[Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.
Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US. Most recent sense check, Entry #332.]
As noted in last week’s entry, I thought it might be interesting to present information about Lee Iacocca that has been overlooked or generally not discussed in the media. None of the stories are too personal, embarrassing or disclose confidential information. However, these stories are what I remember most about Lee Iacocca. I hope you find them interesting. [If you missed entry #343, which includes how I met Lee and our working relationship, you might want to read before proceeding. #344 in Part 2. ]
When writing the personal observations about Iacocca, I asked myself, what was his genius? Why was Iacocca so good at certain things?
As noted earlier, his lifestyle did not rival Mother Teresa’s. He also was not an intellectual giant. So what was his genius?
I think he excelled at taking whatever was at hand, making something useful, then finding a way to convince people to buy it. That seems odd for someone trained as an engineer. But, think about his success in the automobile business. The Mustang was developed in response to the Chevrolet Corvair Monza Spyder, for which Ford had no corresponding entry. Iacocca filled that hole by putting new sheet metal on a Ford Falcon chassis. The Mustang was wildly successful even though initial models were underpowered and built on a so-so chassis.
When he became CEO at Chrysler, what did he have to work with? A company with no cash, a product line essentially built on one chassis — the “K” platform — huge unsold inventory (some cars had been stored for so long at the Michigan Fairgrounds in Detroit) that weeds had grown higher than the bumpers) and, as I understand, an automatic transmission that nearly always failed.
Having any one of those problems might be enough to make a normal executive cry. But not Iacocca. Within a few years, Chrysler got back on its feet, started generating cash, paid back early the government-guaranteed loan and introduced a vehicle concept that revolutionized the industry the minivan. Pretty successful lemonade out of all those lemons.
And here’s a story you probably haven’t heard before. When he relocated to California after Chrysler, he bought a house in Bel Air. The house was vacant and had been caught up in the Savings and Loan quagmire of the early 1990’s. Yet, he converted the empty house into a beautiful, very comfortable home with exquisite landscaping. Another example of taking what’s available and making it much better.
Back to Chrysler. Situation #1 — Chrysler had no cash. The piggy bank was empty. The choice he faced was either secure a loan or declare bankruptcy. Moreover, the bankruptcy probably would not have been a reorganization of Chrysler but very likely a liquidation of the company – the end of Chrysler.
No bank would lend Chrysler the money without some guarantee of repayment. So Chrysler took a highly unusual step and asked the Federal government to guarantee the loan. In order to secure the loan guarantee, Chrysler had to reduce costs, including labor costs, both salaried and hourly. Yet, as late as the night before Iacocca was to fly to Washington and try to secure the loan guarantee, the UAW had not agreed to take a cut in wage rates.
I’m not sure of the exact location of the meeting, but apparently Lee asked Doug Fraser, president of the UAW at the time, to go for a walk. Iacocca offered Fraser a choice. Agree to lower wage rates and gain rights to buy 1,000,000 shares of Chrysler stock at a very attractive price, or Chrysler files for bankruptcy and 30,000 UAW members are out of a job. Fraser agreed to the wage cuts and supported the loan guarantee. The next day Iacocca went to Washington and secured the government guarantee.
Situation #2 — the “K-car.” For those old enough to remember, virtually every Chrysler model in the early 1980’s was built on a “K” platform. (In internal communiques, auto companies often use letters to designate different chassis since a number of models may be built using the same chassis.) K-car variants included coupes, sedans, a convertible and even a goofy looking stretch limousine.
The quality of the K-cars was marginal at best. To address the quality problems and build customer confidence, Iacocca began a series of TV commercials where he boasted, “If you can find a better car, buy it!” The commercials were audacious to say the least since finding a better car was easy. Yet, sales at Chrysler increased as people responded to Lee’s challenge.
Whether Lee or anyone at Chrysler knew about the following, I don’t know, but they certainly benefitted from it. A seemingly unexplainable phenomenon with building customer satisfaction — people are often more loyal and supportive of the company after a product they own has failed, as long as the failure was handled properly.
For owners of K-cars, Chrysler had such an opportunity since virtually every automatic transmission was destined to fail. Chrysler’s response to the failure was to provide the customer a rental car at no charge and deliver that rental car to the customer’s home or office. With that effort, Chrysler began to build positive word of mouth. The combination of Chrysler owners telling friends about their ownership experience and Iacocca on TV challenging people to buy a better car if you can find it, helped begin building a positive reputation for Chrysler.
Situation #3 –the Minivan. How did that happen? The minivan concept was a “hand-me-down.” The concept was developed originally while Iacocca was at Ford. For some reason, Henry Ford II did not support the concept. When Iacocca was fired from Ford, he asked for the design and HFII agreed. Iacocca joined Chrysler and then hired Hal Sperlich from Ford to implement the design at Chrysler.
The minivan was introduced as a 1984 model. However, given the lead times for development, certain key decisions needed to be made in 1982, if not earlier. I don’t know for sure but my guess is for the minivan, because Chrysler was still so short of cash in 1982, they were forced to upgrade the K-car chassis as marginal as it was. To minimize any negative publicity from the automotive press, Chrysler probably assigned a new letter designation to the chassis, with a letter far away from “K.”
Another early decision was whether the instrument panel should be offered in two versions, one with an airbag, and one without. At the time auto companies were offering airbags as an option since it was not clear the public would accept airbags.
Chrysler, again because of the cash shortage, could only afford to tool one instrument panel. In a huge leap of faith, Chrysler chose all airbags. Doing so was contrary to Iacocca’s previous position that argued against airbags. In classic Iacocca style, Lee cut another TV commercial promoting airbags as being standard on the minivan and implying that Chrysler was taking the lead in auto industry in trying to increase safety for the driver and the passenger.
What can we learn from these stories? The main theme seems to be take what you’ve been given and make the most of it.
In many ways Iacocca’s story is that of many Americans. The son of immigrant parents growing up in an area where there are few others like him — an Italian in Pennsylvania Dutch Country. Yet he survives and graduates from Lehigh University, then goes to Ford engineering. When he sees a long path to success in engineering at Ford, he switches to the sales department. Despite wild success and becoming head of Ford Division, then president of Ford, he gets fired. Then he moves to Chrysler, which is out of cash, teetering on bankruptcy and where product is abysmal.
But what does he do at Chrysler? He takes what little is on the table, leverages it and initiates an incredibly remarkable turnaround. Was that turnaround based on some wild innovation, some technological breakthrough? No. All the success came from looking at what was in front of him and making something out of it, and then rather audaciously promoting it with the public.
Originally I thought Iacocca’s lesson might be the oft-cited lesson of making lemonade out of lemons. But in retrospect, I think his genius and the lesson is much broader and deeper. The financial turnaround at Chrysler was impressive. But even more impressive was the incredible loyalty and support he built with people inside and outside Chrysler.
One incident in particular sticks in my mind. We were in Newport Beach (CA) having breakfast at a hotel prior to attending some meeting or conference. I should say we were trying to have breakfast since we were interrupted constantly by an array of people who came to meet Lee. They stopped at the table not for an autograph or to take a picture. They stopped to thank him sincerely for what he had done to help save Chrysler and to help restore the Statue of Liberty and Ellis Island. While I remember that day in particular, such interaction with everyday people was not unusual.
This entry is the end of the series of my personal thoughts and perspectives about Lee Iacocca. I’m grateful for the opportunity to have worked closely with Lee and thankful for the opportunity to share the experiences and lessons learned. He was quite a guy.