Wall Street Crime And Punishment: John DeLorean And The Highway To Ruin

Does crime pay?

Wall Street Crime and Punishment is a weekly series by Benzinga's Phil Hall chronicling the bankers, brokers and financial ne’er-do-wells whose ambition and greed take them in the wrong direction.

The 1970s can arguably be considered as the decade that good taste forgot — polyester leisure suits, bell-bottom pants, shag carpeting and rattan furniture, all wrapped with a disco soundtrack thumping on an 8-track tape player.

Even the technology of the era had a clunky vibe, from the instamatic cameras with a flashcube that created momentary blindness during picture taking to the minimalist monotony of the very slow-motion Pong computer game.

But there was one style triumph of the 1970s that stood out: The DMC DeLorean, a slick, futuristic two-seater sports car notable for its stainless-steel outer body panels and funky gull-wing doors.

It looked nothing like any of the automobiles on the road during that time, and one could have easily imagined James Bond emerging from its driver’s seat — albeit the jokey Roger Moore 007 who spoke softly and carried a big shtick.

In many ways, the DMC DeLorean mirrored its creator, engineer-turned-entrepreneur John DeLorean, who offered the world a sense of pizazz and flash but who ultimately squandered an iota of the potential that too many people saw in him. The man, like his machine, was a victory of style over substance.

A Detroit Prelude: John Zachary DeLorean arrived into the world on Jan. 6, 1925, the first of four sons born to immigrant parents from the former Austro-Hungarian Empire. DeLorean’s parents had a volatile marriage and several times his mother gathered the children and relocated to live with her sister in Los Angeles. The couple divorced in 1942 and DeLorean subsequently lost contact with his father, whose life was derailed by drug addiction.

DeLorean attended Detroit’s Cass Technical High School and earned a scholarship to attend Lawrence Institute of Technology, a small college in the Highland Park suburb of Detroit. His education was interrupted when he was drafted into the U.S. Army in 1943, where he served three years.

After being discharged, DeLorean opted to postpone his education to help alleviate his family’s financial problems. He worked as a draftsman for the Public Lighting Commission for a year and a half before returning to Lawrence to complete his education, earning a Bachelor of Science degree in industrial engineering in 1948.

Oddly, DeLorean shifted his attention away from engineering and took a job as an insurance salesman — he would later claim this was done to strengthen his communications skills, but he quickly bored of the work. He also took classes at Detroit College of Law, but dropped out.

Instead, DeLorean would find his niche in Detroit’s major industry: He was welcomed into the Chrysler Institute of Engineering, a post-graduate facility, where he gained a master's degree in automotive engineering and a spot in the auto manufacturer’s engineering division. DeLorean completed his education via night classes at the University of Michigan, achieving an MBA in 1957.

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Into The Auto Business: DeLorean only stayed at Chrysler for less than a year before switching to a job at the Packard Motor Company, where he quickly gained notice from the corporate hierarchy for making operational improvements to the manufacturer’s vehicles.

Within four years, he became the company’s head of research and development and his reputation in Detroit became so strong that General Motors Company GM successfully recruited him in 1956.

DeLorean’s engineering skills were put on full display in GM’s Pontiac division, and within five years of his hiring, he was named division chief engineer.

His crowning achievement was the Pontiac GTO, a muscle car designed to offer a U.S. challenge to Italy’s Ferrari 250 GTO.

In 1965, the 40-year-old DeLorean became head of the Pontiac division, the youngest executive ever to run a GM division.

DeLorean began to gain public attention for his both engineering talents and his charismatic salesmanship skills, and he responded by transitioning his appearance from engineer to pop culture star.

He grew his hair long and dyed it black to keep a youthful image while ditching the traditional corporate suit-and-tie for the trendy clothing styles of the era.

He also started to find his way into newspaper gossip columns when he divorced his wife Elizabeth in 1969 after 15 years of marriage and relocated to Los Angeles, where he was romantically linked with Hollywood beauties including Ursula Andress, Joey Heatherton and Tina Sinatra before marrying Kelly Harmon, a model who was half his age. That marriage lasted three years and DeLorean wed again in 1973 to another model, Cristine Ferrare.

First Fall From Grace: While DeLorean’s talents were acknowledged within GM, his lifestyle and increasingly nonconformist behavior separated him from his peers. Still, the company focused more on his talent than his personality and by 1972 he was named vice president in charge of GM’s car and truck production — and it seemed the company’s presidency was the next logical step for him.

But DeLorean overplayed his hand in early 1973 when he gave a blistering speech to 700 GM executives during a management conference at West Virginia’s posh Greenbrier Hotel.

DeLorean addressed quality control problems in the GM product line and how inferior vehicles were hurting sales. It was a rough speech, but DeLorean planned an even more brutal early draft that he edited down — that unedited version was leaked to the Detroit News, which gave it front-page coverage.

The backlash was swift and DeLorean resigned in April 1973. He would later try to insist he never wanted the top job at GM because it involved “sitting in meetings all day.” He briefly took on the role of president at the National Alliance of Businessmen, but then decided that Detroit’s Big Three could be expanded into a Big Four.

Enter The Auto Entrepreneur: DeLorean was earning $650,000 a year at GM when he left the company, which presented him with a Cadillac franchise in Florida as a going-away gift. Rather than sell cars in the Sunshine State, the 48-year-old DeLorean brought his 23-year-old wife Cristine to New York City and began laying plans for an automobile company that would rival the industry’s leaders.

DeLorean returned to Detroit in October 1975 to officially launch the DeLorean Motor Company. He recruited Italian designer Giorgetto Giugiaro to create the vehicle’s sporty design. The car’s power would be generated by a rear-mounted Peugeot-Renault-Volvo 2.85-liter V6 engine that produced 130 horsepower.

Although he had been away from the auto industry spotlight for a few years, DeLorean’s celebrity still attracted attention — as well as money, with Bank of America Corp BAC agreeing to lend him money and DeLorean’s Hollywood friends including Johnny Carson, Sammy Davis Jr. and Roy Clark adding their funds and star power to his endeavor.

He also followed the lead of another independent auto manufacturer, Preston Tucker, in selling shares in the DeLorean Motor Company to investors eager to open dealerships when the cars were ready for sale.

In 1978, DeLorean was negotiating with several states as well as the Canadian and Spanish governments for a development funding deal to host and finance his company’s manufacturing plant. He had a preliminary pact with the U.S. Department of Commerce to build his factory at a defunct Air Force base on Puerto Rico when the UK government came in at the last minute with a £100 million offer to locate the facility at a cow pasture outside of Belfast in Northern Ireland.

The Belfast plan was controversial, as Northern Ireland was in the midst of violent sectarian strife and it was obvious the arrival of a manufacturing plant offering 2,000 jobs was designed to dilute support for the Irish Republican Army by giving high-paying jobs to a predominantly Catholic workforce. But Northern Irish political conflict would turn out to be the least of DeLorean’s problems.

Second Fall From Grace: Once in charge of his own destiny, DeLorean’s magic touch for engineering excellence and charismatic goodwill seemed to evaporate.

Production delays plagued the manufacturing output, and when the first DMC-12 finally arrived in 1981 it was widely panned. The vehicle handled poorly and suffered from inadequate fuel efficiency and a 130 horsepower that was lower than most cars on the market. The sleek stainless-steel paneling weighed down the car, which could only get from zero to 60 mph in 10.5 seconds. And if that wasn’t bad enough, the dye from its floor mats stained the drivers’ shoes.

It didn’t help that DeLorean priced his vehicles at $25,000, which was high even for the luxury market and, quite frankly, ridiculous when a global recession took root in 1981 that wreaked havoc on auto sales. Also in 1981 was Margaret Thatcher’s rise to power as the U.K. prime minister, and her focus on shifting the country away from its post-World War II welfare state structure into a free-market capitalist economy was at odds with DeLorean, who was hoping for the U.K. government to keep footing his bills.

DeLorean’s Belfast operation became a money pit and Thatcher’s government insisted he put more of his own funds into financing its operations. But his company was deeply in debt, and instead, DeLorean proposed restructuring the company and taking it public. But when Thatcher’s government reviewed the stock offering plan, they found it mostly enriched him as the majority shareholder.

Thatcher ordered the Belfast plant to be placed into receivership in February 1982 and the facility was closed eight months later, having only made 9,000 DMC-12s, of which approximately 6,000 were sold to consumers.

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Third Fall From Grace: DeLorean left the U.K. with a company that was $175 million in debt and seemingly no outlets for financial assistance. To his surprise, DeLorean received a call from James Timothy Hoffman, a former neighbor who had a bizarre offer involving the sale of 220 pounds of cocaine worth about $24 million.

What DeLorean did not know was Hoffman was charged with drug trafficking one year earlier and was working with federal law enforcement to secure a reduced sentence. As DeLorean’s financial woes were headline news, snagging a figure of his prominence seemed to be too easy.

In October 1982, DeLorean was charged with drug trafficking after being recorded by undercover agents for allegedly agreeing to finance a cocaine smuggling ring. But the government’s case almost immediately fell apart once DeLorean went to trial. Although he referred to cocaine as “better than gold,” he never took possession of the drugs and never put any money into the deal.

The trial also showed that the feds tried to get DeLorean to put up his struggling company as collateral in order to reap the profits of the proposed drug deal, which he pointedly refused. Furthermore, phone logs showed Hoffman initiated contact with DeLorean and not the other way around, as the government originally insisted.

In August 1984, after 30 hours of deliberation, DeLorean was acquitted.

One year later, in an action that many observers pegged as a desire for revenge after an embarrassing courtroom fiasco, the federal government brought new charges against DeLorean, this time accusing him of tax evasion and defrauding his investors while enriching himself to the tune of $9 million. Again, he was quickly acquitted when a sloppy case brought against him fell apart in the courtroom’s spotlight.

But both self-inflicted damages and the back-to-back trials wrecked DeLorean’s reputation. He was forced to put his company into bankruptcy, he faced a future with no prospects and his wife Cristine divorced him. When a reporter asked if he would try for a comeback in the auto industry, he sourly remarked, “Would you buy a used car from me?”

Time (Sort Of) Heals All Wounds: In 1985, DeLorean gave the world the autobiography “DeLorean” and the announcement he became a born-again Christian. That same year, his gull-winged automobile was the centerpiece of the hit film “Back to the Future,” serving as an unlikely time-travel machine.

Although he received no compensation from the film’s producers, DeLorean publicly expressed gratitude that his creation was the center of positive attention; when the film turned into a franchise, DeLorean received a small royalty.

DeLorean’s downfall also weakened the accounting firm, Arthur Andersen. In March 1998, a New York court found the firm offered wildly incorrect audit findings to DeLorean Motor Company’s investors and creditors and was ordered to pay $46.2 million in compensation; the settlement sum was ultimately $27.2 million, while a similar lawsuit in the UK resulted in a $35 million settlement.

DeLorean’s final years were occupied with several projects that never came to fruition, including a relaunch of his auto company. He also designed a line of wristwatches that he sold online for $3,495 each under the brand name DeLorean Time.

But his good luck ultimately ran out by 1999, when he declared personal bankruptcy and was forced to sell off his 43-acre home in Bedminster, New Jersey. The buyer was Donald Trump, who converted the property into a golf course.

The DeLorean Motor Company exists today as a Texas company that offers restoration and maintenance services for DeLorean owners. DMC-12s can be found for sale through several online sites, with prices averaging in the $50,000 range.

In 2002, DeLorean married for a fourth time to Sally Baldwin. The couple had a child and lived in a one-bedroom apartment in New Jersey until his death from a stroke in 2005 when he was 80 years old. His graveside proved to be his final fling with grabbing public attention: the gull-winged design of his namesake automobile was incorporated into his headstone.

(Photo: DeLorean Motor Company.)