're going to A po box In Geneva pobox thirty. Three, okay and these are bad. Side swiss banks were Really swiss banks when if you really you could really trust them to hide your.

Money swiss, Banks panamanian's tax. Lawyers it's pretty, good, right nothing can go.

Wrong. Yeah in, All delareon sent something like eighteen million dollars TO Gpd, services and from What i've, Read i'm pretty sure at least some of, that and maybe all of it was actually just paper, checks big paper checks mailed to THAT peo. Box so eventually investigators figured out THAT Gpd services had been created by a guy Named Colin, chapman who was the head Of, lotus That british car.

Maker oh, yes the submarine Submarine, Dada oh, YES i. Said Colin chapman's a bond. Villain is this what we're?

Saying, yes he is at least.

A small time bond. Villain you, Know, lotus as we mentioned, earlier had done work helping to design the, Car so like that doesn't seem. Villain it's, like, Oh lotus did this. Work delarian's sending this money to this firm set up by The lotus. Guy but but the Money delarean sent TO gpd at eighteen million or so dollars never made it To. Lotus, Oh lotus got paid separately for its.

Work and so what happened to that? Money at least according to, prosecutors these guys took. It delorian was accused of taking something like eight million dollars and using it to buy a company In utah that built snowcats snow. Groomers so The LOTUS cfo what? Happened in? Court The LOADUS cfo pleaded guilty to fraud and was sentenced to three years in. Prison the judge in the case called it a bear, faced outrageous and massive. Fraud delorian couldn't be extradited to THE uk UNDER i guess the. Law you don't get extradited for this kind of.

Thing let's.

Do The delorian is running the, company he wants to save. It things are going, down and around this time he is approached by his, neighbor his friendly neighborhood drug.

Dealer it is Southern.

California so the neighbor basically Offers delorian the chance to get in on a drug. Deal In delorian's, mind it's, like, OH i.

Can use that money to save the.

Company and so this is How delorian ends up in that hotel room with the bag full of cocaine because his, neighbor the nice drug, dealer is secretly working for THE. Fbi don't trust a neighbor who offers you a drug, deal is the. Lesson this is a, setup, classic classic. Setup So delurian gets, arrested you, know, handcuffed, arrested and a week later or, so the company files for. Bankruptcy the Last delorian came off the line in late nineteen eighty.

Two in nineteen eighty, Four delorian goes to trial for financing the cocaine, deal and he argues in court that he was. ENTRAPPED i, mean he kind of was.

RIGHT I, mean What i'm curious, About, jacob is do we know why they decided that they were going to do this thing with THE fbi because it seems really. Rundom he's running a car company and then THE fbi decide they're going to try and get him involved in a drug. Deal did they have some reason to?

Believe it is? Weird? RIGHT i? Think and so going back to That hillel eleven, book which is the best source book THAT i found on, this he talks about this neighbor And i'm quoting, here had been caught in a drug deal by federal authorities and to reduce his, sentence agreed to be a confidential informant in other narcotics.

Investigations so the neighbors shopping around for deals that he can turn over to THE. Fbi it seems that way that is the BEST i can figure.

Out maybe the neighbors Thought delorian was a likely, prospect and he was.

Right delorian was a likely. Prospect in any, case the jury actually agreed With. Delaurian if you are in a room full of cocaine and you say it's as good as, gold and a jury finds you're in, trapt you are not. Guilty and that is what a jury. Found so there were also a bunch of civil cases people trying to get their money. Back one LAWSUIT i found particularly interesting was THE uk government Sued Arthur, anderson the accounting firm that was the accounting firm For. Delorian, basically the government is arguing That Arthur anderson should have detected the, fraud and in the End Arthur anderson wound up paying tens of millions of dollars to THE uk government in a. Settlement, yeah you can't hear the Name Arthur anderson that much.

Anymore why is that they were the emeron, accountant? Right they were the ederal, accountant and that one Being enron's accountant was so bad that they ceased to exist right after that.

Art, Existing, yeah there was no.

More Arthur edward.

Caution retails is all about learning lessons from historical, mistakes AND i would like to get it on record That Arthur anderson clearly did not learn the lesson of this.

Case Rap Arthur. Anderson delaurian of, course got sued, too and ultimately wound up giving a lot of his, money most of his, money his, mansions his riches to his. Creditors people did get money back out of.

Him wait a, minute we've got to go back in time, here because we didn't talk about the. Movie we didn't talk.

About back to The. Future, true we only mentioned in passing and it came just like a little bit too late For delorian right eighty, five they're already. Done SO i was the target audience For back The. FUTURE i was led when it came out in nineteen eighty, five AND i would not have known what A delorian was.

LIKE i wasn't particularly into, cars but the car was like the star of that. Movie. Right there's actually a line When MICHAEL. J fox looks at the car and, says you built a time machine out of A.

Dolorean and WHEN i was a kid watching, THAT i was, like, oh they built a time machine at A delorian because it's such a cool looking. Car incredible. ADVERTISING i of course realized now after hearing this whole story that for the adults in the, theater this was a comedy. Line this was a joke, line which is you built a time machine out of A. DeLorean i love. It that was in the news and was kind of a.

Failure in a, minute we are going to get the Classic Tim harford cautionary tales big lesson from the, story and we're also gonna have one last fun fact from the life Of John dolorian when late move From John. Delaurian so there's a real question THAT i, Have, tim AND i was truly happy when you agreed to do this show with, us BECAUSE i wanted to talk about industrial.

Policy is it a good idea or when is it a good? Idea or how is it a good idea for a government to try and direct the. Economy that's the big question.

Here, yeah, a it's a very big, question and it's at the heart of The dolorean. Story the basic idea with industrial policy is government might want to do, something, something, something the details kind of matter to help certain industries. Flourish it's been fashionable and unfashionable over. Time so there was this moment in the fifth it is the sixties the seventies where lots of developing countries In Latin, america So brazil for, example lots Of african economies would be adopting industrial. Policy like if we're going to compete on a global scale with The americans and with The, europeans our guys are going to need a little bit of help to get. Started because of this problem that we described the economies of. Scale you, know otherwise we'll just

be these rural agrarian economies for the rest of. Time in many cases it didn't. Work Governments Asmid deloreans spent a lot of, money didn't get anything in, Return so it then really felt out of. Fashion in the nineteen eighties the nineteen nineties there came to be this consensus sometimes called The Washington consensus or that covered various things that government should just get out of the. Way, yeah you need to set the, rules you need to enforce the rule of. Law you need efficient, laws efficient, bureaucracies roads that, work that kind of. Stuff but you do not want to be giving loan guarantees To john Z.

DeLorean i stand by. That you still do not want to be given giving loan guarantees To john Z. Delorian but then something's, changed which is the rise Of. China AND i think the superficial perception Is china's doing really, well and The chinese government intervenes in all kinds of. Ways so hasn't The chinese government proved that industrial policy, works including in.

Cars notably right That china poured tons of money into the car, industry and last and, last, last and then it. Worked now they have this amazing car. Industry they have.

This amazing car. Industry and it's not just. Cars they've got this amazing battery, industry solar, panels amazing solar panel, industry and a lot of this had government. Support you, know The germans had a solar panel industry and it's kind of been wiped out by The, chinese for. Example so maybe The European, union The United states and so, on maybe we need to learn something from The, chinese and maybe we need to think again about industrial.

Policy, well one of the things that The chinese government did that is different than The deloorian story is they had dozens and dozens of car. Companies they didn't just subsidize one Big chinese car. Company every local region had car manufacturers and they competed against each other within the. Country so that sense of competition was still. There and maybe the lesson for THE uk government should have been maybe they should have built a factory also In manchester from a different car, company or In birmingham or outside Of, london where you could have these car companies compete and so become more efficient and hopefully come out with a car for the ages instead of A.

DeLorean, YEAH i think that that is a very sensible. Conclusion but what you do not want to get yourself into is we're going to back this one guy and lend him money because first of, all maybe he's not a good. Guy turns, out, maybe Mister, delorian maybe he was a great, guy but, NO i think we have reason to suspect that he was not a good. Guy but, also you're going to be taking advantage of, right you've put yourself in a position where this company suddenly has lots of leverage over. You whereas if you're backing five companies and one seems to be doing pretty, badly, well you, know you could just let, them let them sink they've got a lot less. Influence there's a really helpful. IDEA i think that it's a phrase that was used by

actually a GUY i used to work for long time. AGO i used to be his research, assistant an economist talk Called john. K but one of his books is Called The truth About, markets and he in that book, said, look the thing that works about capitalism is not the kind of all the technical stuff that you read about in the economics textbooks about kind of price equilibration and competitive equilibrium and all that it's a much bigger picture.

Thing it delivers something called disciplined. Pluralism pluralism, is, well there are lots of different ideas out there and you never really know which one's going to, work so you need space for lots Of maybe it's it's the gull wings that. Work maybe it's an electric, car maybe that's the. Solution maybe it's not cars at. All maybe it's like electric.

Bikes maybe it's. Strange loads of those are different ways to make things that make people. Happy so that pluralism is, important but the discipline is also. Important and the discipline is where at a certain point you, say, guys this is a bad idea and it's not. Working and the real challenge for industrial, policy and it is a challenge that people can rise, to is how does government support industries in a way that maintains the pluralism so you've still got lots of ideas and also maintains the. Discipline and one way that has worked a lot For East asian, economies So, Japan, korea a lot of these economis have gone through this process of industrial policy on their way to growth has been to rely on export. Markets so

we're going to back our, companies but only if they can produce something that somebody wants to. Buy we don't mind, subsidizing we don't mind. Supporting but if you cannot produce some kind of product that somebody outside this country, wants there's a. Problem and so the discipline is coming from the need to compete on the international.

Market, okay last, Thing AS i, mentioned there's one More chandelian fun, fact and it is a. Patent you, KNOW i love to read a pattern on the, show and this is a pattern he got late late in, life after sort of after our story has. Ended it looks like ninety three ninety. Four this is his comeback idea transportation, system vehicle and. Method you know what it, is.

Monorell, monereel. Monorail It's.

Monareel, wow we still got the bond. Esthetic nothing can ever go wrong with a.

Monorail, YEAH i love a bond on a, monorail a. Bonderel, tim thank you for doing this with, us, Truly, oh thank you for inviting. Me it's a.

Pleasure this really was caution entails plus business. History this is what we. Wanted we did it

The DeLorean Saga: Fraud, Drugs and Marty McFly's Car - with Business History

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