If Anyone Should Know

BEL AIR, CA Lee Iacocca twice rescued Chrysler Corp. from the brink of bankruptcy, so he knows something about living on the edge. He thus can sympathize with the monumental challenges facing General Motors Corp. and the Ford Motor Co. as they battle to stay afloat and win back market share and also with their suppliers, many of whom already have plunged into bankruptcy, most famously Delphi Corp.

David C. Smith, Correspondent

April 1, 2006

7 Min Read
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BEL AIR, CA — Lee Iacocca twice rescued Chrysler Corp. from the brink of bankruptcy, so he knows something about living on the edge.

He thus can sympathize with the monumental challenges facing General Motors Corp. and the Ford Motor Co. as they battle to stay afloat and win back market share — and also with their suppliers, many of whom already have plunged into bankruptcy, most famously Delphi Corp.

And he has some advice for their top managements: Move quickly into a crisis mode where everyone involved — executives, workers, bankers, stockholders — takes what he calls “a haircut.”

That means making serious sacrifices from top to bottom. GM and Ford have taken steps in that direction, and they've gotten that message from plenty of others, but not from one who actually has commanded a major turnaround effort first hand.

At 81, Iacocca still remains closely tuned into Detroit, where he spent 32 years at Ford, then 14 years running Chrysler.

But Iacocca didn't leave for a retirement life of golfing or fishing. In 1995, he teamed with Las Vegas Billionaire Kirk Kerkorian (who recently purchased 9.9% of GM's shares), and made a run at acquiring Chrysler. They failed for lack of adequate financing.

That set the stage for Germany's Daimler-Benz AG to acquire Chrysler in 1998. “They saw the same thing we did,” Iacocca recalls. Chrysler had $12 billion in the bank, which meant they could be acquired with their own cash. “They were fat and happy,” he says.

After some rocky years as the Germans took over and many American executives departed, Chrysler alone among the “Big Three” has begun a comeback led by Dieter Zetsche who arrived from Stuttgart in 2000 and in January returned as chairman of what's now DaimlerChrysler AG.

Zetsche presided over development of new, appealing vehicles led by the popular full-size Chrysler 300C.

Chrysler also stands to benefit from concessions GM and Ford have gotten, or are seeking, to further help its bottom line, so its outlook is not nearly as dire as Detroit's other two auto makers.

During an exclusive interview with Ward's at his Tuscan-style gated mansion here in the hills overlooking the UCLA campus in western Los Angeles, it's as though Iacocca is still in the business. He still tracks automotive issues and personalities and provides counsel to old pals and business associates.

He has exited his electric bicycle and small electric-car businesses. He currently is deciding whether to author a third book, tentatively entitled Where Have All the Leaders Gone?

Grist for the book would be 616 of his speeches. “I'm playing around with it,” he says. “What the hell is a leader? Why do guys follow some people and not others? It's not just charisma. You've got to perform or it catches up with you.”

By most accounts Iacocca ranks among the top leaders in U.S. business during the last half of the 20th century. Besides twice reviving Chrysler, he also:

  • Was the driving forced behind the original Ford Mustang.

  • Introduced the first minivan at Chrysler, which now accounts for a million sales each year with Chrysler still holding a commanding 40% share.

  • Established the 7-year, 70,000-mile warranty, designed to support Chrysler's quality claims.

  • Purchased American Motors Corp. in 1987 and with it Jeep, pioneering the subsequent SUV craze.

While not blaming current management for everything that's gone wrong, he clicks off reasons why U.S. auto makers and suppliers find themselves fighting for survival.

Included are runaway health and pension costs compared with foreign-based competitors' costs; so-so styling, especially in cars; perceived greed among executives who still draw big pay and bonuses while asking white- and blue-collar workers to take hits; and concessions over the years to the United Auto Workers union, such as the Jobs Bank that pays laid-off workers nearly full rates for not working.

Then there is his longtime gripe that Japanese auto makers remain propped up by Japan's Ministry for International Trade and Industry with interest-free or extremely low interest loans while the Americans must pay interest at prevailing rates, currently ranging from 5% to 7% and historically running in double digits.

When Chrysler borrowed $1.5 billion to build its new headquarters and technical center in Auburn Hills, MI, in the late 1980s, it had to pay 16.5% interest, he recalls, “while Toyota was borrowing from the Bank of Japan at 0% to ½%.”

Iacocca says many of these problems are of management's own making over the years, and admits that he was guilty as well of giving in to UAW demands that sent costs soaring at Ford and Chrysler.

“Yeah I was part of that (giveaways in union contracts). You always knuckled under because if you took a two-week strike in the old days it could bankrupt you.

“But they really had you. I've got nothing against the union because (together) we developed the middle class. But you can't have one union representing everybody and have very few job classifications for efficiency, which are needed. And you can't pay a janitor 50 or 60 bucks an hour; that's a little whacko.”

He recalls making a speech underscoring that Chrysler was paying its UAW members $50 an hour. “All the wives said ‘He isn't bringing home 50 bucks. He makes $20 an hour.’ ‘Yeah,’ I said, ‘but there's 20 bucks in perks you don't see — that's $40 — and $10 is for the retirees at home.’ They said, ‘I don't care about that. He only brings 20 bucks home and that's taxed.’ So things are out of control.”

Asked if shrinkage of good-paying manufacturing jobs as exemplified by the loss of thousands of auto jobs may portend the end of the U.S. middle class, Iacocca shrugs and says, “You could write a book about that. That was the American dream…but it's got to be reconstructed. I learned how to get along with the union and I did pretty well. But maybe they went too far with their demands…and we gave them too much.”

Of the Big Two, Iacocca believes Ford's chances of mounting a turnaround may be better than GM's because “Ford has something I don't think GM has: a pretty good distribution system worldwide — probably better than GM's, but that doesn't show up in the books.”

Both GM and Ford remain weak in producing appealing cars and trucks, Iacocca says, although Ford's new midsize cars, such as the Ford Fusion, are gaining favor.

“It starts for me with styling. You've got to have attractive cars,” he says.

Styling remains a major weakness at GM, he believes. “I don't know what the hell GM is doing. They don't have anything that turns my head,” he says.

Bob Lutz, who was Iacocca's vice chairman and product development chief at Chrysler, has held the same positions at GM for nearly five years.

“Maybe it's tough getting through the bureaucracy but there have been no really big styling coups where guys say, ‘I gotta have that car,’ although I guess the new Pontiac Solstice is pretty good.”

When Iacocca saw the bulky Pontiac Aztec SUV, “I even called Lutz and said ‘Who in the hell approved that son-of-a-bitch?’ He said he had nothing to do with that.” (It was developed before Lutz joined GM.)

Iacocca thinks GM should cut way back on what he calls “too many entities,” if it is to regain competitiveness.

He explains, “They've got too many platforms, too many engine combinations, too many marketing entities. And I think they need Saab and Hummer like a hole in the head. Toyota has Toyota, Lexus and Scion — worldwide!”

He also thinks GM erred in spending billions to build Saturn from scratch to compete with foreign brands. “Why did they drop Olds and keep Saturn? Saturn evolved into the ‘no-hassle’ franchise but they should've given that to Chevrolet.”

When Chrysler was teetering on bankruptcy (“We were really bankrupt, but we just didn't tell anybody.”) in the early 1980s and sought $1.5 billion in federal government guarantees, UAW President Douglas Fraser told Iacocca to take a pay cut to set an example. “I said, ‘I'll take a dollar a year’ and Doug said, ‘Don't get carried away now.’”

Although he later made millions, Iacocca took the buck-a-year salary back then. “It began to make people think we're in this together,” he says.

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