De-Nazifying the Love Bug: The VW Beetle Story Part II

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1:38Pushkit. Too quick? No, it was perfect. Pushkit. Stop. You got it.

1:57how does a country that is completely destroyed end up making the best-selling car of all time this is business history last time on the show adolf hitler had a to-do list it was a pretty evil to-do list, but way down on the to-do list, he was going to design a car for the German people. For the German Volk, if you will. It was going to be a Volkswagen. An engineer named Ferdinand Porsche signed up to design and build the Volkswagen. His son-in-law, Anton Piech, ran the factory and he ran it with utter brutality. He forced enslaved workers to build the militarized version of the Volkswagen Beetle.

2:39And in In the spring of 1945, the two guys running the factory flee. The Allies come in and the workers are freed. And there is this question, a question for the Volkswagen factory and for all of Germany, which is, what are the Allies going to do with the factories? What's going to happen to the German economy? It is tempting to say that what you should do after two world wars started by Germany, perhaps you should make it so that Germany can never fight again. More than never fight again. Can never produce anything. can't produce a car, a rifle. You want Germany to basically make pretzels and beer, and that's it till the end of time.

3:17And this was not just some, like, populist emotional response, right? The Secretary of the Treasury of the United States of America had exactly this response. His name was Henry Morgenthau, and he put together this plan called, reasonably enough, the Morgenthau plan, and it said... Here. Oh, yeah, of course. Of course you get to read from it. Come on. This is my favorite part. Within a short period, if possible not longer than six months after the cessation of hostilities, all industrial plants and equipment not destroyed by military action shall either be completely dismantled and removed from the area or completely destroyed.

3:56This is saying, like, if there is a machine in it, we will take that machine or smash it to bits. Yeah, this is basically saying, let's make Germany a country of 19th century peasants farming the land forever. We know, of course, the United States decided not to pursue that plan. We know, in fact, that the United States and its allies decided to pursue essentially the opposite plan. Instead of destroying the factories that supplied Germany's war machine, the allies helped the Germans rebuild them better than ever. I'm Jacob Goldstein. I'm Robert Smith. And this is Business History. A show about the history of business.

4:33Love explaining that to people. Today on the show, how did we get from a moment of utter destruction to a German economic miracle where it became one of the big manufacturing powers in the entire world? And how did that lead to a little car that looked something like a bug being driven around the streets of California by hippies and surfers? The war is over! The war is over. Good news. Cheers, allies. the Soviets have occupied the eastern part of Germany, and they know what they're going to do with the economy there. They're going to take everything. They're just taking the factories back to the Soviet Union.

5:10But the Allies, so the U.S., Britain, and France, they have cut the western part of Germany into three parts, three occupation zones. And the Allies at this point can't really agree on what to do with the German economy. The Americans were super anti-Nazi, fair enough. The British are obviously also anti-Nazi, but maybe they were like a little bit less anti-Nazi than the Americans. Or like you could at least say the British were more pragmatic about the situation. For one thing, Britain, unlike the United States at this moment, was like flat broke. They had their economy destroyed by the war, essentially.

5:50And they had this chunk of Germany that they were responsible for managing. and they couldn't afford to, you know, feed and clothe the Germans forever. They couldn't afford for it to be a ward state. I mean, they're rationing food in London. Yeah, yeah. The British still have a big empire in Africa and in Asia at this time. And so they are used to managing countries that they have subjugated and they tend to do it without having to deploy that many troops. And what they do is they deploy some small number of people And then they get the locals to kind of run the economy on their own. So they think, maybe we can do this in Germany.

6:30And there's a little bit of luck that comes in for the Volkswagen factory because it happens to be in the British section of West Germany. And so the British send in an army officer named Ivan Hurst to basically run this factory that the Allies have taken from the Nazis. I pick German khakis. I just do. You have rolled up sleeves, a hat, a sharp hat. Time to get to work here, boys. And he finds when he gets to the factory that about 70 percent of it is still in good shape, which end of World War II in Germany is pretty good. This is definitely a glass half full situation. And so while the allies are sort of thinking their big thoughts about what should we do with the German economy, Ivan Hearst thinks, let's see if we can just start making some cars at this car factory.

7:16He is an engineer. What do engineers do? They see a factory and they're like, let's make some cars. We can drive them around. He does have the good sense to change the name of the town where the factory is. It's a town that the Nazis had built. The Germans, as you remember from last time, had built the town alongside the factory, and they called it, I don't speak German, Stadt des KDF Wagens, which basically means strength through joy cars town. Extremely Nazi name. Yes. Yes. And so Ivan and the British sort of look around town and they see that there's this castle in town or near town and it's called Wolfsburg, perhaps Wolfsburg.

7:59And so that's what they call the town. And that is still the name of the town where Volkswagen is headquartered. Slightly less Nazi. It's not super warm and fuzzy, right? Wolf town. Wolf town. So, OK, so they've denazified the name. He's getting the factory going and now he needs some demand. Right. If they're going to make these cars, somebody's going to have to buy them. The Germans don't have any money. And so Hearst convinces the British to order Beatles to be used for the occupation forces, which, again, very pragmatic. It costs money to make cars in England, to ship them to Germany. If you even can do that.

8:33If you even can do that. So the British order 20 ,000 Beatles, Volkswagens, to be delivered in a year, which is way more cars than the factory has ever built in a year. They're just putting the factory back together. And crucially, it is not clear at this point who is actually going to work in the factory and build these cars. To recap from last time, they had had Aryan youth building the cars. They were drafted off to the war. Then they were using enslaved prisoners. And they've obviously been freed and escaped. And so when you look around, there's also the people who enslaved those prisoners.

9:08Right, the people running the factory. Who worked for the Nazis or who were Nazis. You didn't want them in charge. George, how Nazi is too Nazi? It is a question that is central to the rebuilding effort across the Western part of Germany. Who can we hire and feel like at least okay about hiring? And who is absolutely too Nazi, can never allow them back? There was the incident we talked about last time in the show, which was the nursery where babies born to the enslaved workers were brought. They were promised they would take care of the children, but they allowed the children to die. Those people clearly are two Nazi, right?

9:44Ten members of the staff were tried for murder. Two were sentenced to death. And then you get to the factory itself, where there were some people clearly who were knowingly sending those babies off to die. And Hearst and his colleagues go through the records of the people who ran the factory. And they wind up firing 228 people, including the technical director and the head of operations at the factory. Two Nazi. So it kind of leaves you really with soldiers returning from the war. Yeah. And there are lots of soldiers who have been demobilized, who are, you know, looking for work. But they are very difficult people to manage, right?

10:23Now you have this factory with people who are just off fighting the Soviets on the Eastern Front. Imagine being the manager and being like, hey, can you pick up the pace? Like, see what's going to happen if you tell a Nazi soldier to do that. And here they are in a destroyed factory. There's no real housing in the town. So they're being housed in the cabins, I suppose, for the former enslaved workers. They're essentially working and living in a concentration camp. Yes. And, you know, food is hard to come by. I mean, Germany is destroyed, right? So you have workers just wandering off to try and find something to eat.

10:57People are living on like a thousand calories a day. And on top of all that, the winter of 1946 is particularly cold. and the ports freeze over and the rail lines freeze over. And so you can't get food to the factory. You can't get supplies to the factory. Essentially, the factory, the assembly line closes down for months. So the British engineer, Ivan Hurst, promised 20 ,000 vehicles. Not looking good for him. He does deliver 10 ,000. Kind of a miracle. Kind of a miracle, but they were 10 ,000 extremely bad cars. They were built partly with like sort of quasi salvaged parts that had been left over at the factory.

11:43And like something like half of them immediately after driving out the factory gates had to come back for repairs. It's like that moment in the comedy where the car rolls off the production line. Everyone cheers and the wheels fall off and the windshield caves in. Everyone's like, oh, it was that truly like doors wouldn't close. Headlights wouldn't work. But in an interesting quirk of history, this proved to be kind of a lucky break for Volkswagen itself, Volkswagen as an entity, because British engineers were going around Germany looking at factories thinking like, are there any really nice ones we want to take back to England piece by piece as reparations for the war, right?

12:24This is still the spirit of the time to some extent. You could have a British people's wagon, you know, built in Manchester. And so these engineers come to the Volkswagen factory and they see these garbage cars coming off the line. And they're like, this is a terrible vehicle. People around the world are never going to want to drive these so-called Volkswagens. We'll pass. Thanks. I'm hearing the Benny Hill theme. It's like driving a tiny little car and the doors are falling off. And so this Volkswagen factory is removed from the reparations list. They leave it alone. So around this time, we're getting to the later part of the 1940s.

13:00There is this big important shift happening in Germany and Europe. And that is that the Allies have decided that in general, they want Germany to actually thrive and succeed. Yeah. And it's interesting to think about why this is happening, right? There are a few reasons. One is, within Germany, there is a threat from the right, essentially, from the former fascists. People are painting swastikas on the walls of the Volkswagen factory. People, you know, they were Nazis three years before this, right? And that spirit is still there. And so the West is concerned about that. There is also a threat from the left, right?

13:42The Soviets are right there, right across the line in Germany. And furthermore, communism is popular in Western Europe, right? Ciao, Italia. And so there is this idea, which is we can fight the threat both from the right and the left by helping the ordinary people of Germany and Western Europe get richer. They should rename the town Strength Through Capitalism. Yes, Wagonstown. And, you know, the Marshall Plan from the U.S. is probably the most famous part of this. But especially in Germany, the Marshall Plan was not that big in terms of dollars. I think more important was this vibe shift away from let's make Germany poor and isolate it so they can't hurt us and toward let's make Germany rich and trade with them so they don't want to hurt us.

14:38And I know it's a different show that we'll do one day, but the same thing was happening in Japan, too. Yes, yes. And I love this shift. Like, it really makes me happy to think about, I guess partly because I believe in it, right? For me, the central big idea of economics, of markets, is the world is not zero-sum. The pie can get bigger. Everybody can be better off. Trade can bring nations together in a web of prosperity. And I know this sounds like naive or unfashionable, but I think it's true. And this was the dream at the time, that if you pulled this off, in Europe and in Germany, there could be economic growth, shared prosperity, liberal democracy, a chicken in every pot, a Volkswagen in every driveway.

15:26After the break, we know it's going to happen, but it's really interesting how it happens, how Hitler's car wins over America's hippies. That's what we're going to talk about later in the show.

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18:35Okay, that's the end of the ads. Let's get back to what Ivan Hurst is doing at the Volkswagen factory. So after a few years, Ivan Hurst in his khaki suit and jaunty hat, he started to turn things around at Volkswagen. He's created a network of dealerships, which is what you have to have, right? Trained mechanics. He's developed a nicer version of the Beetle for export. And orders are coming in, at least nearby in Europe, from Netherlands and Switzerland. And it's time, he feels, to hand Volkswagen back to the Germans. And so you got to figure out then... Yeah. ...who's going to run it. And we get back to our central question, how Nazi is too Nazi?

19:15There were the guys who ran the factory before. They're problematic. They're pretty Nazi, right. Ferdinand Porsche, who developed the beetle, and his son-in-law, Anton Piesch, who actually ran the factory, wound up joining the SS. At the end of the war, they fled to their estate in the Austrian countryside. And they actually, there's this interesting story about them that's worth telling for a minute. So the Allied soldiers caught up with them and arrested them and questioned them. But what the Allies were really interested in— Not what they did, but what they built. Yeah, and what they knew, right?

19:53They had worked—I think Porsche in particular had worked on weapons systems. And as we know, the Allies after the war were obsessed with what German engineers and scientists knew about building weapons. So they talked to Porsche, and then they release him. And then the French car company Renault comes to Porsche and Pierre and asks them if they want to come help Renault build a little people's car. What's a people's car in French? Voiture des gens. I don't know. I just made that up. I haven't looked it up. It'll be wrong. And they say yes, because I think, you know, Porsche really does love designing cars and building these cars.

20:32So Porsche and Pierre and actually Porsche's son, Ferry Porsche, they go to the French-controlled part of Germany to have talks with Renault. But the guys at Peugeot, the other big French car company, they hear about this. And they're like, no, no, no way. They point out that during the war when the Nazis had invaded France, Porsche had been given control of Peugeot factories. and had, you know, sent some of the executives to concentration camps where some of them died. And so the Peugeot guys are like, there is no way we can work with this guy to build a car. He is too Nazi. And so they get arrested again, this time by the French.

21:19But eventually the French let him go and they go home and they start a little sports car company called Porsche. Porsche. Not too Nazi for the world. Not too Nazi for the world, but too Nazi to run the Volkswagen factory. So they are not going to work. So, you know, Ivanhurst crosses them off the list of potential people to run the factory. So he's going through the names and he comes up with one, Heinrich Nordhoff. And he had helped run Opel, which I guess is a car and truck firm in Germany. He had GM. It was connected to GM. I think it was GM's German operations. Okay. But more importantly, he had been one of those German car makers who had fought this idea of a Volkswagen.

22:00He had said, it's not possible, it can't be done, and it sort of resisted Hitler's push for that. Now, eventually, he would cooperate with Hitler, as many people did. He actually got an award from Hitler for meritorious service in factory, whatever, whatever, whatever. The Werwirtschaftführer Award. I think it means war economy leader, but all I hear is Führer. It's like a mini Führer. And for the Americans, that's too Nazi. Yeah, it's pretty Nazi. If Hitler gives you an award, it's not a great book. We're the British. They're like, he gave out a lot of awards. We've got to hire someone. So they hired Nordhoff.

22:37And say what you will about the Fuhrer's Award, Nordhoff was great at running a car company. Yeah. So he comes in and, you know, looks at the Volkswagen and says, let's, you know, let's polish this thing up a little. Which is amazing. Remember, they're emerging from the war. They can barely build these cars. But he's smart enough to know people like a little luxury. They like a little shine on there. They got to have better hubcaps, you know, shiny, right? You got to have different colors. He has like a Bordeaux red, pastel green colors. And like any factory boss, he wants to get productivity up.

23:12He specifically says he wants every worker to increase their productivity by 30 percent, which is a tough ask. But here, Nordhoff and really the entire German economy gets a big boost from monetary policy. Great moments in monetary policy right here. Germany, 1948. So at the time, Germany is running on Reichsmarks, the currency. It was created in the 1920s, and it had been through a lot. There was a ton of inflation. They weren't worth very much. It was still the sort of German money from the war, right? And so because it was sort of worthless and there was shortages, the country of Germany at this point post-war is running on, you know, bartering and ration slips and all of this sort of stuff.

24:02And occupation currency introduced by the various allies. And so if you're running a factory and paying your workers in Reichsmarks. Worthless pieces of paper. you're kind of out of luck. You can be like, work harder or else I won't keep giving you these worthless pieces of paper. And so the big break for Nordhoff and Volkswagen and really all of what's about to become West Germany comes in June of 1948 when the Germans got rid of the Reichsmark and introduced a new currency called the Deutschmark. It's going to become the most important currency in Europe. And you could trade in 10 Reichsmarks for one Deutschmark, which is the numerical part of it.

24:44But it was also functionally a devaluation of the currency. So anyone who had their savings could transfer their savings over to Deutschmark, but it was worth almost nothing. It took away people's savings. So not lucky for those people, but it allowed Germany to remove the price controls and sort of start their economy from scratch. You see this with a lot of economies in trouble. They devalue the currency and kind of start over. And so now, to the extent people had savings, those savings are gone. But the money you get paid, if you say work at a factory, can buy stuff. Is worth more, yeah. Is worth something, is functional, right?

25:24So now they're back in the familiar world of you get a job, they give you money, and you can use that money to buy stuff. And so Nordhoff gets his productivity gain now. People are showing up to work. They're motivated to make cars better. And the factory starts working better. And there is another quirk of macroeconomics, which is if you've devalued your currency, it also makes the objects you make much cheaper to the world. It helps exports. Yes. And so not long after this, in 1949, the British turned Volkswagen over to the newly formed West German government. Going to the new decade, the new currency is propelling Germany forward.

26:07Exports are starting to grow. And it happens. The Wirtschaftswunder, the German economic miracle. Wirtschaftswunder. You know, the decade of the 50s was incredible for Germany. Foreign investment is coming in. The government is focused on economic growth. And Germany is catching up to its richer neighbors. In that one decade, living standards for Germans doubled. It was this incredible economic era. And the Beetle was really at the center of it. I mean, you know, sales were growing, but also as a symbol. Volkswagen was like, you know, the national carmaker. And the Beetle was like the chrome ornament on the hood of the Wirtschaftswunder.