Lee Iacocca the Man Who

Lee Iacocca

THE MAN WHO SAVED CHRYSLER

In 1979, the Chrysler Corporation, headquartered in the city of Detroit, was facing bankruptcy and due to its position as a key component of America's economy, it was suggested that Chrysler undergo a court-supervised reorganization in order to prevent a full-fledged collapse of the company. Soon after, those behind the scenes realized that such a plan was not feasible because too many other companies and entities with strong ties to the automobile industry would suffer if not disappear altogether. But in early 1980, a rather well-known businessman named Lee Iacocca stepped up to the plate and achieved "unprecedented national prominence as a business leader," especially when he managed to turn around Chrysler to become a multibillion dollar corporation. As Doron P. Levin declares, "the loan guarantee debate (the federal Loan Guarantee Act), and the publication of his best-selling autobiography conferred mythic status on (Iacocca) as the nation's economic Winston Churchill" (1995, p. x). The following paper examines in-depth exactly how Lee Iacocca managed to save the Chrysler Corporation and provides some basic information on the current status of Chrysler, now known as Daimler-Chrysler.

THE FOUNDATIONS OF CHRYSLER'S TURNAROUND:

When Lee Iacocca was appointed as president and COO of the Chrysler Corporation on November 2, 1978, the company was facing some traumatic times, but by the end of 1983, Iacocca revived the automaker and placed it well on the road to a complete recovery. As Peter H. Wyden points out, Iacocca "emerged from the Chrysler rescue as the most recognizable and highly admired corporate executive in America," and to this very day, the Chrysler Corporation "still bears the stamp of Iacocca's amazing talent and ability to transform a struggling company into an American icon" (1987, 167).

In 1979, Lee Iacocca was hired by Chrysler as the chairman of the board and CEO, due to being fired by Henry Ford II on July 13, 1978. Indeed, Iacocca's arrival at Chrysler was not seen as a "quick fix" solution for the company's problems, but when Iacocca realized what was happening at Chrysler in relation to its financial dilemma, he immediately pinpointed three major weaknesses with the company -- first, the management team was very weak and inexperienced; second, Chrysler's cars and trucks were not that appealing to consumers, and third, the company's production costs were much higher as compared to their competitors, being Ford and GM. Obviously, Iacocca understood that the biggest problem concerning Chrysler's turnaround was solidly based on obtaining the capital required to upgrade Chrysler's factories and products in order to compete with Ford and GM, not to mention the growing threat from the Japanese automakers and those in Europe.

As to Chrysler's management, Iacocca discovered that the company lacked a solid and dependable system of financial analysis, particularly related to long-range cost analysis and planning. In Iacocca's view, Chrysler "had become known as a last resort. If someone couldn't hack it elsewhere, he could always go to Chrysler. (Their) executives had a better reputation for their golfing abilities than for any expertise with cars" (Ingrassia & White, 1994, 156). After several weeks at the helm of Chrysler, Iacocca commenced a huge overhaul of the company's top executives and less than a year later had replaced almost all of the vice presidents. His infamous black book" review system which rated the performance of the top 100 managers every quarter was a keepsake from his time at Ford and contained "a highly-detailed account of the top executives at Ford which helped him to recruit and hire the best and brightest" (Wyden, 1987, 189).

Iacocca then set about to fix Chrysler's problems related to "an out of control purchasing system, a lack of financial controls, a poor sales system and high cost, poor quality products," namely, Chrysler's automobiles which Iacocca saw as "unattractive to consumers and out of the mainstream compared to Japanese and European automobiles" (Ingrassia & White, 1994, 213). One example was Chrysler's L/H design (a new family sedan) which was far different stylistically than any previous model. In fact, this design was so different that Iacocca later responded that "to be two years ahead of your customers in car design, or two years behind them, was to invite bankruptcy" (Levin, 1995, 240). In order to fix Chrysler's product line, Iacocca several former executives at Ford and placed them in complete control of product planning, design and engineering.

As a sign of his leadership abilities, Iacocca convinced Paul Bergmoser, former vice president of purchasing at Ford, to come out of retirement in order to repair Chrysler's archaic purchasing system. In June of 1979, Iacocca named Bergmoser as executive vice president of procurement and supply and when Iacocca became chairman, Bergmoser was named as president of the corporation, a position he held until May of 1981. Iacocca also hired a number of extremely talented financial experts from Ford in order to repair Chrysler's finances and to strengthen Chrysler's marketing, sales and dealer relations, he hired "marketing genius E.F. Laux to join him at Chrysler in March of 1979" (Ingrassia & White, 1994, 218).

Lastly, Iacocca greatly improved upon Chrysler's reputation for poor manufacturing quality which in essence affected auto sales and warranty costs. Two men were hired by Iacocca to improve manufacturing quality -- Richard A. Vining, a graduate of the Chrysler Institute of Engineering, and Richard E. Dauch, the manufacturing executive at GM and Volkswagen of America. These two men, along with Iacocca's inventiveness, "reinstituted tighter quality control standards for parts and components and assured that all new Chrysler products would be of much higher quality than all previous models" (Wyden, 1987, 236). Also, Iacocca made some drastic changes in Chrysler's advertising program by replacing its two former ad agencies with Kenyon and Eckhardt, based in New York, which "changed the focus of Chrysler's advertising and made Iacocca the company pitchman which embodied the true basis for Chrysler's comeback from the brink of destruction" (Wyden, 1987, 238).

It should also be mentioned that Lee Iacocca made it possible through his amazing leadership talents to acquire a bailout for Chrysler via the federal government which essentially saved the company from bankruptcy. According to Levin, on December 20, 1979, the Chrysler Loan Guarantee Act "passed both houses of Congress which made Chrysler eligible to receive as much as $1.5 billion in loan guarantees, provided it secured an additional $260 million in concessions from union workers" (1995, 54). Since the union knew that Chrysler faced imminent collapse, it quickly agreed to the concessions.

Amazingly, Iacocca "reduced his own salary to one dollar a year and invited Douglas

Fraser, president of the United Auto Workers Union, to join Chrysler's board of directors," an act which horrified many Detroit executives. Iacocca then told the UAW negotiators that "I've got a shotgun at your head. I've got thousands of jobs available at $17 dollars an hour. I've got none at $20. So you better come to your senses" (Levin, 1995, 55). Thus, as a result of these and other brilliant and strategic moves, Lee Iacocca saved Chrysler from bankruptcy and collapse and made it possible for the company to increase its profits in the 1980's (pre-recession years) and to become a leader in the automotive industry.

CHRYSLER IN THE MODERN WORLD:

In 1998, the Chrysler Corporation, established in 1925 by Walter P. Chrysler, merged with Daimler-Benz AG, a company based in Germany and best-known for its Mercedes-Benz luxury automobiles. According to the Daimler-Chrysler website, these two companies have "actively shaped, and left their mark on, every chapter in the history of the motor vehicle," two successful traditions that are among the company's "most valuable and sacrosanct assets... which testify to a distinctive corporate culture..." ("Chrysler Group," Internet). Daimler-Chrysler's "Vision of Sustainability," created to "safeguard our long-term success and the future of our company," includes three distinctive dimensions -- "a responsibility for... business performance and long-term economic success; the responsibility for the sparing use of our planet's resources and for maintaining an intact environment for present and future generations, and the responsibility for the people involved in or affected by our company's business activities and for society as a whole" ("Chrysler Group," Internet).